Election win puts the focus on Ramaphosa

FILE PHOTO: A supporter holds a placard with the face of President of South Africa’s governing African National Congress Cyril Ramaphosa, during the party’s final rally at Ellis Park Stadium in Johannesburg, South Africa, May 5, 2019. REUTERS/Siphiwe Sibeko/File Photo
JOHANNESBURG – The rand was expected to test the R14 mark against the dollar today after the unit rallied on Friday night after the ANC’s election victory.

The win was largely seen as having given Cyril Ramaphosa a strong hand to implement his reform agenda, particularly with the embattled Eskom.

The local currency strengthened more than 1 percent to R14.14 against the greenback by 11pm on Friday after it became clear that the ANC had won the elections.

The governing ANC got 57.5 percent of the national vote, close to the 60 percent economists had said would give Ramaphosa leeway in implementing far-reaching structural reforms.

Sanisha Packirisamy, an economist at Momentum Investments, said the pertinent effect of the election outcome on the local economy and asset classes would largely be determined by how secure Ramaphosa feels within the ANC with the election results.

“If Ramaphosa feels the results strengthened his standing within the party enough to challenge the status quo by enacting meaningful policy changes subsequently, the resultant positive effect on economic growth in time could support the rand, local bonds and the South Africa equity market,” Packirisamy said.

The currency was also expected to be boosted by the ANC’s victory in the economic hub of Gauteng after many polls had predicted a hung province.

Market attention was now on whether Ramaphosa would follow up on his promise to cut the size of Cabinet and appoint untainted people to the executive.

Citadel chief economist Maarten Ackerman said that the Cabinet announcement was even more important than the election results, especially for international investors, given that the ANC was already expected to win.

“If the government is able to show definitive progress by the time of the mid-term Budget policy statement in October, it could hopefully mean that we will be able to avoid or defer a potential credit ratings downgrade,” Ackerman said.

“The question of Eskom is also absolutely critical for investors as the government will also need to repair and bolster Eskom’s capacity in terms of electricity production if the economy is to grow, or alternatively be open to alternative energy producers.”

Ramaphosa would be under pressure to appoint a credible and streamlined Cabinet that enjoyed the confidence of business and the markets while also tackling Eskom’s financial stability.

Ramaphosa in January said that the power utility would be unbundled into three separate entities responsible for generation, transmission and distribution under Eskom Holdings.

The challenges of Eskom, which has dominated much of Ramaphosa’s 16-month rein, led to it being given R5billion in emergency funding weeks before the elections to enable it to meet obligations.

In March, Eskom’s management said that it needed additional financial support besides the annual R23bn allocated to it by the National Treasury after it fell R250bn short of what it expected to get in government support and the tariff increase announced by the energy regulator.

Rating agency Fitch, the first agency to comment on South Africa’s elections, said the fall in ANC support meant reform efforts would remain gradual. Fitch analyst Jan Friedrich said: “Structural obstacles to reform, including the power of vested interests, persist.”


Source: iol.co.za