Cyril Ramaphosa was sworn in as president on 15 February 2018. Markets cheered the transition of power. Generally speaking, Ramaphosa enjoys a lot of support amongst South Africans from all walks of life. Ramaphosa is widely expected to adopt business-friendly policies, prompting the rand to rise more than any other currency against the dollar since his election as ANC president on 18 December 2017. His election as president of the ANC was by no means a sure thing, given his relative small margin of victory (2440 against 2261) over his main opposition, former president Zuma’s ex-wife, Nkosazana Dlamini-Zuma.
Ramaphosa has a number of serious challenges to deal with. Both the NEC and the Top 6 are deeply divided. The cabinet he inherited from Zuma is perceived to be corrupt and inefficient. Many are looking at the politically sensitive position of Minister of Finance. Malusi Gigaba was brought in by Zuma to replace the respected Pravin Gordhan. Gigaba in turn, does not enjoy the same respect by a long shot. Gigaba’s challenge is that in addition to doubts as to his skills, character and integrity, his boss knows more about running an economy than he does.
Ramaphosa has also inherited a number of state-owned enterprises that are bleeding cash, with executive teams that are perceived to be corrupt and inefficient. The international ratings agencies are watching South Africa with hawk eyes, after two of them have downgraded South Africa to junk bond status. Ramaphosa has also inherited an economy that is growing at below 1%. As a matter of fact, growth has averaged just 1.6% a year since Zuma took office in 2009, undermined partly by a series of policy missteps and inappropriate appointments that rocked investor and business confidence. We will probably see Ramaphosa embarking upon a Fabian strategy and blitzkrieg tactics – decisive actions spread over a long period of time. He will need to ensure that the global investment community are convinced by his actions that he has South Africa’s best interests at heart.
Ramaphosa’s State of the Nation address created a good vibe towards South Africa. Unfortunately, the Budget Address of his Minister of Finance, Malusi Gigaba, has done some damage to the expectations he created.
The road ahead is not going to be an easy one. One positive for the ANC is that Zuma’s departure gives Ramaphosa more time to convince voters before elections in 2019 that he’s committed to meeting his pledges to rebuild a battered economy and clamp down on corruption.
The path to the current poor situation South Africa finds itself has been quite an eventful one.
The Zuma Period
Zuma has led South Africa along a path filled with maladministration and corruption. Even before his election as president of the ANC, and subsequently as president of South Africa in 2009, he was faced with 783 charges of corruption against him. Although he had the charges against him withdrawn, the High Court later on ruled that the charges against him should be reinstated (Hutchings, 2016). In addition to this, South Africa was also rocked with allegations of impropriety as far as his private house in Nkandla was concerned. The Public Protector ruled that he was improperly enriched and that he had to pay back some of the R250 million involved. The Constitutional Court of South Africa also ruled that Mr Zuma had neglected his constitutional duty in his handling of the verdict of the Public Protector on state money that was spent on his private home (Newham, 2016).
His period of leadership was also tarnished by his ties with the influential Gupta family from India, who are perceived as corrupt. Reports were also rife about the extent of “state capture” and the Gupta family. Various ministers were said to have been appointed on the recommendation of the Gupta’s. His relationship with them have been put forward as the reason for Zuma sacking the Minister of Finance, Nhlanhla Nene, on 9 December 2015 and replacing him with an unknown backbencher, David van Rooyen, just to replace him again a few days later with Pravin Gordhan after a severe backlash from the local and international business environment. Gordhan was the finance minister before he was replaced by Nene. Zuma later on sacked Gordhan and his deputy, Mcebisi Jonas, and replaced them with his supporters. This subsequently led to both Standard and Poor and Fitch downgrading South Africa’s credit rating to junk status (Green, 2017).
On 3 April 2017, after Zuma fired finance minister Pravin Gordhan and deputy finance minister Mcebisi Jonas on 31 March, S&P assigned South Africa a “junk” rating of BB+, with a negative outlook. The rand immediately slumped 3% against the dollar. The initial fallout was immediate: the rand plummeted, senior party leaders accused Zuma of acting unilaterally, and people began to protest. Moody’s followed suit, placing South Africa’s BAA2 rating on review. Just hours before the ratings announcement, new finance minister Malusi Gigaba sounded convinced South Africa would not be downgraded. On 4 April, Gigaba told reporters that he’d known about the S&P decision since 31 March, but said the ratings company had taken him into their confidence. He added that he had already met with Moody’s and Fitch and hoped to “address perceptions” about South Africa’s political climate (Chutel, 2017).
