Event

Following the African National Congress (ANC) party conference on 18 December, Deputy President Cyril Ramaphosa succeeded President Jacob Zuma as head of the ruling party. Nkosazana Dlamini-Zuma, the candidate backed by President Zuma (and his ex-wife), lost by a very narrow count. Ramaphosa is now in pole position to be elected South Africa’s next president at the general elections of 2019. However, out of the new top six party leaders elected (including the new deputy president), three are Zuma loyalists and might seriously complicate Ramaphosa’s task ahead. Nonetheless, markets responded optimistically and the South African rand experienced a rush.

Impact on country risk

Jacob Zuma came to power in 2009, coinciding with the impact of the global financial crisis. Ever since, South Africa’s economy gradually became less competitive, GDP per capita fell and unemployment grew. In the wake of low commodity prices together with series of political scandals and opaque policy making, investments plunged and the South African rand became volatile. In addition, mismanagement at major state-owned enterprises (e.g. power utility Eskom) put more pressure on public finances and worsened public debt sustainability indicators.

In general, Zuma’s patronage-based politics has steadily alienated businesses, civil society and even the union movements. Their main charge against Zuma is ‘state capture’, a term used to denote the looting of state resources by his cronies (cf. the Gupta family scandal) and the undermining of democratic institutions. Today, there are numerous corruption charges against Zuma and his loss of authority could open the door for actual prosecution. As a result, Zuma might have to step down before the end of his term in 2019, possibly through a negotiated exit, a sacking by the party (ANC) or even an impeachment through parliament. Besieged by an abundance of scandals, the ANC’s popularity has been sliding. To turn around the decay of the party’s reputation, tackling corruption will be vital in the coming year and a half. Therefore, Ramaphosa’s prior concern is likely to become the removal of Zuma, which will give him time to unify the ANC and embark on economic and institutional recovery ahead of the 2019 elections. Ramaphosa is popular among investors and broadly respected as an anti-apartheid veteran and a well-weathered politician. His campaign focussed on ‘moral renewal’ alluding to cleaning up state finances, improving national governance, fighting corruption and introducing structural economic reforms to revamp the country’s potential with pro-business policy-making. During Nkosazana Dlamini-Zuma’s campaign corruption was not even mentioned, arousing the suspicion that she would shield Jacob Zuma from future prosecution and that her leadership would bring more of the same. Nkosazana Dlamini moreover vowed to curtail the Central Bank’s independence and pursue ‘radical economic transformation’ by raising state spending, fighting ‘white monopoly capital’ and expropriating land, mines and businesses. All short, the election of Ramaphosa as ANC leader is considered the best scenario for South Africa’s political and commercial risk outlook.

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