At last ... the return of the Scorpions

President Cyril Ramaphosa delivered a State of the Nation Address (Sona) last night designed to win elections – which he announced would take place on 8 May – and deliver an environment to encourage investment, notes Legalbrief. He patted himself and his government on the back for the achievements of his first year in office – not least moves to restructure SARS and rescue the NPA from the clutches of those under the Svengali–like influence of his predecessor Jacob Zuma – and, in a speech that cheered the markets and helped strengthen the rand, announced measures to improve the environment for doing business; strengthen government capacity and tackle corruption. Although there wasn’t a lot that was new – even the far-reaching three-way splitting of Eskom was expected as Legalbrief’s Pam Saxby points out in the POLICY WATCH section (below) – the criminal justice sector was given a much-needed boost with the announcement of the re-establishing of an investigative directorate for state capture and corruption – effectively the return of the Scorpions. Ramaphosa also took up the cudgels on behalf of business, pledging to establish a team in the Presidency to deal with regulatory and administrative barriers that frustrate business and promised to examine ways of reducing the costs of doing business.

The new version of the Scorpions will give NPA boss Shamila Batohi the muscle she needs to tackle corruption, which, as Ramaphosa pointed out last night, was crucial in dealing with poverty, unemployment and inequality. According to a News24 report, he said: ‘The revelations emerging from the Zondo Commission of Inquiry into State Capture and other commissions are deeply disturbing, for they reveal a breadth and depth of criminal wrongdoing that challenges the very foundation of our democratic state.’ While the commission would in time make findings and recommendations in line with its mandate, evidence of criminal activity that emerges must be evaluated by the criminal justice system, Ramaphosa said. ‘Where there is a basis to prosecute, prosecutions must follow swiftly and stolen public funds must be recovered urgently. To this end, we have agreed with the new NDPP, that there is an urgent need to establish in the office of the NDPP an investigating directorate dealing with serious corruption and associated offences, in accordance with section 7 of the NPA Act. ‘In broad terms, the directorate will focus on the evidence that has emerged from the Zondo Commission of Inquiry into State Capture, other commissions and disciplinary inquiries.’ It would identify priority cases to investigate and prosecute, and would also recover assets identified to be the proceeds of corruption. ‘The NDPP will be acting, and I'd like this to be very clear, the NDPP will be acting in terms of the rule of law, without any favour, without any prejudice, she will execute her task as enshrined in the Constitution,’ he said. The directorate would bring together a range of investigatory and prosecutorial capacity from within government and in the private sector under an investigating director reporting to the NDPP, Ramaphosa added.

The main Sona thrust, though, was directed at the economy. Most matters economic were specific and detailed, says a Daily Maverick report. Foreign direct investment had increased to R70bn in 2018, up from R17bn in 2017 – an indication the investment conference and presidential investment drive to solicit $100bn over five years is paying off. The Employment Tax Incentive or tax breaks for employing youth is to be extended to 10 years. The government is allocating R100bn to the infrastructure fund to leverage further private sector funding to overcome the fragmented planning and infrastructure build programme. Or the joint team to tackle the policy, legal, regulatory and administrative barriers that frustrate investors. It almost slipped through the cracks, given the details of the presidential speech, but Ramaphosa wants SA to move to 50th place, from spot 82 out of 190, in the World Bank’s annual Doing Business Report. And that in the next three years, which, notes the DM, is not an unambitious target that relies heavily on the corporate sector and private business to come on board. Intellidex analyst Peter Attard Montalto said this was ‘a huge ask’, but it would be a specific benchmarking target against which to hold the government to account. ‘(This target) necessitates nitty gritty shifts in many different areas around registering and running a business, access to credit and utilities and efficiency of the state. Plans to ease this will be positive, but as stated ... we are sceptical on implementation.’

Eskom’s restructuring into generation, transmission and distribution entities was widely expected. The reconfiguration would isolate costs and enable Eskom to raise funding on the markets – rather than the tightly stretched national purse and R350bn in government guarantees – and from other funders. ‘It is imperative that we undertake these measures without delay to stabilise Eskom’s finances, ensure security of electricity supply, and establish the basis for long-term sustainability,’ Ramaphosa is quoted as saying in another Daily Maverick report. He was blunt: ‘Eskom is in crisis and the risks it poses to SA are great.’ And, according to Moneyweb, he warned: ‘The consequences may be painful but they will be even more devastating if we delay.’ The DM report notes the news for cash-strapped South Africans was not clear though – Eskom would need ‘more revenue through an affordable tariff increase’, as it is moving to ‘significantly reduce’ its costs. The government will continue to support Eskom’s balance sheet, without burdening the fiscus, but details of this were left for the Budget on 20 February. Eskom CEO Phakamani Hadebe reportedly told the DM later that what was important was the package of measures around Eskom, not just the restructuring. The power utility was doing its bit to reduce costs – these had come down by R20bn already – while tariffs were important to generate revenue. ‘Government is going to help optimise the balance sheet,’ said Hadebe in jargon for the government taking over some of Eskom’s R419bn debt. That was key as currently, the power utility had to borrow money to meet all its debt repayment obligations. The options? The government could recapitalise Eskom, or talk a certain percentage of debt into its balance book. Hadebe said that debt swap seemed a better option as it could be done fiscally neutral.