A sector that is automatically impacted when South Africa’s credit ratings are changed, is the banking sector. SA’s sovereign credit ratings are automatically reflected in the credit ratings of South African banks. Banks accordingly had their ratings cut by S&P from BB+ to BBB- to keep them in line with South Africa’s country rating. Amongst others, Nedbank’s share price fell 2.4% to R223.50. ABSA fell 3.2%. Moody’s subsequently also put South African bank ratings under ratings review. The impact of this downgrade can be quite negative for South Africa. First of all, it has made the hard work of Gordhan and his team (and all of South Africa) the past 15 months undone. It will increase the cost of debt of South Africa and make it difficult to obtain debt in future. Interest rates could increase, the Rand will fall (already had lost a lot of value), and foreign money would flow out of South Africa. Unemployment could increase, inflation could rise, and South Africa will struggle to attract the level of investment required to grow the economy.
Business Unity South Africa (Busa) was concerned that the downgrade would “undermine efforts to sustain the growth in social programmes that counteract the harshest effects of poverty and inequality”. It is clear that the ratings agencies had no trust in Zuma’s new team. In all fairness to them, they do not trust Zuma to appoint competent and principled people to run the Treasury, as it was clear he had plans to enrich himself and his allies at the cost of all South Africa.
In addition to these events, Zuma’s stint as president of the country saw the country’s state-owned enterprises, such as the South African Airways and Eskom, being run into the ground by Zuma appointees. Political commentators were of the opinion that Zuma was appointing people beholden to him to ransack the financial system for his personal gain. It was also said that the appointment of someone like a David van Rooyen as the Minister of Finance was to get access to the decision-making in National Treasury, in order to approve projects such as the controversial nuclear energy plant, which would apparently be obtained from Russia. Treasury had consistently presented a barrier to the attempts to ransack South Africa’s purse, much to the chagrin of Zuma and his supporters (Hartley, 2016).
Zuma’s actions raised concerns in the ANC that they could lose support in the national elections of 2019. As it is, Zuma’s leadership did cost the ANC a lot of support in the local elections of August 2016. Various parties within the ANC started to call for him to step down as president (Malefane, 2016).
Zuma has blamed the situation on foreign entities that wanted to destabilize South Africa. He portrayed himself as a victim. The Gupta family obtained the services of British PR firm, Bell Pottinger, to launch campaigns that focused on the racial division in South Africa, taking away attention from Zuma. One of their campaigns addressed the issue of “white minority capital” as the true power in South Africa. While the middle class in South Africa did not buy this, unfortunately a large number at the bottom end and in the rural areas did.
During 2017, amid robust demand for emerging-market equities, global investors were avoiding South Africa’s stock market. With almost a full quarter to go in 2017, outflows from South Africa’s stock exchange had already reached R90.5 billion ($6.6 billion), on track to equal 2016’s record R125.8 billion. By comparison, net sales reached R56.6 billion in 2008, when emerging-market assets bore the brunt of a selloff sparked by the global financial crisis. Foreigners were factoring in a weakening rand on top of anaemic growth, rich valuations and political risks. The country emerged from a recession in the second quarter and the fiscal deficit is set to widen as revenue falls short of projections. While some of the other emerging markets were picking up and recovering, South Africa did not show any momentum (Brand and Khanyile, 2017).
In its Global Risks Report, the WEF identified the following main risks in South Africa: unemployment or under-employment; failure of national governance; state collapse or crisis; water crises; and failure of critical infrastructure (Norris, 2017). All five the top risks for South Africa can, unfortunately, be ascribed to poor leadership. One commentator referred to the politics of greed, nepotism and a weak rule of law. All of these with the compliments of Jacob Zuma. Another stated that “corruption has emerged as the most problematic factor for doing business in SA.” When you have a president that even his alliance partners, such as the SACP and the trade union federation, COSATU, call a thief, and demand that he be recalled as president, it is clear that South Africa found itself in a sad situation.
What also became public knowledge during 2017, was the instances of fraud and corruption by global companies such as SAP, McKinsey and KPMG. It has been reported they have been involved in looting on a grand scale. KPMG replaced its leadership team, but it seems they are losing clients in South Africa at a rare rate. It is sad when companies supposedly being hallmarks of governance are found to be rotten.
It was under Zuma’s term of office that the UN ranked South Africa as the most corrupt country in the world – not a badge South Africa and the ANC can be proud of! What is worse, is that new instances of corruption and mismanagement did not generate any meaningful response from Zuma and his followers. They do not deny it and they do not respond to it. It’s as if they were saying, “So what? We have done it and what can you do about it?”
