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Investors, traders and fund managers are keeping a close eye on the ANC elective conference, kicking off at Nasrec today.
The key risk is an outcome that’s not favoured by the markets, which could have a negative impact on investor confidence, says Investec’s Annabel Bishop.
Viewed simplistically, a pure win by President Jacob Zuma’s camp, with Nkosazana Dlamini Zuma as the president, and a candidate from the same camp as deputy president, could be perceived as negative by the markets and so depress confidence, Bishop says.
On the other hand, a Cyril Ramaphosa win, along with a vice-president that’s not seen as a compromised candidate but as someone who will work well with him, may lead to a significant lift in confidence, she says.
“A rise in business confidence would in itself likely lift economic growth and investment.
So it could happen quite quickly that you see a jump in business confidence, with positive knock-on effects on economic growth.
But it will probably still take the course of a year to work its way fully through the system,” Bishop says.
Colin Coleman, head of the investment banking division of Goldman Sachs Sub-Saharan Africa, is extremely bullish on the positive impact a Ramaphosa win may have on the economy.
“With a Ramaphosa presidency, sentiment can change on a dime,” he said at a panel discussion at the Gordon Institute of Business Science (Gibs) late last month.
If the election of a new leader leads to a rapid, high-energy turnaround plan, including the potential recall of Zuma, the removal of the Eskom board and the arrests of some key players in the state capture debacle, further downgrades can be averted, he believes.
“The forced selling of $10bn of bonds should we get kicked out of Citigroup’s World Government Bond Index will probably translate into a 50c rand move; it’s not major.
But it will send a butterfly effect down the entire economic chain. Borrowing costs will increase, and that will be very, very negative.
It will be much more difficult and expensive for business to invest.
“Avoiding this is entirely in our grasp. If the country elects the right leadership, we can turn it around in 90 days,” Coleman said.
However, Xhanti Payi, economist and director of Nascence Advisory and Research, believes there remains significant risk of further fiscal slippage, with pressure on revenue and a slim likelihood of substantial spending cuts as the country heads into elections in 2019.
One temptation is the provision of free higher education to appease young voters, he says.
It also remains unclear whether the new ANC president will be able to remove Zuma as the country’s president, Payi says.
“I don’t think it’s a slam-dunk at all, given how many times Zuma has survived [similar attempts].” Zuma himself has said that he plans to serve the remainder of his term.
It will also take time to appoint a new Cabinet and for people to familiarise themselves with their new positions, Payi says.
And getting state capture role players suspended, arrested and prosecuted may be nigh impossible, given the extent to which capacity at key crime-fighting institutions such as the Hawks, the National Prosecuting Authority, Crime Intelligence and the State Security Agency has been decimated, warned veteran investigative reporter Jacques Pauw at the Gibs discussion.
While a Ramaphosa win may win SA some short-term reprieve from Moody’s, his policy position is not clear, Payi says.
His track record as deputy president is also sketchy – Ramaphosa is for example head of the Eskom “war room”, but the utility has merely sunk deeper and deeper into financial trouble; the national minimum wage, another key Ramaphosa project, is yet to be implemented.
Dlamini Zuma, who has a track record of getting things done, notably during her time as South Africa’s minister of health, may therefore be a more successful reformer than the market is giving her credit for, he says.
“It will also be a useful marker to see who becomes deputy president, as this position will be key to implement policy and manage key projects,” Payi says.
Nick Brown, emerging-market debt fund manager at Schroders, says while there appears to be “lots of momentum” behind Ramaphosa, he believes that markets have already priced in any potential negative turnout.
Regardless of the outcome, Brown reckons that the next leader of the ANC would be “quite constrained” because of the split within the ANC.
Dlamini Zuma might be a more pragmatic leader, and could therefore indeed be a positive outcome, he says.
Given the divided nature of the ANC at the moment, a Dlamini Zuma win could result in an ultimate split within the ANC, he says.
This could prevent the ANC from securing a majority win in the 2019 elections.
Regardless of whether Dlamini Zuma, Ramaphosa, or even Zweli Mkhize becomes the next leader of the ANC, in the longer term it would be good for South African assets, Brown believes.
In many ways, it may be the end of an era. “In the short term, our politics will continue to be messy, awful, disastrous,” public affairs commentator Angelo Fick told attendees at Gibs. “By 2024, the majority of voters were not yet born in 1994. 2019 will be the last grandstand of the old men of this country.”
This is an edited extract of an article that originally appeared in the 14 December - 17 January edition of finweek. Buy and download the magazine here.
