Home Uncategorized Zuma falls, Ramaphosa rises

Zuma falls, Ramaphosa rises

Related imageOn February 14th Jacob Zuma finally bowed to pressure from within the ruling African National Congress (ANC) and resigned as president, ending a near-nine-year stint in power marked by rising corruption and economic decline. Parliament reacted promptly, voting to install Cyril Ramaphosa—the leader of the ANC since December and deputy president since 2014—as the new president and head of state. The switch has positive implications for politics, society and the economy, but reversing the damage inflicted during Mr Zuma’s presidency will be a gradual process and subject to setbacks.
As deputy president, Mr Ramaphosa automatically became acting president after parliament accepted Mr Zuma’s resignation. However, instead of the National Assembly (parliament) using the allotted 30 days to elect a new leader, they acted on the same day to elect Mr Ramaphosa, thereby removing any doubts and uncertainties. This means that Mr Ramaphosa will be able to deliver the delayed annual state of the nation address—which will be closely watched to ascertain his priorities—before the scheduled reading of the budget for fiscal year 2018/19 (April-March) on February 21st, although there is a possibility of a small delay. 
Mr Ramaphosa will now serve as president until the next general election in 2019, and will retain his position if the ANC secures another victory. A key issue that still needs to be clarified, however, is whether Mr Ramaphosa’s first year in power would count towards his constitutionally mandated two-term limit (as it would in the US, for example). If the first year counts, then Mr Ramaphosa would have to step down in 2028, rather than 2029, if he won a second term. These uncertainties, alongside similar questions raised by the recall of a former president, Thabo Mbeki, in 2008, highlight the problems caused by a misalignment between the ANC and national electoral cycles.
A new cabinet is a priority
Image result for jacob zumaMr Ramaphosa’s two overriding and interlinked objectives are rebuilding the ANC’s popularity—after support fell to an all-time low of 54% in municipal elections in 2016—and revitalising the economy. Without action to boost growth and job creation, coupled with a crackdown on corruption, the new president may struggle to realise his political aims. The first step in the process will be naming a new cabinet, and replacing corrupt or incompetent pro-Zuma loyalists with more effective and less self-serving operators. At least six people are thought to be prime candidates for removal, including the mining minister, Mosebenzi Zwane, and the energy minister, David Mahlobo, although the fate of others—such as Malusi Gigaba, the finance minister, who is due to deliver the 2018/19 budget within a week—is less certain.
The task of installing a new government would have been made easier if Mr Zuma had been removed in a vote of no-confidence, as this would also have brought down the entire government, providing Mr Ramaphosa with a clean slate; however, the new leader will no doubt make significant changes. The reshuffle could also see the return of competent ministers sacked by Mr Zuma, such as the former finance ministers, Pravin Gordhan and Nhlanhla Nene. For deputy president, Mr Ramaphosa may pick Lindiwe Sisulu, his choice for ANC deputy leader, who lost to David Mabuza in December.
Overhauling institutions and tackling corruption
The next main challenge for Mr Ramaphosa is reversing the capture of key institutions, such as the National Prosecuting Authority (NPA) and—to a lesser extent—the Treasury and the South African Revenue Service, by weeding out pro-Zuma loyalists. This will undoubtedly be a slow process, given Mr Zuma’s lengthy tenure, although Mr Ramaphosa has already made a promising start since becoming ANC leader in December, by pushing through an overhaul of the board at the parastatal power utility, Eskom, which helped to restore the company’s fractured relations with its many creditors. Mr Ramaphosa will also take responsibility for naming the next head of the NPA, after the courts ruled last year that Mr Zuma’s appointment of the incumbent, Shaun Abrahams, should be overturned.
The pending launch of a judge-led probe into state capture, alongside a series of police raids in mid-February on firms linked to the Gupta brothers (allies of Mr Zuma), which led to several arrests, also heralds a crackdown on corruption. The new vigour being shown by law enforcement agencies exposes the stifling impact of Mr Zuma’s presidency, and also potentially leaves the departing president facing a long string of corruption charges that were controversially dropped in 2009. Mr Zuma is unlikely to enjoy a trouble-free retirement and could even be jailed, but his legal woes and his battle for self-preservation will no longer play a central role in state affairs. Many other high-ranking officials and ANC members are similarly vulnerable to corruption investigations, which could lead to further shake-ups in both government and ANC structures.
Economic challenges and opportunities
Of all the challenges facing Mr Ramaphosa, revitalising the economy after years of insipid growth, rising unemployment and falling private investment is perhaps the most difficult. This is especially true given the urgent need for fiscal consolidation after Mr Zuma’s profligacy and the dire financial position of several parastatal enterprises. The coming budget for 2018/19 will need to show a new commitment to spending restraint in order to preserve South Africa’s investment-grade credit rating for rand-denominated debt. All three of the main rating agencies cut South Africa’s foreign-currency debt to junk status in 2017, while two also made a similar cut to rand-denominated debt; the third, Moody’s, will make a new assessment after the budget. If Moody’s joins its peers, South Africa could face new pressure on the rand, rising interest rates and the possibility of higher inflation, which could stifle any recovery. Fairly steep tax rises therefore seem probable, despite the negative impact on demand, in order to maintain the confidence of external financiers.
Nonetheless, despite the fiscal constraints, Mr Ramaphosa’s election as ANC leader in December and his elevation to the presidency in February are giving a significant boost to business and market sentiment. The rand, for example, climbed to R11.66:US$1 on February 15th, its strongest daily rate for almost three years, which increases the possibility of another interest-rate cut in the coming months. The cut implemented in July 2017—the first for many years—appears to have had a positive impact on household demand, as shown by buoyant retail growth in the fourth quarter of 2017 (of 5.6% in real terms), which would be reinforced by a further reduction.
Policy clarity and structural reform
More important in the medium term, however, is the need for clarity on key policies combined with structural reforms, although some of these will be simpler for Mr Ramaphosa to enact than others. We expect last year’s controversial and damaging iteration of the mining charter to be comprehensively reworked, to the benefit of mining jobs and investment, although politically sensitive issues linked to land reform, labour laws and black economic empowerment will be harder to navigate. 
As a consummate negotiator, Mr Ramaphosa has already secured agreement between business and labour on a new national minimum wage, but attempts to liberalise labour markets will meet with resistance. Land reform is particularly tricky, after the ANC voted in December in favour of expropriation without compensation, although this would first require a change in the constitution. As with minimum wages, however, there is scope for a compromise solution to be found. Energy reforms will be less controversial: Mr Zuma’s removal effectively ends the prospect of a new wave of nuclear power procurement and instead heralds a fresh boom in the renewables programme, which had stalled.
The Economist Intelligence Unit believes that Mr Zuma’s replacement by Mr Ramaphosa will bolster political stability (by reducing the chances of the ANC fracturing), strengthen government effectiveness (by clamping down on corruption) and reinvigorate the economy (by boosting business confidence and investment). The rebuilding may not be rapid and will face occasional setbacks, but South Africa under Mr Ramaphosa appears to be on a more promising trajectory than was the case under Mr Zuma.