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EDINBURGH – When Cyril Ramaphosa defeated the Zuma camp to become South Africa’s next president, a wave of optimism swept through the country. But, barely over six months into his role as the country’s leader, Ramaphoria is cooling fast. International onlookers haven’t yet detected the frustration building in South Africa over a series of poor political decisions, with a leading currency analyst speculating that the rand is being protected to some extent by Ramaphosa’s commitment to structural reforms. Frans Cronje of the Centre for Risk Analysis sets the record straight by highlighting a string of errors that make it unlikely South Africa will outperform other emerging markets in the foreseeable future. – Jackie Cameron
By Frans Cronje*
Your report, ‘Stock up on dollars, South Africans! Analysts reckon rand could slump soon’ (11 July), quotes Rabobank’s Mr Piotr Matys as saying: “At least South Africa has credible policy makers, led by President Ramaphosa, who are fully committed to implement structural reforms, which cannot be said about Turkey.”
While we think Mr Matys is quite correct on the trajectory of the Rand, we think he is quite wrong to suggest that the South African government is firmly committed to structural reform. To date we have seen the new administration loudly champion policies of expropriation without compensation, higher minimum wages, free higher education, the new National Health Insurance policy, and a mining charter that falls far short of what is required for South Africa to become a competitive mining investment destination.
We have also seen the government capitulate on civil service wages, Eskom wage negotiations, and, most recently, threats from the Zulu king. We further detect deep hostility to education policy reforms. If anything, the domestic policy climate is more hostile than a year ago and much of that hostility has been trumpeted by Mr Ramaphosa himself and those he appointed to the new Cabinet. When read against the global headwinds highlighted by Mr Matys, the Rand could stage some dramatic reversals.
In February, you asked me what South Africa was in for in 2018 and whether we would upgrade our long-term house view on the country, from underperforming other emerging markets to recovering, in time, perhaps even to outperform them. I told you that there was every reason to think that an upgrade was possible and that the necessary policy shifts were all within the power of the new administration to bring about. However, I warned that “if we don’t make that call [to upgrade our view on South Africa], I think the only reason will be that Mr Ramaphosa chose not to use the power that he now has to bring about the correct policy interventions”.
I must tell you now that if he ‘played a blinder’ on politics to defeat the Zuma camp, he has been appalling on policy and that his administration has come close to making South Africa un-investable. There is no prospect now of us upgrading the view. In fact, a better question now would be whether we downgrade the view relative to what we lived through during the Zuma years.
- Frans Cronje, Director, Centre for Risk Analysis