The Eskom split is the most far-reaching economic reform by the ANC government since 1996, when public finances were reined in and several state entities corporatised with some privatised, according to Business Day. ‘To ensure the credibility of the turnaround plan and to avoid a similar financial crisis in a few years’ time, Eskom will need to develop a new business model,’ Ramaphosa said. Under the split, the generation company will own and run the power stations, the transmission company will purchase power from producers and own and operate the grid, and the distribution company will own Eskom’s substations. The costs of each function will be isolated into the specific entity. While no mention was made in the speech on the apportioning of debt, this will be a key part of the split. The division would have two immediate positive effects, notes Business Day. It ‘will enable Eskom to be able to raise funding for its various operations more easily from funders’ and will enable the establishment of an independent state-owned transmission grid. Ramaphosa promised labour a ‘just transition’ that deals with the needs of all those who are affected. The report notes trade unions are particularly fearful of a restructuring of Eskom because of its expected effect on jobs and its likely promotion of a growing number of private power producers into the energy market. Both the National Union of Mineworkers and the National Union of Metalworkers have said they will strike if the split goes ahead. However, Ramaphosa was firm that Eskom would have to cut costs to become sustainable. And to cut costs, Eskom will be forced to cut jobs, especially in managerial positions.

Privatisation of state assets considered ‘strategic to the well-being of the economy and the people’ would not be entertained, Ramaphosa said. He also pointed out the government was making important progress in ‘restoring the integrity and capacity of our strategic state-owned enterprises’. He highlighted that over the past year, new boards had been appointed at Eskom, Denel, Transnet, Safcol, Prasa and SA Express, notes Fin24. ‘We want our SOEs to be fully self-sufficient and be able to fulfil their development and economic role. Where SOEs are not able to raise sufficient financing from banks, from capital markets, from development finance institutions or from the fiscus, we will need to explore other mechanisms, such as strategic equity partnerships or selling off non-strategic assets,’ Ramaphosa said. ‘As we do all this, we will not support any measures that, in any form, dispose of assets of the state that are strategic to the well-being of the economy and the people,’ he assured.

The long-awaited National Health Insurance (NHI) Bill will soon be submitted to Parliament, Ramaphosa promised. However, according to Business Day, he did not say that the fiercely contested Bill had been approved by Cabinet, which suggests further work may still be done on it before it is considered by legislators. ‘This year, we will take a significant step towards universal access to quality healthcare for all South Africans. After extensive consultation, the NHI Bill will soon be ready for submission to Parliament,’ Ramaphosa said. ‘By introducing the NHI together with a multipronged quality improvement programme for public health facilities, we are working towards a massive change in the healthcare experience of South Africans,’ he said. However, notes the report, even if the Bill is poised to be tabled in Parliament, MPs will not have enough time to process it before the upcoming elections on 8 May, as it will have to be considered by both the National Assembly and the National Council of Provinces. Both houses of Parliament are expected to hold public hearings on the Bill.

On the issue of land reform, the President noted state-owned ‘land parcels’ had been identified for the purpose of expropriation without compensation. Ramaphosa said an advisory panel would submit an important report to his office before the end of March, reports News24. ‘An advisory panel of experts headed by Dr Vuyo Mahlathi, established to advise government on its land reform programme, is expected to table its report by the end of March. ‘As part of accelerating land reform, we have identified land parcels owned by the state for redistribution. Strategically located land will be released to address human settlement needs in urban and peri-urban areas,’ he said. Ramaphosa's government would also be giving municipalities a cash injection over the next few years to aid in human settlements. The Housing Development Agency would construct an additional 500 000 housing units in the next five years, and R30bn would be provided to municipalities and provinces to enable them to fulfil their respective mandates. ‘However, if we are to effectively address the substantial housing backlog in our country, we need to develop different models of financing for human settlements. It is for this reason that we are establishing a human settlements development bank that will leverage both public and private sector financing to aid in housing delivery.’ He did not give more details relating to the bank.

