Tuesday, December 26, 2017 12:00PM / Fitch Ratings
Political uncertainty will persist in South Africa following the election of Cyril Ramaphosa as leader of the African National Congress, Fitch Ratings says. The closeness of the result, and the likely challenges in agreeing and implementing changes to existing economic and fiscal settings, suggest that the policy paralysis prior to this week's national conference may not be quickly resolved.
ANC delegates yesterday chose Ramaphosa, South Africa's deputy president, as leader over Nkosazana Dlamini-Zuma, a former health minister and ex-wife of President Jacob Zuma, by 2,440 votes to 2,261. Ramaphosa now appears likely to succeed Zuma as president after the 2019 parliamentary election (or earlier if Zuma does not complete his full term).
The full repercussions of his victory will be far-reaching, but they are likely to remain unpredictable ahead of the 2019 elections. The rise in the rand in anticipation of Ramaphosa's victory reflects his public commitment to tackle corruption and revive the economy. If businesses and consumers view the outcome favourably, this could give a near-term boost to growth.
However, political uncertainty and policy challenges remain significant. The division of the party chairmanship and the national presidency could increase inefficiencies in policy making if there is a period of 'cohabitation'. The top six leadership positions of the ANC are evenly split between those aligned with Ramaphosa and those believed closer to Zuma. The National Executive Committee is also likely to be divided.
The narrow margin of victory suggests support within the ANC for Ramaphosa's policies could remain fragile. Policy trade-offs and continued in-fighting are likely as Ramaphosa seeks to form and maintain political alliances. As long as growth is too weak to significantly reduce inequality, pressure will remain for redistributive policies, even if they weaken South Africa's growth potential.
An early indicator of the political and policy consequences may include whether Ramaphosa seeks to recall Zuma as national president and whether he would have the necessary support within the ANC. Other indicators of Ramaphosa's ambition for change and power to carry through his agenda include February's budget, any other major economic policy announcements and any changes in key personnel such as government ministers and leaders of state-owned enterprises and institutions.
Economic and fiscal policy uncertainty could therefore remain high in 2018. In our most recent Global Economic Outlook, we forecast growth to increase to 1.6% in 2018 and 2.0% in 2019, significantly higher than in the preceding two years, but still lower than the 'BB' rating category median.
Our forecasts assume moderate fiscal consolidation in the February budget, incorporating revenue and spending measures under discussion by the presidential fiscal committee but that were not factored into October's Medium-Term Budget Policy Statement. Consolidation could weigh on growth, but also help contain the risk premium for South Africa. Contingent liabilities from state-owned enterprises are also a risk to public debt levels (we currently forecast general government debt to broadly stabilise at around 60% of GDP from 2019).
We affirmed South Africa's 'BB+'/Stable sovereign rating in November. As we noted at the time, a number of developments pointed to a weaker fiscal outlook. Whether fiscal measures, stronger GDP growth and improvements in standards of governance that may emerge in the wake of the ANC's national conference can mitigate those trends remains a key element of our sovereign credit assessment.