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SONA or Later

South African President Jacob Zuma delivers his annual State of the Nation Address tomorrow. Certainly the theme; “The Year of Oliver Reginald Tambo: Unity in Action Together Moving South Africa Forward” is bound to excite some ANC activists. However, with the high-frequency indicators pointing to stagnating Q1 economic activity, weak business and household confidence, and inflation above the upper 6% bound of the target range, most South Africans will want to hear how these challenges are set to be addressed.

The President will be able to report some moderately pleasant news. Growth is likely to recover by Q2 on the back of a pickup in commodity export prices (especially iron ore), improved electricity access and a rebound in farming output after the severe 2015/16 drought. The latter should result in a softening of food price inflation thus helping to push the headline rate back into the 3-6% target range by the second half of the year. However, the South Africa Reserve Bank is likely to keep the policy rate at 7.0% until inflation expectations show signs of receding and there is greater certainty about the tightening cycle of the US Federal Reserve. But any praise singing should be tempered by the strong likelihood that these supply-side driven gains, which will push GDP growth to 1.2%-1.4% this year from around 0.4% in 2016, are set to have negligible impacts on reducing headline unemployment, which stands at a dismal 27%, or the severe inequalities in economic opportunities and outcomes.

In any case, financial markets appear to be looking through the President’s remarks. One reason is the upcoming 2017/18 budget presentation, scheduled for February 22, which should see Finance Minister Gordhan deliver a reassuring package of measures to cut the public sector deficit and forestall a credit downgrade. Less spoken about is that with the ANC scheduled to pick its next leader in December, Mr Zuma’s last days at the helm of government are on the horizon.

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