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Moody's: Ramaphosa could reverse SA's credit slide

Dec 19 2017 12:40
Carin Smith

Cape Town - The election of Deputy President Cyril Ramaphosa as new ANC president opens up a tentative possibility of a "credit positive" shift in SA policy and an increase in business confidence, ratings agency Moody's said in a post election report issued on Tuesday.

This could reverse the gradual deterioration in the country's credit fundamentals, it said.  

Moody's pointed out that, as a former businessman, Ramaphosa is seen as the more market-oriented of the two main candidates for the ANC's leadership.

But his narrow victory over Nkosazana Dlamini-Zuma on Monday evening could make reaching consensus on reforms a complicated process.

Ramaphosa beat Dlamini-Zuma by only 179 votes, and the "opposition faction" in the Dlamini-Zuma camp secured substantive representation among the Top 6 ANC positions.

In addition to Ramaphosa, the other members of the ANC Top 6 are David Mabuza, deputy president; Ace Magashule, secretary general; Jessie Duarte, deputy secretary general; Gwede Mantashe, national chairperson and Paul Mashatile, treasurer general.

Magashule, Duarte and Mabuza are seen as close to Dlamini-Zuma and her ex-husband President Jacob Zuma. 

"The simple prospect of a new approach to any of ... the weaknesses in SA’s credit profile could in itself boost business confidence and support a pick-up in investment and growth," said Moody's.

In November Moody's placed SA's sovereign debt, which has a Baa3 rating, on review for downgrade. Unlike its rival ratings agency S&P Global, however, it did not downgrade it.

The Baa3 rating for SA's long-term issuer and senior unsecured bond ratings indicates the debt is still rated as investment grade, at one notch above junk status.

In its latest report Moody's said its SA rating review period is expected to run until after the announcement of SA's 2018 Budget in February.

The ratings agency said this will allow it to assess "the willingness and ability of the SA authorities to implement policies which will address ... challenges".

Broad reform priorities

If a number of broad reform priorities proposed by Ramaphosa in the run-up to the ANC elections are implemented, it could begin to address economic weaknesses that Moody's raised when it placed SA's rating on review for downgrade in November this year, the rating agency said. 

Ramaphosa had indicated that he wants a balanced macroeconomic policy that promotes growth, maintains fiscal discipline and stabilises debt. He also wants to reform governance at embattled state-owned enterprises (SOE's) and combat corruption and state capture.

Furthermore, he said he wants to reduce the size of the Cabinet, promote investment in the mining sector and reform education - especially in townships and rural areas.

For Moody's it remains to be seen whether these objectives raised by Ramaphosa will actually bring about the kind of change that would increase business confidence.

At the same time, the ratings agency said that the swift implementation of reforms relating to fiscal stability and SOE governance, would already likely boost confidence, investment and growth.

It is, however, still unclear to Moody's whether Ramaphosa will have the political weight in Parliament to implement any such policy shifts.

President Jacob Zuma is under no constitutional obligation to step down until the national elections in 2019 and the strong representation of the opposition faction in the ANC leadership will likely complicate policy negotiations and could delay agreement on key reforms, said Moody's.

Education

Education is one clear area of tension, according to Moody's and it remains to be seen how goals will be achieved without further undermining stretched public finances.

Moody's pointed out that the implementation of free higher education for poor and working-class students announced by Zuma at the outset of the ANC conference could add up to 1% of gross domestic product a year in the next three years and more thereafter.

Other contentious issues include land expropriation and the Mining Charter.

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