A solid performance by the ANC in next week’s election, which sees the party winning more than 56% of the national vote, may be just what is needed to breathe new life into the markets, the rand and foreign investment.
With three days to go until the general election, analysts say the market expects the ANC to do better than it did in the 2016 municipal elections, when it received 53.9%.
It would show that the ANC under President Cyril Ramaphosa is progressing and would give him the freedom to do what needs to be done to steer the country in the right direction, eventually restoring confidence and leading to higher economic growth.
Over the past few years, the economy has barely grown by 1% per annum. The International Monetary Fund expects South Africa to grow by just 1.2% this year.
But even if there is a second wave of so-called Ramaphoria, as is generally expected, experts have warned that the right people have to be made ministers and that structural problems, such as unemployment, will not disappear overnight.
They also warn that a lower percentage of votes for the ANC could lead to more populism, which could hamstring Ramaphosa’s presidency.
John Orford, a fund manager at the Old Mutual Investment Group, said one of the long-term outcomes of the aforementioned scenario would be lower growth because government had not yet implemented policy to stimulate growth. In this regard, Orford refers to policy that would stimulate competition in the labour and goods markets – ensuring that more skilled workers are available or lowering input costs such as electricity.
Bianca Botes, treasury manager at Peregrine Treasury Solutions, said that if the ANC obtains a low percentage of the vote, that could mean coalition governments ¬– something with which South Africa does not have a good track record.
Coalitions can increase policy uncertainty and could result in the review of existing policy such as the Mining Charter.
Peter Attard Montalto, an analyst at Intellidex, said the consultancy’s latest market polls show that there is only about a 33% chance of reform to further economic growth after the election. However, the expectation is that Ramaphosa will be president until at least 2022.
Market perception appears to be that, despite internal party battles, Ramaphosa will not be removed ahead of 2022 – but that the compromise might mean that he is unable to implement reform.
According to Maarten Ackerman, chief economist of Citadel, the market is already pricing a second Ramaphoria, but after the election, its momentum will depend on what the Cabinet looks like: whether it is smaller and who the serving ministers are.
Quite a few senior ANC officials have been implicated in state capture or misconduct over the past few months, yet remain in ministerial posts or high up on the ANC’s list of candidates. Among them are Nomvula Mokonyane, Malusi Gigaba and Bathabile Dlamini.
Ackerman said a market-friendly election result would mean a stronger rand over the short term, and over the longer term, higher economic growth as well as business and consumer confidence.
Foreigners who want to invest in South Africa would want to see an election result of close to 60% support for the ANC.
If Minister of Public Enterprises Pravin Gordhan, Finance Minister Tito Mboweni and SA Reserve Bank governor Lesetja Kganyago all remained in their posts, chances would be good that the country would have a much better second half of the year, and potentially a stronger rand, said Ackerman.
Orford pointed to several positive changes that had been effected since Ramaphosa took office last year.
He will be closely watched after May 8 to see how he handles the restructuring of both his administration and Eskom.
Some of the positive changes to date have been the appointment of new boards of directors at certain state-owned companies, the appointment of Edward Kieswetter as commissioner of the SA Revenue Service (Sars), and the appointment of advocate Shamila Batohi as national director of public prosecutions.
Lullu Kruger, the chief economist at PwC, believes that Moody’s – the only one of the three major credit rating agencies which still rates South Africa as investment grade – wants to give the new government the chance to show what it is going to do before making a decision about the country’s sovereign credit rating.
Kruger said that policy would give Moody’s an important indication on land reform, what decisive steps would be taken to address problems at Sars, Eskom and SAA, as well as who the Cabinet ministers would be.
Names such as Kieswetter and Maria Ramos – who, it is believed, will drive the restructuring of Eskom – will help to restore Moody’s confidence, she said.
“If there are clear policy directions, with strong indications that Ramaphosa has enough control over where things are going and that he can make his own decisions about ministerial posts, we can escape further downgrades from Moody’s – as long as the numbers in the medium-term budget policy framework in October play along.
“If not, we will have to get ready for a downgrade before the end of the year.”
Botes said that from a global perspective, the markets indicate that a solid ANC victory is expected. That should be positive for the rand, because the market knows what ANC policy is.
Lukman Otunuga, research analyst at forex trading broker FXTM, said external factors such as international risk appetite, along with the dollar’s performance, would influence the rand in the run-up to May 8.
If investors avoid risk, then currency units such as the rand will suffer and the dollar will strengthen.
This week, the rand traded close to R14.42 to the dollar, but if the US currency strengthens, the rand could weaken to R14.50 over the medium term, said Otunuga.
Botes said that even if there was renewed Ramaphoria immediately after the election, the rand could again weaken as a result of continuing structural problems, to trade in a more realistic band between R14.50 and R14.80.
She said that, irrespective of the election results, economic growth would remain subdued this year, especially if further load shedding was required.
It is also unlikely that unemployment will decrease significantly in the next 12 to 18 months, according to Botes: “The structural problems cannot be resolved quickly and will continue to hamper the domestic economy in the medium term.”
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