Government is working with social partners to address the unemployment crisis. The President highlighted the progress made in job creation – the unemployment rate is at 27.5%, according to the latest figures from Statistics SA. ‘We have focused our efforts on reigniting growth and creating jobs,’ Ramaphosa said, according to a Fin24 report. ‘Our greatest challenge is to create jobs for the unemployed of today, while preparing workers for the jobs of tomorrow,’ he said. Over the past year, a Presidential Jobs Summit was held where stakeholders agreed to measures, which once implemented could double the number of jobs created in the economy each year, he said. Government and social partners are also working on initiatives to include youth in economic activity – such as the employment tax incentive which will be extended for another 10 years, the President said. ‘We call on all companies, both big and small, to participate in this initiative and thereby contribute not only to building their business but also to building the economy and fostering social cohesion.’

The re-establishment of the National Security Council is also on the cards to better co-ordinate SA’s intelligence and security-related functions. Ramaphosa will chair the council, says a Business Day report. He said he would also re-establish the two arms of the intelligence service – one focusing on domestic and the other on foreign intelligence. In 2018, Ramaphosa established a high-level review panel on the State Security Agency (SSA), which under former President Jacob Zuma was seen to be used for political gains. The review panel was chaired by Sydney Mufamadi and has handed over its report and recommendations to the President. The SSA was formed following a review process, instituted by Zuma, of the country’s intelligence structures in 2009. During this review the structures of the intelligence services, which included the National Intelligence Agency, were collapsed into one. Ramaphosa’s decision to re-establish the two arms of the intelligence service and the national council is moving away from what the SSA had become under Zuma.

Ramaphosa also announced that he had appointed a presidential commission on the fourth industrial revolution. ‘To ensure that we effectively and with greater urgency harness technological change in pursuit of inclusive growth and social development, I have appointed a presidential commission on the fourth industrial revolution,’ Ramaphosa is quoted as saying in a BusinessLIVE report. Comprising eminent persons drawn from different sectors of society, the commission will serve as a national overarching advisory mechanism on digital transformation. It will identify and recommend policies, strategies and plans that will position SA as a globally competitive player within the digital revolution space. The report notes that several studies have shown that the fourth industrial revolution – which involves a fusion of artificial intelligence and automated machines – has the potential to disrupt every industry. A McKinsey report published in 2017 projected that by 2030, at least one-third of the activities of 60% of occupations could be automated. ‘Unless we adapt, unless we understand the nature of the profound change that is reshaping our world and unless we readily embrace the opportunities it presents, the promise of our nation’s birth will forever remain unfulfilled. Today, we choose to be a nation that is reaching into the future. In doing so, we are building on a platform of extraordinary scientific achievement.’

Early childhood education (ECD) is also getting attention. ECD centres would be migrated from the Department of Social Development to Basic Education, said Ramaphosa, according to a report on the IoL site. He noted 700 000 children were accessing early childhood education during the most recent financial year, and ECD centres had been established as a firm foundation which was integral to the education system. This year there will be two years of compulsory ECD for all children before they enter Grade 1. ‘Another critical priority is to substantially improve reading comprehension in the first years of school. This is essential in equipping children to succeed in education, in work and in life – and it is possibly the single most important factor in overcoming poverty, unemployment and inequality,’ said Ramaphosa. He said the Department of Basic Education’s early grade reading studies have demonstrated the impact that a dedicated package of reading resources, expert reading coaches and lesson plans can have on reading outcomes. ‘Over the next six years, we will provide every school child in SA with digital workbooks and textbooks on a tablet device. We will start with those schools that have been historically most disadvantaged and are located in the poorest communities, including multigrade, multiphase, farm and rural schools,’ said Ramaphosa. He said teachers and students will be trained in emerging technologies with several new subjects and specialisations to be introduced.

The contentious Competition Amendment Bill will be signed into law as part of efforts to increase investment and foster greater economic inclusion. Ramaphosa said it had long been recognised that one of the constraints that inhibited the growth of the economy was the high level of economic concentration. ‘The structure of our economy was designed to keep assets in a few hands,’ Ramaphosa said, notes BusinessLIVE. The aim of the Bill, as outlined previously in Legalbrief Today, includes giving the competition authorities and government more power to tackle high levels of economic concentration. It is also meant to tackle the limited transformation of the economy and the abuse of market power by dominant firms. BusinessLIVE notes opposition parties objected to various proposals in the Bill, with criticism including that it gives too much power to the Economic Development Minister. Various analysts have also raised concern about the clause on mergers involving foreign companies, saying this would give the government the right to block foreign investment.