South Africa – The Ramaphosa Report

on April 30, 2018
South Africa
  • After more than 60 days in office, President Cyril ‘The Buffalo’ Ramaphosa has overseen a bouquet of changes in personnel appointments and policy direction.
  • Improved indicators merit ongoing optimism and Ramaphosa’s honeymoon period or so-called ‘buffalo run’ is set to continue.
  • However, there is room for caution, as the country’s socio-political and economic trajectory will be impacted by the lingering challenges of labour unrest, the mining charter, land reform and parastatal restructuring.

The month of April has witnessed the greatest degree of socio-political and market fluctuation in South Africa since President Cyril Ramaphosa took the reigns as president of the republic in February.

In the most recent of several protest-related developments, thousands of workers aligned to the South African Federation of Trade Unions (SAFTU) embarked on countrywide demonstrations on 25 April over a proposed minimum wage law.  In the exchange market, the seemingly robust rand also took a knock as it slid to a four-month low of ZAR 12.53/USD on 25 April.

Altogether, these developments merit a moment of reflection on how President Ramaphosa has fared since his inauguration and what South Africa’s near-term political trajectory will be under his tenure.

Populism or pragmatism?

From the outset, President Ramaphosa was confronted with the unenviable task of navigating a treacherous socio-political and economic landscape.

On the one hand, this has required economic prudence and administrative reform so as to achieve long-term growth and stability. This follows persistent stagflation since 2014 – on the back of junk status assessments by Fitch and Standard & Poor’s, a real sector slowdown, and maladministration at private and state-owned enterprises (SOE) under former president, Jacob Zuma.

Yet, internal party dynamics and the need to appeal to a socio-economically challenged electorate ahead of the crucial 2019 general elections has favoured political compromise and a more popular expansionist agenda.

The good

Through tactful symbolism and messaging, Ramaphosa has focused on managing the optics around the transition to a post-Zuma administration, prior to tackling more complicated legislative reforms. However, he has still made decisive policy advancements and personnel changes, while overseeing a much-needed cultural shift in parliament.

This, in turn, has added some grounding to the business, consumer and political goodwill extended to Ramaphosa, which was previously thought to be less a product of his credentials and more a case of him succeeding a Zuma administration that ‘couldn’t get any worse’.

Playing the PR game

In keeping with his pledge to improve administrative efficiency, the president reshuffled several ill-placed Zuma-cabinet appointees and deployed more credible personnel. The most notable changes came in the key finance and public enterprise portfolios, where the technocratic Nhlanhla Nene and Pravin Gordhan respectively replaced their corruption-embattled predecessors.

A much-needed shake-up was similarly undertaken in the governance of the ESKOM power utility and SARS revenue authority, where the competent and energetic Phakamani Hadebe and Mark Kingon were respectively employed to halt the rut in both institutions.

While easy to write off as mere PR changes, the swift and consequential nature of these appointments highlights the degree of control wielded by Ramaphosa and, more importantly, his commitment to salvaging vital institutions and the economy at large from the depths of its rut, even at the risk of his popularity.

The directional shift

While many of its provisions are in the works, the first budget speech under Ramaphosa’s tenure also represented a directional shift from the spending habits of the Zuma administration, while affirming his pro-business orientation.

For one, the targeted 0.7 percent decline in the country’s fiscal deficit represents a crucial step towards consolidation, in addition to the containment of the debt-to-GDP ratio at approximately 56 percent. While rooted in long-term trends, President Ramaphosa’s tenure has coincided with a decline in price-indicators, including a seven-year-low headline CPI of 3.8 percent and a six-month-low PPI of 7 percent.

Further indicative of his ‘red carpet’ rather than ‘red tape’ disposition, the president advanced on his pledge to establish an investment envoy on 16 April. Spearheaded by former finance minister, Trevor Manuel, and several accomplished business personnel, the envoy is tasked with raising USD 100 billion in investment in the next five years. Of greater significance, however is the underlying willingness to appeal to the private sector as a mechanism for growth – a crucial alternative that was underutilised during the Zuma administration.

Elsewhere, an impasse in the mining charter – related to the 26 percent ownership and empowerment clause – was recently resolved by the Gauteng High Court, with a revised charter expected to be published in May. This has injected a bout of investor confidence to an otherwise dwindling mining sector, whose percentage contribution to GDP has shrunk to levels below 1994.

Political culture

A less conspicuous but equally strong suite by Ramaphosa is the conciliatory tone – or wry politicking – that he has demonstrated when dealing with the political opposition. Not only has this lent to parliamentary efficacy but it has seen the restoration of a political culture based on policy discussion as opposed to character assaults.

The ongoing ‘normative reform’ is buttressed by a strong anti-corruption stance, which has positively impacted business, political and consumer confidence and, along with the abovementioned directional shift, proved sufficient to stave off a Moody’s downgrade in March.

