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Economics Fixed Income Blog

Will South Africa’s Ramaphosa Take the Bull by the Horns After the Election?

02 May 2019
2 min read
| Director—Emerging Market Economic Research; Senior Economist—Africa

South Africa needs either a political or an economic breakthrough to put its economy back on track. Given the country’s limited fiscal flexibility and relatively weak global growth, it’s no surprise that investors and credit rating agencies are looking to politics—specifically, to the national and provincial elections that will take place on May 8.

We’ve been down this road before. When President Cyril Ramaphosa took control of the African National Congress (ANC) at the end of 2017, many expected that South African politics would change meaningfully and that the economy would rebound as a result. However, the sense of euphoria dissipated and local asset price appreciation reversed when it became clear that Ramaphosa did not have the political mandate to make wholesale changes.

Heading into the May elections, Ramaphosa’s popular leadership puts the ANC on track to get around 60% of the votes. Such a solid victory would not only mark a turnaround in the ANC’s fortunes, but could also in theory give Ramaphosa the leverage he needs to accelerate political and economic reform.

No matter what the vote tally is, however, the path to reform will be challenging. South Africa’s unequal distribution of both income and wealth make for a complex political landscape, while state-owned power utility Eskom has dominated headlines of late for its considerable challenges both in meeting its financial obligations and providing reliable power to the country. Negative per capita economic growth may well persist for another few years, which could in turn undermine Ramaphosa and embolden more radical political and economic views both within the ANC and from opposition parties like the Economic Freedom Fighters (EFF).

If Ramaphosa is to make meaningful reforms, he’ll have to strike while the iron is hot. The faster and more clearly he can consolidate political power after the elections, the more the economy will benefit and South African asset prices will rally. Swiftly appointing a leaner and more credible cabinet, for example, would be a powerful first step. Ramaphosa will probably have to take a few calculated political risks to convince both voters and financial markets that economic reform is on track. If he fails to do so, the economy and local asset prices will be back in limbo.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

About the Author

Adriaan du Toit is a Senior Vice President and Senior Economist for Africa. He also leads AB's team of emerging-market economists. He joined AB in 2017 as a Sub-Saharan Africa economist. Prior to joining the firm, Du Toit was a Sub-Saharan Africa currency and rates strategist and director at Citigroup in Johannesburg, where he worked from 2013 to 2017. Between 2007 and 2013, he held three roles at Standard Bank in Johannesburg (rates analyst, head of Macro Research and fixed-income strategist). Du Toit started his career in 2004 as an economist at the South African Reserve Bank. He holds a BCom (Hons) in economics and an MCom in econometrics (cum laude), both from the University of Pretoria in South Africa, and an MSc in financial economics from the University of Oxford. Location: London

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