Zuma survived various votes of no confidence in his presidency. As recent as in August 2017, he survived a motion of no confidence in his presidency, held via secret ballot in Parliament. 198 MPs voted against the Democratic Alliance’s bid to remove Zuma, while 177 voted for. About 30 ANC MPs voted for Zuma to be removed. The vote was held via secret ballot for the first time ever. The failure of the motion strengthened Zuma’s position in the party in the short-term and strengthened the belief that the ANC does not have the capacity to recall Zuma, irrespective of the number of scandals he has been embroiled in. Apparently, there was a list of about 50 ANC parliamentarians who were expected to vote against Zuma. Low and behold, all came to naught as Zuma survived the vote. In any case, what were the chances Mbete, the ANC Speaker of Parliament, would allow a secret ballot in defiance of instructions from the ANC? If her decision was against the wishes of the ANC, they would have destroyed her, and she knows that. She has never done anything to suggest she has a mind and a will of her own.
Given that she had allowed a secret ballot, it seems that the ANC thought they could survive a secret ballot. Which they did. The end result? A Jacob Zuma that would be around until the end of the year, some say stronger than before. During this time, he did his utmost to ensure his ex-wife gets elected as the president of the ANC, in which case she would become the president of South Africa should the ANC win the 2019 elections. Fortunately for South Africa, his ex-wife did not win the election for president of the ANC!
The Post-Zuma Period
Coming back from the World Economic Forum, the South African Minister of Trade and Industry, Rob Davies, remarked about the new mood of optimism for South Africa and its prospects. The improved outlook for the global economy, the prospect of rising mineral prices and the success of the ANC elective conference in December 2017, which resulted in the new leadership of Cyril Ramaphosa, have been contributing factors to more upbeat investor confidence. At previous years in Davos, investors mainly spoke about their irritations and raised criticisms of the country. At the Davos meeting of 2018, investors were looking to increase their presence in South Africa. According to Davies, there was an overall mood that South Africa was getting on top of its problems. These include state capture, corruption and mismanagement of state-owned enterprises. There is a sense that at last South Africa would do something about it, as can be seen with the appointment of a new board at Eskom and the commission of inquiry into state capture.
Since Ramaphosa took over as president of the ANC and president of South Africa, the country’s jittery currency seems to be calming down. On Wednesday, 24 January 2018, for the first time since 2015, the Rand pushed past the psychological R12/$ barrier, reaching R11.95/$. The Rand has been plagued by volatility in the last 2 years, thanks to a sluggish economy. South African markets are seeing it as a sign that things are finally improving in South Africa. Ramaphosa’s insistence that corruption in SOEs, e.g. Eskom, be weeded out, has not only strengthened his pitch in Davos, it’s also restored confidence within South Africa. The Rand was at its weakest when Zuma shuffled finance ministers in December 2015, going beyond R16 to US$1. It was flustered every time it seemed Zuma was about to fire Finance Minister Pravin Gordhan (and then when he finally did). In a country where consumer confidence reached record lows and sovereign ratings downgrades became small talk for ordinary people on the street, the Rand’s rosier outlook is celebrated as good news. The current Rand/US$ rate is R11.53 to the greenback (26 February 2018).
Ramaphosa will have no easy ride into the elections, however. His National Executive Committee (Top 80 ANC members) include friends and foes (apparently a 50/50 split, more or less), as is the case with the Top 6, who more or less are the Exco of the ANC and are the most powerful people in the ANC.
The ratings agencies have been watching the developments in South Africa very carefully, and they have no doubt been taking notice of the developments and the reception Ramaphosa received at Davos. They have not yet been vocal about the Budget Speech of the South African Minister of Finance on 28 February 2018. Ratings agencies have been very interested to see whether the budget would be realistic and to what extent the general public would be taxed.
Generally speaking, the general public and business community, both in South Africa and abroad, are very positive about the new president of the ANC and South Africa. They will be watching to what extent he will be curbing corruption and putting an end to state capture.
The bottom line is that there are many challenges facing South Africa, and the South Africans are quite vocal about it. This in itself is a good sign as it shows that democracy and free speech is alive and well. Another good sign is that Constitutional institutions designed to safeguard the democracy, are still resilient. Here we refer to the courts in South Africa, the Treasury, the Auditor General, and until recently, the Public Protector, to name but a few. How long this will remain to be the case, is open for debate. It unfortunately does seem that the current Public Protector has lost her credibility. Ramaphosa will have to address this negative situation as a matter of urgency. What is imperative is that South Africans must jealously guard this resilience, as these institutions are the bastions against anarchy and an implosion of the South African system. When they go, we will see chaos and the destruction of a beautiful and still prosperous country.
Imperatives for the Ramaphosa Presidency
As stated in the first section of this paper, President Cyril Ramaphosa has various challenges to deal with. The following comes to mind:
Remove all aspects of corruption in his cabinet. The general public is concerned about charges of state capture and the role the Guptas might have played in the appointment of various ministers.
