May 31, 2019

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Kevin Lings, STANLIB chief economist


The new cabinet, announced last night, represents a positive step forward for South Africa and will put the country in a better position to grow and develop, allowing President Cyril Ramaphosa to shift his focus away from ensuring a political revival and towards encouraging an economic revival.

Encouragingly, the president has reduced the total number of ministerial portfolios from 36 (including the minister in the presidency, president and deputy president’s office) to 28. This is still relatively large, given South Africa’s fiscal constraints (especially if you include the number of deputy ministers), but a significant reduction compared with the past ten years.

It is interesting to see that while many previous cabinet members have been retained, most have been shifted into different portfolios.

Over the past ten years the performance of the departments in the economic cluster (finance, public enterprises, economic development, mineral resources, small business development, energy, infrastructure and trade and industry) has been extremely disappointing. The economy has achieved an annual growth rate of only 1.5%, the unemployment rate has increased substantially, public sector debt levels have soared, the credit rating has been systematically lowered, tax revenue has dwindled and the country has been plagued by corruption.

Encouragingly, Tito Mboweni remains minister of finance, despite various strong political statements arguing that he should not be re-appointed. Unfortunately, the new deputy minister of finance, David Masondo, is a little concerning, given his background and relative inexperience, especially since Mboweni is unlikely to remain as minister of finance for the full five-year term.

The retention of Pravin Gordhan as minster of public enterprises provides continuity in trying to resolve the crisis at Eskom and other state-owned entities (SOEs), including the decision to unbundle Eskom.

The decision to combine the departments of trade and industry and economic development is applauded, although the appointment of Ebrahim Patel as the minister in charge of this larger department is less than ideal, given his weak performance at the department of economic development and antagonism towards key components of the corporate sector. The president could have used the opportunity to introduce someone directly from industry to bolster the relationship between government and business.

The appointment of Patricia de Lille from the Good Party as minister responsible for public works and infrastructure is a surprise, considering the importance of the department, but probably positive because of her experience and likely commitment to delivering a better infrastructure outcome. Lastly, the decision to shift Aaron Motsoaledi from health to home affairs could indicate that the government has less appetite for the fuller introduction of National Health Insurance.

Victor Mphaphuli, head of our Fixed Income business says “from a markets perspective, while the rand responded positively, short term performance of our currency was possibly muted given the context of broader global market volatility. The cabinet announcement sets us in the right direction to potentially  avoid any further ratings downgrades, providing a strong foundation for local economic growth. Global market volatility however, remains a key risk.”

Thuli Kumalo, Portfolio Manager in our Credit Alternatives business added “some of the consolidated and realigned ministries such as Urban Settlement, Water and Sanitation create an enabling environment for better planning, quick decision making and implementation.

Kevin Lings

Chief Economist

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