Is the ANC election win a vote for South African economic reform? The ANC victory with 57.50% of the votes likely means a boost for business confidence and corporate investments. We expect a number of quick wins with economic reforms, but also see a few longer-term challenges such as the budget deficit.
On Saturday May 11th the official results of the general elections in South Africa were announced. The governing African National Congress (ANC) has won the elections with 57.50% of the votes. The outcome was more or less in line with the most recent opinion polls. The result for the ANC was worse than the 62.15% they received in the 2014 general elections. However it was significantly better than the 53.91% that the ANC scored in the municipal elections in 2016 when the party was still headed by Jacob Zuma.
The long-term trend is for the ANC to lose its advantage over other parties because young voters don’t give the ANC credit for the liberation struggle that led to the end of apartheid in 1994. In that light it is quite an achievement of the current president and ANC leader Cyril Ramaphosa to attain a significantly better result than three years ago. Ramaphosa can make the convincing claim that he helped to gain back some of the voters that were lost owing to Zuma’s leadership. This is likely to boost his power within the ANC.
Another positive outcome for investors is that the Economic Freedom Fighters (EFF), a radical left-wing populist party has gained less than indicated in the opinion polls indicated. The EFF rose from 6.35% in 2014 to 10.79% and some opinion polls had predicted 12-14% in this election. So the ANC will only feel a limited pressure from the EFF to implement populist measures.
The Democratic Alliance (DA) had a reasonably good result with a small decline from 22.23% in 2014 to 20.77% now. They remain the biggest opposition party and will continue to push the government to implement business-friendly policies.
The solid election outcome makes it possible for President Ramaphosa to announce and implement economic reforms in order to boost business confidence and stimulate corporate investments. We see various possible quick-wins:
South Africa is facing some major structural problems which can be tackled only through sound policies and long-run reforms:
So there are a lot of potential improvements and these could boost business confidence, investments, economic growth and ultimately corporate earnings. However most investors are taking a wait-and-see approach. This is understandable as many investors were very optimistic after Ramaphosa had become ANC leader in December 2017 and South African president in February 2018, and had expected rapid reforms and improved sentiment that would boost the economy. That did not materialize in 2018. Investors are now waiting for tangible improvements before becoming optimistic and increasing their exposure to the South African stock market.
From a portfolio perspective, Robeco Emerging Markets Equities has as much invested in South Africa as the benchmark. However, a big part of that investment is to a company that is mostly exposed to other countries and only for a very small part to South Africa. Robeco Emerging Stars has a slightly bigger weight in South Africa but also has a limited exposure to the domestic economy. Robeco Emerging Smaller Companies has slightly increased their exposure to South Africa but remains underweight. Robeco Afrika has slightly increased the South Africa weight to around 41% of the portfolio as per the end of April, though the underlying exposure to the South African economy is only estimated at around 28% as some South African companies make most of their profits in other countries.