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Markets shouldn't place bets on ANC leadership candidates - analyst

Johannesburg – While it is unlikely that the ANC’s 54th national conference would yield unfavourable policy, what is of concern is whether the successful candidate will implement the policy, says an analyst.

Speaking to Fin24 by phone on Wednesday, economic strategist from Argon Asset Management Thabi Leoka said that it’s not really about who wins the ANC leadership race, but rather what the winning candidate does in terms of “getting it right” with policy.

The five-day conference is scheduled to start on December 16, 2017. Delegates will be voting for one of six candidates - Jeff Radebe, Lindiwe Sisulu, Zweli Mkhize, Mathews Phosa, Baleka Mbete, Nkosazana Dlamini-Zuma and Cyril Ramaphosa - to steer the ANC forward, but analysts agree this vote also has implications for the future of South Africa, given the policies up for discussion.

The ANC’s national policy conference in June put the spotlight on the advancement of economic transformation. The party called for policy interventions to reduce unemployment particularly among the youth, land reform, increased black ownership of the economy, dismantling monopoly structures, stimulating inclusive growth and reducing inequality and poverty, among other things.

But Leoka believes it is unlikely that policy choices will be unfavourable. The real problem lies with the adoption and implementation of policies, she explained. “History shows we have got a lot of good policy, it’s about the implementation of these policies.”

In the case of unfavourable policies, markets would likely react negatively. However, she raised concerns over the market’s reaction with the particular candidate chosen.  

Markets forcing votes

“The market should not react on the basis of who the individual is,” she explained. Essentially through its assumptions, the market is placing bets on candidates and dictating to the ANC who they have to vote for.

Policy is determined by the ANC and currently we do not know what its policy is and which candidate is likely to implement it. https://t.co/JZPRNk5cmd

— Thabi Leoka (@thabileoka) December 12, 2017

On paper certain candidates may look appealing, but even if a candidate is voted in who is favoured by the market, it does not guarantee that the person will implement policy, she warned.

The other downside is that if a candidate favoured by the market wins without a convincing vote, they won’t have the support from within the ANC to implement changes.

The winning candidate should be a leader which has “strong support” from within the ANC. A person with the “right heart and ideas” would be prevented from implementing policy if they do not have the full support of the party, she explained.

But the market may likely react on who the winning candidate may be. Investec chief economist Annabel Bishop said that the outcomes of the conference have not yet been fully priced in.

“The markets appear to be increasingly pricing in that the current deputy president of the ANC, Cyril Ramaposa, is elected as the party's president," she said. Further, it is unlikely that “encumbrances” such a as a deputy leader or a forced allegiance that would impact his ability to bring about free market economic reforms.

Ramaphosa previously said on an interview on 702 Talk radio that the economy could grow as much as 4%, Bloomberg reported. “We can revitalise our economy if we do the right things," he said.

Ramaphosa also previously proposed a "new deal" between government, business and South Africans to to boost radical transformation.

Scenario planning by Investec sees that a win for Ramaphosa would be favoured by the markets, as opposed to a win by Dlamini-Zuma, the president’s ex-wife. “The economy would then be expected to remain on the current trajectory of weak growth with significant level of state intervention into, and control of, the economy persisting.”

“Consequently there could be some market disappointment and the possibly of some rand weakness, although the rand’s movements typically depend on a range of factors other than the politics.”

Professor Jannie Rossouw, head of Wits School of Business and Economic Science believes markets have mostly priced in a positive outcome, a win for Ramaphosa. “If Dlamini-Zuma wins, we will get a bad market reaction,” he said.

Investor confidence

Rossouw also highlighted that policy choices such as “land grabs” would not bode well for investor confidence, especially if property rights are in jeopardy. “No clarity on the Mining Charter will also not be good for investor confidence.”

Bishop said that investors would be concerned with who the next leader may be and the policies which are likely to be followed. “Specifically will they [policy] actually deliver on higher growth and free markets, or will the weak growth trajectory and significant level of state intervention into, and control of, the economy persist.”

A move away from economic repression or control of the economy by the state to market policies has been proven internationally to stimulate faster economic growth, she said. 

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