Jacob Zuma resigned on 14 February as president of South Africa, sparing himself from a humiliating removal through a no-confidence vote planned a day later. On 15 February, Deputy President Cyril Ramaphosa was sworn in as president and delivered an encouraging State of the Nation in which he promised to tackle corruption and state capture, to increase investments and to combat detrimental youth unemployment. Zuma’s second presidential term would normally have ended at the 2019 elections, yet following the African National Congress (ANC) leadership election in December (Risk in the spotlight January), an earlier resignation was anticipated for. Ramaphosa came in pole position for the presidency after defeating the candidate backed by Zuma (his ex-wife) as new ANC leader, but was not keen on leaving scandal-plagued Zuma at the head of the country for another year and a half. Eventually, Zuma’s position became untenable due to the numerous corruption charges hanging and the evaporated popular support.

Impact on country risk

Jacob Zuma is unlikely to dodge the copious investigations into his corrupt activities, which could affect companies from diverse sectors across the country. In fact, the home of the Gupta brothers was immediately raided by the anti-corruption unit the day Zuma resigned, following accusations of winning lucrative government contracts and influencing political appointments through their relations with Zuma. In the coming weeks, a cabinet reshuffle is likely to dismiss several corruption-tainted ministers.
Zuma’s patronage-based politics has alienated businesses, international investors, civil society and even the union movements. Moreover, during the past decade, large parts of the population lost confidence in the ANC, indicated by local party losses in favour of opposition party Democratic Alliance (DA) during the 2016 municipal elections. Ramaphosa’s early take-over reduces the risk for civil unrest and gives him more time to clean up the ruling party’s reputation in the run-up to the 2019 elections. In addition, his immediate anti-corruption and pro-business rhetoric was awarded with positive international reactions. In the coming weeks, rating agencies and investors will closely follow strides towards macroeconomic reforms that could help end the country’s decade of stagnation and weakening public finances. On 21 February, the 2018 budget was presented, incorporating a politically sensitive broad-based tax increase to prop up government revenues and temper public debt accumulation, which was estimated at 53% of GDP at the end of 2017. On the other hand, social and education spending will be raised, albeit at the expense of infrastructure projects. The budget also incorporates a highly necessary institutional overhaul at state-owned enterprises (SOEs) and government departments amid worsening liquidity conditions and requests for bailout by several SOEs. GDP growth projections are nonetheless expected to remain low at least for 2018, projected at merely 1%. Although it is still early day and challenges are rife, South Africa’s recent political shift is likely to have a generally positive impact on its political and economic outlook.

 Analyst: Louise Van Cauwenbergh – l.vancauwenbergh@credendo.com