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New president, new era?

South Africa: New president, new era?

Cyril Ramaphosa’s narrow victory in the ANC leadership race is a significant turning point for South Africa. Although it will be politically-risky for Ramaphosa to introduce radical pro-business reforms, he has at least distanced himself from the populist rhetoric espoused by some factions of the ANC. Overall, Ramaphosa is likely to provide much more competent leadership than Jacob Zuma.

These are the key takeaways from the ANC’s leadership election:

1. Ramaphosa’s win is good news for the economy

While Ramaphosa faces many constraints, and has not fleshed out his economic agenda, it is highly unlikely that he will repeat Zuma’s worst excesses. His victory as ANC leader rests partly on his reputation for economic competence, and his promised ‘New Deal’ – while light on specifics – emphasises a conventional macroeconomic approach.

Moreover, Ramaphosa built a vast business empire before returning to politics in 2012. Much of his success rested on the black economic empowerment policies that he helped to craft in the 1990s, but even so he clearly understands how a modern economy functions. This is a welcome contrast to Zuma, who has never demonstrated a sound understanding of basic economics.

Ramaphosa cannot be expected to implement all of the reforms that investors would favour. But he will at least roll back the ‘state capture’ project and refrain from pursuing the most incoherent aspects of Zuma’s agenda. Threats to the central bank’s independence will recede, while irrational priorities – such as unnecessary and unaffordable nuclear power stations – will be abandoned.

2. But Ramaphosa will be constrained by the ANC’s divisions

Ramaphosa won the leadership with less than 52% of the vote. Still more significantly, three of the ‘Top Six’ positions in the party are occupied by Ramaphosa’s rivals. The ANC’s new deputy president, David Mabuza, has a reputation as a gangster politician and has been accused by local media of having been involved in various corruption scandals and political assassinations.

As a result, Ramaphosa’s room for manoeuvre will be limited. A split in the party is less likely than it would have been if Nkosazana Dlamini-Zuma had been elected, but Ramaphosa will still have to be careful not to alienate important factions. The need to walk this tightrope makes it less likely that Ramaphosa will fundamentally reform the patronage-based political system. It also makes it more difficult for the new party president to abandon the ANC’s traditional rhetoric on expropriation and nationalisation, even if such talk is unlikely to translate into action.

3. Zuma’s fate is Ramaphosa’s first big call

The prospect of the economy enjoying a short-term bounce depends on Ramaphosa being able to make it clear that he – and not Zuma – is now running the country. If the government shows its intent to rein in the fiscal deficit when it announces its budget in February, South Africa has a realistic chance of retaining its investment-grade credit rating with Moody’s.

Ramaphosa would probably succeed in forcing Zuma out of office, should he chose to do so. This could be achieved either by asking the ANC’s national executive committee to ‘recall’ Zuma, or by orchestrating a simple majority vote in parliament to declare no-confidence in the president.

But ousting Zuma would be a major political risk, given that so many of the current president’s supporters occupy key positions in the party. The delicate situation makes it more likely that Ramaphosa will at least wait several weeks or even months until a convenient pretext to get rid of Zuma emerges.

4. The ANC is now in better shape for 2019

Despite the many challenges that await Ramaphosa as he attempts to consolidate his leadership, the new ANC leader has a better-than-even chance of leading the party to victory in 2019.

As a native of Soweto, with a trade union background and a track record of business success, Ramaphosa is well-placed to win back urban black voters who deserted the party under Zuma. And by promising a crackdown on corruption, he will be able to undercut many of the arguments advanced by the Democratic Alliance, the ANC’s main rival.

While many investors would welcome the ANC’s defeat in 2019, there is no guarantee that an opposition coalition could provide a stable government. Ramaphosa will not provide a magic bullet to solve the country’s economic problems. But his election does at least signal that the worst possible outcome – the open-ended continuation of the Zuma era – will be avoided.

By Ben Payton, Head of Africa

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