The bad

While the abovementioned advancements warrant the optimism surrounding Ramaphosa, they do gloss over several cautionary developments under his tenure.

Bad apples

The first of a few stumbling stones in the ‘buffalo run’ is in President Ramaphosa’s cabinet appointments, with cases in point being the selection of the populist David Mabuza and Ace Magashule as deputy president of the republic and secretary general of the ruling party, respectively.

Admittedly, these do not bode well for a change to the ideological incoherence and associated policy inertia that have historically afflicted the organisation. In addition, they raise questions on the purported corruption-opposed and principled leadership of the Ramaphosa regime.

Ongoing communal unrest in North West province since mid-April – over maladministration by provincial premier Supra Mahumapelo – has similarly cast a shadow of doubt on President Ramaphosa’s anti-corruption stance; the decision to place the province under national administration as opposed to sacking the embattled premier serves as a particular bone of contention.

Yet, in the context of the potential factionalisation within the ruling party’s ranks such pragmatism is to be expected. In fact, similar such balancing acts will likely continue until the 2019 election, when The Buffalo can finally deploy more of his own herd to key political positions.

Labour’s reckoning

After backing Ramaphosa’s ANC presidential campaign, labour’s buy-in also seems to be in question, especially after the treasury’s choice of shifting the burden of consolidation to consumers through greater revenue collection.

Examples of possible shifts in labour’s outlook include the 25 April SAFTU strike and the ongoing countrywide bus strike. The 800,000-strong SAFTU in particular has threatened protracted protest action if the government fails to revise the proposed minimum wage law and settle civil servants’ proposed pay increments.

This places the Ramaphosa administration in a dilemma between tending to labour’s demands and mitigating the risk of real-sector crippling unrest, at the cost of exacerbating the forecasted 7 percent rise in the public wage bill, which would impinge on the abovementioned positive fiscal and monetary indicators. Yet, remarks during a 27 April Freedom Day address suggests that he is aware of the underlying sensitivities and has stressed to labour that the wage proposal is a benchmark that should grow in line with broad economic growth.

The land question

The most contentious development yet is Ramaphosa’s explicit endorsement of land expropriation without compensation. In addition to questions of constitutionality, it has sparked fears of a Zimbabwean-style land grab and the repercussion that this might have on the domestic economic landscape. Indeed, not only would it severely disrupt the primary sector, the government would inherit a crippling tranche of agricultural debt too.

Nonetheless, President Ramaphosa has remained firm in the position that any such policy would be guided by the constitution, as evidenced by the establishment of a corresponding constitutional committee. Furthermore, in the event that such a policy is adopted, idle public land is likely to be the first to be disbursed, while a Solms-Delta approach which divvies the ownership but maintains the function of land is likely to be applied to private cases.

‘The Signal’

Key personnel appointments, reformist rhetoric and a directional shift in policy have collectively established a political environment characterised by more integrity, less uncertainty and greater conduciveness to business.

The associated optimism has been reflected by positive economic indicators during President Ramaphosa’s early tenure. For one, in its March assessment, Moody’s staved off fears of South Africa’s removal from the World Government Bond Index by affirming the country’s investment grade rating at Baa3 and assigning a stable outlook. The International Monetary Fund similarly revised the country’s growth projection for 2018 from 0.9 percent to 1.7 percent. Other high points have occurred in the bond markets, with the GBI-EM index noting that South African bonds yields decreased by more than 90 basis points in December and January, prompting talk of South Africa being ‘the next big emerging market story.’ Early 2018 also saw the rand breach the ZAR 12/USD mark for the first time in nearly three years, while a score of 26 on the Consumer Confidence Index underlined the optimism among domestic households. According to the Bureau for Economic Research, business confidence equally rose to 45 points in the first quarter from 34 points in the preceding fourth quarter.

Nonetheless, there have been policy and personnel related ‘stumbling stones’ and associated risks that the broad market seems to be gradually taking note of. These urge caution in the ongoing outlook on South Africa while portending the possibility of a slightly more volatile market response to sociopolitical and economic developments hereon.

Truer signals of the short-to-medium sociopolitical and economic trajectory under Ramaphosa will be determined by the following: The manner in which his administration navigates ongoing labour disputes and the impending ‘strike season’ in relation with consolidation requirements; the contents of the revised mining charter; the outcome of the committee on land reform in August and the subsequent ruling on expropriation without compensation; and the restructuring of state-owned enterprises and associated privatisation.

On balance, despite the lingering concerns, Ramaphosa has navigated a challenging post-Zuma landscape with relative success. As such, his early run can be assigned a B+ grade. This rating will likely be maintained until the 2019 election when Ramaphosa can truly pursue his own agenda.