By electing Cyril Ramaphosa as its new leader, the African National Congress has shown it is ready for change – but Jacob Zuma could be an obstacle to progress, says Bryony Deuchars.
4 minute read
2017 was a difficult year for South Africa’s ruling African National Congress (ANC) party. President Jacob Zuma faced new allegations of ‘state capture’ – large-scale rent-seeking and cronyism – to add to the 783 charges of fraud and corruption already hanging over him.1
The government also came under criticism for its management of the economy. In November, ratings agency Standard & Poor’s downgraded South Africa’s local-currency debt from BBB- to BB+, or junk status, citing sluggish GDP growth.2 Unemployment rose to nearly 30 per cent.
But the ANC enters the New Year having signalled it is ready for change. At its five-yearly conference in December, the party elected as its new leader Cyril Ramaphosa, the deputy president. Ramaphosa has vowed to make a clean break with the Zuma era by tackling corruption and implementing economic reform. His main rival, Nkosazana Dlamini-Zuma, Zuma’s ex-wife, was seen as the continuity candidate.
The markets have welcomed the outcome. As of January 2, the FTSE/Johannesburg Stock Exchange All Share was up three per cent since the result was announced on December 18, with the retail and financial sectors performing particularly well. The rand had been appreciating in the run up to the election on the expectation of a Ramaphosa win and has continued to strengthen against the dollar. Business and consumer confidence is improving. But while there are grounds for optimism, Ramaphosa will face some big challenges before he can put his policies into practice.
The promise of reform
As in Brazil when Michel Temer became president in August 2016, investors are reacting positively to the prospect of reform under a pro-business leader, rather than concrete proposals. There is also a certain amount of relief involved. Dlamini-Zuma is from the wing of the ANC that advocates ‘radical socio-economic transformation’, an ideology that has become associated with corruption and fiscal indiscipline under Zuma’s leadership. If she had won, Moody’s might have followed S&P and Fitch in downgrading South African debt to junk status; this would have resulted in the country’s expulsion from the Citi World Government Bond Index, an investment-grade benchmark comprising $8 trillion.3
That risk has receded for now, although Moody’s has warned that the narrow margin of Ramaphosa’s victory “complicates reaching consensus and leaves room for delays” to any reform programme.4 The party election was closely fought – after a recount, it was confirmed that Ramaphosa had won a mere 51.8 per cent of the vote – and he will need to unite the ANC before attending to his policy agenda.
The Zuma problem
There is also the small matter of Zuma’s position. While he is no longer the leader of the ANC, Zuma is not obliged to step down as South African president until 2019; raising the prospect of policy deadlock in the interim. He sounded a bullish note in his televised New Year’s address, defending his record in office and promising that “radical socio-economic transformation will be the main focus of government in the year 2018”.5
So what happens next? Much will depend on whether Ramaphosa is able to order Zuma to step down before the general election next year; ideally he would want to take over the top job by February, when the president traditionally delivers the annual State of the Nation address. The problem is Zuma continues to enjoy strong support within the ANC’s National Executive Committee, the party’s top decision-making body, which makes it difficult for Ramaphosa to ‘recall’ him, in the legislative parlance.
There are some parallels with the situation in 2008, when tensions flared between Zuma and then-president Thabo Mbeki after Zuma became leader of the ANC. The party recalled Mbeki in September 2008 after a High Court judge accused him of interfering in a corruption investigation against his rival. The case against Mbeki was later overturned on appeal, but Zuma went on to become president after the general election in 2009.6
Elections on the horizon
Zuma has faced more accusations of corruption while in office. After the ANC vote in December, South Africa’s Constitutional Court ruled parliament had failed to hold him to account over allegations he used state funds to renovate his country residence. The court has ordered the National Assembly to enshrine new rules that allow the president to be impeached, and the ANC has said it will “study the judgement and discuss its full implications” on January 10.7
Zuma’s scandal-hit presidency continues to taint his party. Even if he is not impeached, the ANC may put pressure on him to stand down – as it did with Mbeki – if it decides his continued presence is harming its chances in the general election. This outcome is far from certain, however: after all, Zuma has already survived six motions of no confidence from parliament during his time as president. The stakes are high for Zuma. His presidential immunity has so far protected him from most of the corruption charges he faces, many of which relate to a government arms deal in the late 1990s.8
Yet the longer the ANC remains divided – and the longer Zuma remains in power – the more unpopular it will become. The biggest opposition party, the Democratic Alliance, has gained ground in a number of municipalities and provinces, such as the Western Cape. That momentum is likely to continue, and the ANC’s share of the vote will probably fall further in 2019, although we expect it to hang on to power until 2024 at the earliest.
As and when Ramaphosa is able to implement his own policy programme, he will need to prioritise investment in education and healthcare, where standards are poor. Labour-market reform is also long overdue. Ramaphosa, a former trade-union leader and an able negotiator, may be able to make some progress in this area. His candidacy for the ANC leadership was endorsed by both Goldman Sachs and the South African Communist Party,9 which indicates his skill in keeping disparate elements onside.
But as the Zuma saga has illustrated, corruption remains South Africa’s main problem. Corporate governance among private companies in South Africa is actually relatively good compared with many other emerging markets – corruption is mainly found in the links between government and state-owned enterprises – but graft harms the economy by draining public finances and deterring foreign investment.
South African companies tend to be good at operating in a tough economic and political environment, but many have recently begun to make overseas acquisitions, which suggests they are concerned about low economic growth and want to diversify their currency risk. If Ramaphosa is able to make some headway in tackling corruption it would be a big win for investors in South Africa in 2018 and beyond. Dealing with Zuma will be his first big test.