Address the bloated nature of his cabinet and the bloated nature of the government sector and its massive number of employees. He made this promise during his State of the Nation Address.
Address economic growth as a driver of employment. South Africa has fallen from the largest economy in Africa to either second or third place, depending on where Egypt is pitched.
Address the high rate of unemployment in South Africa (~27%). The youth of South Africa constitutes a large portion of this number of unemployed. This is a source of serious concern.
Address the lack of trust foreign and local investors have in South Africa. They have had a bellyful of Zuma’s corruption and have started to vote with their feet.
Address the deterioration of South Africa’s rankings on the World Bank’s Ease of Doing Business Rankings. Over the past decade South Africa’s rank has fallen from 35th in 2007/2008 to 82nd in 2017/2018. We see other African countries implementing numerous reforms to improve their rankings on this list. Countries showing marked improvements include Mauritius, Rwanda, Kenya and Zambia.
Address the corruption and inefficiency in South Africa’s state-owned enterprises, namely SAA, Eskom and Transnet. These SOE’s have been absorbing large amounts of funds and have become an embarrassment for the ANC government. They have required frequent bailouts from government, putting pressure on the South African fiscus.
Develop a sustainable solution to the phenomenon where 17 million South Africans receive government grants to keep them alive. Maintaining the grants are not sustainable; stopping them would create an untenable situation. Ramaphosa therefore finds himself in a type of Catch-22 situation.
Address the high level of crime in South Africa. Violent crime in South Africa has become a deterrent to foreign investors and tourists. One statistic that is frightening is the murder rate of 51 daily. This is totally unacceptable.
As mentioned earlier, there are a number of Constitutional institutions that must be upheld. In this regard, Ramaphosa must deal with the National Prosecuting Authority. The head thereof, Shaun Abrahams, is deemed to have been in the pocket of Zuma. Similarly, the Public Protector, Busisiwe Mkhwebane, has been severely criticized by the courts of South Africa for her lack of insight in the laws of the country and for her lack of impartiality. She was also deemed to be in the pocket of Zuma. According to De Vos (2018), the North Gauteng High Court judgment not only confirmed the suspicion that the public protector is biased and lacks impartiality, but also confirmed that she is dishonest and incompetent. It is difficult to see how she can remain in her job while this judgment stands. Ramaphosa must restore confidence in the levels of competence and impartiality of these two positions as a matter of urgency.
Other ministers that have been fired, include the previous Minister of Police, Fikile Mbalula, the Minister of Mineral Resources, Mosebenzi Zwane, and former Minister of Energy David Mahlobo, to name but 3. A strange omission is the previous Minister of Social Development, Bathabile Dlamini, who will remain in Cabinet as Minister of Women, in the Presidency, in spite of her obvious mismanagement of her previous portfolio. The appointment of his opponent in the race for the ANC president, Nkozasana Dlamini-Zuma, as minister in the presidency responsible for planning, monitoring and evaluation, also raised a few eyebrows. It seems that his new cabinet is one where Ramaphosa executed a balancing act, reconciling various factions within the ANC. As such the opposition parties were scathing in their criticism of some of the ministers being retained, such as Bathabile Dlamini (Nicolson, 2018). However, it is not unlikely that Ramaphosa will over a period of time get rid of some of the deadwood he had to retain in his latest cabinet. As he strengthens his power base in the ANC, he will have more freedom to fire those that are an embarrassment to the country and to the ANC. As it is, Ramaphosa stated on Tuesday 27 February 2018 that his new cabinet was only a transitional cabinet, and designed to take the ANC to the next national election in 2019.
As stated, Ramaphosa enjoys the support of many South Africans across the board. It is not far-fetched to say that by electing Ramaphosa as the president of the ANC and subsequently by recalling Jacob Zuma as president of South Africa and replacing him with Ramaphosa, the ANC has effectively ensured that they will win the 2019 national general elections by a large margin. Bearing in mind that the Economic Freedom Fighters (EFF) have won many of their votes from people frustrated with the ANC, it will be interesting to see whether the ANC will now be able to win back these votes. Given the high regard South Africans in general have of Ramaphosa, opposition parties are going to struggle.
Given the dominant position of the ANC in the South African political scene, they have the moral obligation to ensure they have high quality ethical leadership available for the country. With Zuma they did not cover themselves with glory. By electing Ramaphosa, they have got themselves back on to the straight and narrow. It is now up to Ramaphosa to deliver. He will be watched by all.
Daily Maverick. ANC's 2017: The Year of Fracture?, accessed 6 March 2017.