Cyril Ramaphosa was announced the next president of the ANC at the party’s 54th National Conference yesterday, replacing Jacob Zuma, who has held the position since 2009. Below are comments from STANLIB's Chief Economist, Kevin Lings.
The outcome of the National Conference does not mean that Ramaphosa will immediately be appointed as president of the country. Jacob Zuma is still entitled to remain the head of state until the 2019 National Election. Ramaphosa will presumably continue as deputy president, but begin to have more of an influence on key policy decisions and appointments.
Given how the National Conference evolved there is still the possibility of disputes, recounts, a revote and even an appeal of the final result.
The new top six positions within the ANC are Cyril Ramaphosa, President, David Mabuza, Deputy President, Ace Magashule, Secretary-General, Jesse Duarte, Deputy Secretary-General, Gwede Mantashe, National Chairperson and Paul Mashatile, Treasurer-General. These appointments reflect an attempt to unify the ANC. While this can be seen as a positive development in terms of trying to ensure increased political and social stability, it increases the risk that key policy initiatives will be diluted or that the business sector continues to be plagued by policy uncertainty.
Ahead of the conference and his election, Ramaphosa detailed his election manifesto, emphasising the need to renew the ANC, grow and transform the economy, and build the state. From an economic perspective, he highlighted his six key areas of focus, namely:
Accelerate the process of meaningful radical economic transformation
Create jobs for young people
Lead a skills revolution
Make ownership of the economy less concentrated
Build South Africa’s manufacturing base
Build a more competitive economy
In combination, these six focus areas have the potential to lift confidence, investment and growth in South Africa. However, as usual, the policy detail together with the public sector’s institutional capacity to implement key initiatives timeously is crucial.
The South African economy has struggled to gain any momentum since the global financial market crisis, despite the relatively positive global economic backdrop. Instead, the South African economy has decoupled from the performance of the world economy, averaging growth of a mere 1.5% over the past nine years. This underperformance is reflected in rising levels of unemployment, increasing tax revenue shortfalls, depressed levels of consumer and business confidence and a protracted fixed investment recession in the private sector.
In the months leading up to the ANC conference, the political, economic and investment horizons shortened due to the immediacy of the ANC leadership struggle. However, in the aftermath of the conference the new leadership of the ANC will have to increasingly turn its attention to the socio-economic challenges facing the country.
Five key socio-economic challenges facing the new leadership of the ANC
These challenges can be broken down into five key areas of concern. The government’s ability to successfully address these challenges will shape South Africa’s economic performance over the next few years.
Unsurprisingly, the reaction in South Africa’s financial markets to the election of Ramaphosa has been extremely positive. The markets anticipated a Ramaphosa victory ahead of the conference, with the rand and bond market strengthening appreciably over the past few days. For example, the rand has strengthened by around 9% against the dollar over the past 10 days, gaining around 2% in the minutes ahead of the election announcement. Similarly, the yield on the South African 10-year government bond strengthened from a yield of almost 9.5% a month-ago to just below 9% on the day of the ANC conference.
The reaction in the equity market has understandably been a little less euphoric. This is largely because the strength of the rand weighs against the many South African companies with substantial offshore earnings. However, financial shares, especially banking stocks, rallied strongly on the day in anticipation of a Ramaphosa victory.
It is far too early to assess if the initial market reaction will be sustained. This is partly because there is a substantial risk of political aftershocks following the outcome of the National Conference. This intertwined with the ongoing risk of a further credit rating downgrade by Moody’s in late February 2018, coupled with changes in global risk appetite towards emerging markets broadly could lead to increased market volatility in the short to medium term.
The manifesto outlined by Ramaphosa clearly has the potential to uplift South Africa’s growth rate, lifting confidence and fixed investment spending, while at the same time addressing the need for transformation in key areas of the economy. Given the pace of world growth and the historical relationship between the performance of the world economy and South Africa, one would have expected South Africa to easily achieve a growth rate of at least 2.5%, with the possibility of raising the growth rate further if the country is able to build sufficient capacity in infrastructure, skills, and technology. Relative to many developed countries, South Africa’s real economic potential resides in its ability to unlock the country’s demographic dividend at a time when developed markets are having to face the reality of sustained lower average growth as population’s age.
However, there are a number of caveats to this. These include the risk that Ramaphosa will be forced to compromise on some of his key initiatives to unify the ANC. Secondly, the risk that the formulation of policy details substantially delay the process of revitalising the economy. Thirdly, the risk that the deterioration in the state’s institutional capacity restricts the government’s ability to implement its own development initiatives. And lastly, the risk that the transformation policies take a lot longer than expected to provide a visible and material benefit leading to the surge in demand for outright populist policies ahead of the 2019 National Election.
Overall, despite the risks, most investors both locally and internationally will probably view the election of Cyril Ramaphosa as a positive inflection point, anticipating that economic activity will start to improve helped by an uplift in consumer and business confidence.