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Local Leadership Changes in South Africa Boost Ramaphosa''s Prospects

Proshare

Monday, November 13, 2017 11:25 AM / BMI Research

 

BMI View: Changing Local Level Leadership In South Africa Will Increase The Prospect For A Victory By Cyril Ramaphosa In The Ruling Anc's December Elective Conference. However, Given Deep Divisions Within The Anc, Prospects For Significant Reform Remain Slim.

 

A Series Of Recent Changes To Local Level Party Leadership Have Boosted Deputy President Cyril Ramaphosa's Prospects For Victory At The Ruling African National Congress (Anc)'S Elective Conference, Set To Take Place December 16-20. We Now See It As Marginally More Likely That Ramaphosa, Will Win In December And Become The Next Party Leader, Rather Than His Putative Rival, Nkosazana Dlamini-Zuma (The Preferred Successor Of President Jacob Zuma).

 

However, While Ramaphosa Is Likely To Put Forward More Business-Friendly Policies Than Dlamini-Zuma, His Election Will Not Significantly Improve South Africa's Weak Growth Prospects. Rather, With The Party Likely To Remain Deeply Divided Any Attempt At Much-Needed Reform Will Likely Be Marred By Party Infighting, Underpinning Our View That Regulatory Environment Will Remain Challenging In The Coming Quarters. Moreover, Political Risks To The Investment Environment And Growth Are Skewed To The Downside.

 

While Not Part Of Our Core View, We Believe That The Potential For Members Of The Party's Losing Faction To Challenge The Result Is On The Rise. Indeed, As Members Of The Anc Have Shown Themselves Increasingly Willing To Utilise Judicial Challenges Against Each Other At The Local Level As Part Of The Continuing Jockeying For Power, The Potential For This To Translate Into A National-Level Challenge Has Increased.

 

Local Level Power Shifts Giving Ramaphosa An Edge….

We Have Previously Noted That President Jacob Zuma's Influence With Key Party Leaders And Decision Makers Would Likely Be Sufficient To Give Him Preferred Candidate (Dlamini-Zuma) The Edge During The Elective Conference. However, A Crucial Shift In The Balance Of Power In Several Key Provinces In Recent Weeks Has Changed Our Calculus And Suggests That Ramaphosa May Now Have A Crucial Advantage.

 

Kwazulu-Natal (Kzn): On September 12, The Pietermaritzburg High Court Overturned The Results Of The Anc's 2015 Elective Conference In Kwazulu-Natal. The Bruising Election Had Seen Zuma-Ally Sihle Zikalala Defeat Senzo Mchunu To Become Provincial Premier. While The Kzn Provincial Executive Committee Has Promised To Challenge The Results In Court – A Case That Will Likely Extend Beyond The National Elective Conference – The Recent Ruling Seems Likely To Undermine The Legitimacy And Political Capital Of The Current (Zuma-Leaning) Leadership Of Kzn. That Suggests That While The Province Has Long Been A Stronghold For The Pro-Zuma Wing Of The Party, Support May Be More Evenly Divided Between Dlamini-Zuma And Ramaphosa.

 

Eastern Cape: On October 1, Oscar Mabuyane Was Elected As Provincial Chairperson In Eastern Cape, Beating His Opponent Phumulo Masualle By A Margin Of 935 Votes To Seven. Mabuyane's Victory Reflects, In Part, An Outbreak Of Violence At The Local Elective Conference Resulting In The Ejection Of Masuaelle's Backers. With Mabuyane An Ally Of Ramaphosa, This Further Boosts His Chances At The Conference And Marks Yet Another Setback For Dlamini-Zuma. We Stress That At This Point The Election Is Still Looking Likely To Be A Closely Fought Battle, With Potential For The Balance Of Power To Shift Back In Dlamini-Zuma's Favour. However, Given The Seeming Loss Of Influence In Both Kzn And Eastern Cape We Believe The Ball Is Now In Ramaphosa's Court.

 

…But No Silver Bullet For Economy

Even With A Ramaphosa Victory Looking More Likely, This Does Not Substantively Brighten Our Growth Outlook For South Africa. We Have Long Highlighted The Need For Structural Reforms To Address High Levels Of Red Tape, A Mismatch Between Workers' Skills And Market Demand And Mismanagement Of Spending By Local And National Authorities. While Ramaphosa, Has Shown More Reform-Minded Policy Preferences, His Ability To Enact Change Will Be Limited By Continued Divisions Within The Ruling Party As Well As Pushback From The Anc's Support Base. With Structural Reforms Likely To Be Economically Painful In Some Cases, This Would Do Little To Endear The Party To The Electorate Ahead Of The 2019 General Election, Acting As A Headwind To Significant Change.

 

Moreover, While Our Core View Is That President Zuma Will Step Aside From The Presidency In Early 2018, Should His Preferred Successor Lose, There Is An Increased Risk That Zuma Could Stay On Until The End Of His Term In 2019. In Such A Scenario, President Zuma Would Continue To Direct Policymaking, Likely Focusing Heavily On Efforts To Reinforce His Patronage Networks Ahead Of His Eventual Departure. This Would Continue To Weigh On Foreign Investor Sentiment, And Damage Growth Prospects.

 

Local Leadership Disputes Could Spell Trouble

Finally, While Not Part Of Our Core View, Potential For A Legal Challenge To The Elective Conference's Results Raises The Risk Of Prolonged Political Uncertainty. This In Turn Would Pose Downside Risks To Both The Political Outlook And Our Already Tepid Real Gdp Growth Forecast Of 1.3% In 2018. In Recent Months There Has Been A Spate Of Legal Challenges To Resolve Disputes Over Local Level Leadership, Not Only In The Cases Outlined Above, But Also In North West, Where Complaints Over The Constitutionality Of Several Branches Saw Continued Delays To The Party's Bojanala Regional Conference. We See This As A Fundamental Failure Of Internal Party Dispute Resolution Mechanisms, Reflective Of The Divisive State Of Relations Between Different Factions Of The Party. While These Leadership Challenges Have A Limited Immediate Impact On Policymaking By Themselves, By Deepening The Divisions Between The Various Factions And Normalising The Need For Courts To Mediate Between The Two Sides, They Raise The Risk That The Result Of The Elective Conference Will Also Face Legal Challenges.

 

Should We See Such An Event, The Most Immediate Impact Would Likely Include A Freeze In Policymaking And A Sharp Sell-Off Of South African Financial Assets (Particularly Fx And Fixed Incomes), Reflecting A Sharp Increase In Investors' Perceptions Of Political Risk. While We Expect Any Court Would Move Quickly To Resolve The Situation, The Damage That Such A Challenge Would Do To Anc Cohesion Would Be Significant, Further Undercutting The Eventual Victor's Ability To Push Forward With His Or Her Policy Agenda. 

 
Proshare Nigeria Pvt. Ltd.

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