After a tight race, Cyril Ramaphosa, who pledges to fight corruption and boost economic growth, has been elected as the new ANC president. This significantly improves the long-term outlook for the South African economy.
The ANC’s elective conference from 16 to 20 December was regarded by investors as a defining moment for South Africa. The ANC, which has been South Africa’s ruling party since 1994, is divided into a faction supporting South African president Jacob Zuma (short-term focus and regarded as corrupt) and one supporting Cyril Ramaphosa (long-term focus and pushing for measures against corruption). Victory for Nkosazana Dlamini-Zuma (President Zuma’s ex-wife) would probably have been bad news in terms of combating corruption. So it was a big relief for investors that Ramaphosa, was elected as new ANC president by the party’s delegates, although only by a narrow majority of 52% of the votes, versus 48% for Dlamini-Zuma.
However, there was also less good news. Ramaphosa’s allies did not win a clear majority in the six-member senior leadership (three-three split) or in the 86-member National Executive Committee. So it seems unlikely in the short term that Ramaphosa will be able to gather enough support to force Jacob Zuma to step down. This means that any economic reforms or anti-corruption measures will probably be delayed until after Ramaphosa’s bid to become president of South Africa in the 2019 elections. Although ANC election majorities have shrunk in the last few years under Jacob Zuma, we believe with Ramaphosa at the helm, the ANC is likely to win the majority of the votes in the 2019 elections.
The election of Ramaphosa is very positive for the long-term outlook for the South African economy. Under Zuma corruption has increased, while the non-working part of the population has been kept satisfied with social benefits causing spiraling government budget deficits and increasing government debt. In addition to tackling corruption, Ramaphosa has also stated that he wants to improve cooperation with the private sector to create jobs. An important step, which could lead to an acceleration in economic growth, lower unemployment and healthier government finances. In such an environment, company profits are likely to grow significantly.
From a portfolio perspective, Robeco Emerging Markets Equities reduced its underweight in South Africa in the week before the ANC conference by adding a South African bank to the portfolio. After the election of Ramaphosa this position was increased further but the fund remains underweight. Robeco Afrika has also slightly increased its exposure to South Africa. Robeco Emerging Stars and Robeco Emerging Smaller Companies have not increased their exposure to South Africa and remain underweight.
While the long term prospects for economic growth and company earnings in South Africa have clearly improved, this has quickly been reflected in share prices and the strength of the rand. It will not be easy to overcome structural weaknesses like low productivity and high unemployment and most South African stocks are not cheap. So we remain cautiously positioned on South Africa and will continue to monitor political, economic and corporate developments closely.
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