The single most significant thing that President Zuma acknowledged in his ‘State of the Nation Address’ last week was the risk of a credit rating downgrade for South Africa:

‘Importantly, our country seems to be at risk of losing its investment grade status from ratings agencies. If that happens, it will become more expensive for us to borrow money from abroad to finance our programmes of building a better life for all, especially the poor.’

This demonstrates two things.

It points to the sheer power that ratings agencies hold. There is much debate in the academic literature as to whether this is warranted, as the financial crisis in 2008 originated in countries that had the best possible ratings. Nonetheless, credit ratings remain the single most powerful external device for disciplining national governments into adopting greater fiscal prudence and market-friendly policies. This much is evident, and President Zuma’s explicit recognition thereof is notable. It is a radical departure from the ‘good story to tell’ narrative that was woven through last year’s address.

The recognition was designed as a signal to the world that the government is aware of the country’s economic problems, especially the International Monetary Fund’s forecast of growth slowing to 0.7% for 2016.

President Zuma is absolutely right that no progress will be made on addressing poverty, unemployment and inequality if the economy does not grow faster. The rest of the speech was essentially an attempt to persuade the world that South Africa is in fact a better investment destination than the figures suggest. Three important points emerged – one positive, one a missed opportunity, and one a mixed message.

First, much of the post-speech commentary seems to have missed the fact that President Zuma explicitly committed to making it easier for South African businesses to import skilled labour. The economic research indicates that skilled immigrants, on average, can create up to eight other employment opportunities through the value that they add to any given business. A recent paper by the South African Institute of International Affairs identifies this, in addition to making it easier for tourists to visit South Africa, as a low-hanging fruit that could transform the economy. That President Zuma has recognised this is a big deal, and should be warmly received. He could indeed have made more of the job-creating benefits of these commitments. It may indeed result in a good story to tell in years to come. Of course one understands the government’s preference to employ locals, but the two are not mutually exclusive. On the contrary, they are mutually beneficial.

Second, the president proceeded to state that ‘we have heard the appeals for policy certainty in the mining sector, especially with regards to the Mineral and Petroleum Resources Development Bill.’ Mineral Resources Minister Zwane struck a similar tone in opening the 2016 Mining Indaba, and promised that the Bill (returned to parliament in early 2015) will be finalised by the second quarter of this year. However, the mere expedition of the Bill through parliament may not create the ‘certainty’ that the mining industry desires, because the substance of the change has not been communicated. The concerns that generated uncertainty in the first instance will persist until such time as the Bill is passed, and possibly even thereafter if the Bill does not address issues of definitional ambiguity and excessive ministerial discretion.

Minister Zwane and President Zuma have arguably missed an opportunity to communicate exactly how the content of the revised Bill will generate more stability and predictability in the mining regulation landscape. For instance, which minerals can the industry expect to be declared ‘strategic’ if indeed such a declaration still exists in the Bill? What proportion of those minerals can companies expect to have to provide at domestic parity (or mine-gate) prices to local beneficiators? More importantly, how are mining or prospecting rights applications going to be processed? Will the minister still have discretion to invite applicants, or will we see a reversion to the original first-in-first-assessed system? These are crucial details for generating the stability on which companies can plan and investors can calculate likely future returns.

President Zuma reported progress on most aspects of the nine-point plan introduced in last year’s speech, but not on ‘advancing beneficiation adding value to our mineral wealth’. That may be because the way in which such beneficiation was envisaged in the latest amendments to the Minerals Bill ran contrary to World Trade Organisation regulations, employing coercion rather than promotion. This actually precipitated the Bill’s return to parliament.

The government should incentivise upstream and horizontal value addition and, where it makes economic sense, downstream metallurgical beneficiation. Investments into new technologies such as fuel cells, where platinum is an irreplaceable and locally concentrated ingredient, appear sensible. Such investment may also produce economic spillover effects that create other comparative advantages for the country that are not necessarily mining-dependent. This should be the ultimate goal.

Third, the brief allusion to the government’s plans for nuclear energy expansion is a mixed message, couched in much more careful language than on previous such occasions. Word in the media has been that former Finance Minister Nene essentially lost his job over being unwilling to acquiesce to the President’s nuclear ambitions. It will be interesting to see what Minister Gordhan has to say on the matter in this month’s forthcoming budget speech. In the context of weak global growth and increasingly expensive capital borrowing, it seems to make more sense to pursue the acquisition of power from Independent Power Producers, which the president recognised as a policy success. This argument is strengthened by a weak local electricity demand trajectory, which may leave expensive nuclear assets stranded, at significant cost to South African consumers.

In conclusion, the speech struck a fundamentally different tone to that of previous years. It was much less a matter of a good story to tell so much as ‘we have heard your concerns.’ It may well succeed in keeping the credit wolf from the door for the moment, but markets will be watching Gordhan’s budget speech even more keenly.

Written by Ross Harvey, senior researcher on the SAIIA resource governance programme.