CAPE TOWN - President Jacob Zuma’s announced his resignation as the country's head of state on Wednesday night.
We look into what changes consumers can expect in the country, now that the former President of the republic has yielded to the National Executive Committee’s (NEC’s) call for his resignation.
Will South Africa enjoy victory?
According to Chief Economist at Investec, Annabel Bishop, South Africa has already enjoyed a victory of R30.2 billion foreign investment since Cyril Ramaphosa succeeded Zuma as President of the African National Congress (ANC) at the end of 2017.
This strengthened the rand by close to R2 against the dollar.
Bishop says that financial markets favour Ramaphosa as it is perceived that he will deliver good governance.
Zuma's damaging leadership
Meanwhile, Zuma’s leadership has been severely damaging to the country, suppressing investment and economic growth. Bishop notes that business confidence has been depressed since 2009, averaging at 41%. This is significantly lower than the neutral 50% level.
During Zuma’s leadership, there has been credit rating downgrades and higher cost of borrowing.
Changes we can expect
Given South Africa’s Constitution, whether Zuma is removed from office through recall or a no confidence motion, the Deputy President, Ramaphosa will then occupy office and complete the term of the removed President.
The new President will then also be allowed to fill two of his own terms as President afterwards.
Bishop says that based on financial markets and the business sector’s favour toward Ramaphosa as President of the ANC, it is considered that he will follow economic policies that support economic growth and lean towards the free market approach.
She adds that this may also improve business confidence in the first quarter of 2018.
This can have a direct impact on investment and job creation.
“A marked rise above the neutral 50 level in business confidence would likely spur some fixed investment and job creation, but sustained faster economic growth for SA of the magnitude of 5% plus, will take time, as significant deterioration has occurred in SA’s previous key fundamental strengths, but for this repair to take place requires many more urgent interventions now”, says Bishop.
Bishop says that overall, South Africa could see a “better than expected economic growth outcome” this year and the next.
“South Africa can eventually regain it’s A grade credit ratings, see unemployment drop below 22% and have sustained economic growth above 5.0% y/y again, and repair both its public and SOE finances as it has the capacity to do so, butmust now reduce the size of the state substantially, and allow conditions that see the private corporate sector triple in size”.
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Will Zuma resign?
Had Zuma refused to exit, the next step to remove him from Presidency would've been to either cast a no confidence vote or a legal challenge to his right to be president (impeachment).
However, this would've reshuffled the entire Cabinet.
“The Centre for Constitutional Rights (CCR) says a passed motion of no confidence “remove(s) not just the President from office, but also, the Deputy President, the entire Cabinet, as well as Deputy Ministers. Thereafter, the Speaker of Parliament assumes the President’s office in an acting capacity until the members of the National Assembly elect one of their own to occupy the office of the President.” (CCR) The Deputy President would then remain an ordinary Member of Parliament, and would then need to be elected President by the other members of parliament”.
“While higher commodity prices have given the mining sector some lift, substantial direct investment (both foreign and domestic) would bring both this sector and the manufacturing industry back to life after almost a decade of weak outcomes on high political and policy uncertainty levels. While South Africa’s outlook looks brighter than it did several weeks ago, many hurdles need to be overcome including funding and governance of SOEs other than just Eskom, the extreme expenditure pressure on public finances which has resulted in over borrowing and credit rating downgrades (with SA now facing full sub-investment grade status), the lack of substantial free market, structural reforms and many poor performing government departments”.
Concern for consumers
Bishop says that since 2009/2010, economic growth in SA has fallen to around the 1.0% or less on an annual basis since both business and consumer confidence has been depressed.
As a result, unemployment has risen towards 30% over nearly ten years. This has been concerning for consumers, says Bishop.
Coupled with petrol hikes, the overall cost of living has escalated progressively.
Can we expect a strengthening rand?
"An early Zuma exit could potentially see the rand pierce the R11.70/USD key resistance level, and then move towards R11.00/USD providing that Cyril Ramaphosa can assume Presidency of SA without any conditions that hamper his ability to follow the free market reforms necessary to avoid further credit rating downgrades, eradicate corruption and deliver rapid economic growth", says Bishop.
While Zuma will reportedly exit from office one way or the other, Bishop says that an elegant exit along the lines of the Thabo Mbeki experience would be the least disruptive for financial markets and the economy at this point.
Weaker rand
While the rand has the potential to respond well to Ramaphosa's leadership, Zuma's dragged out term in office could potentially cause the rand to subside weaker towards R12.35/USD, says Bishop.
This is especially possible if Zuma were to still remain in office for SONA and the Budget.
The country will now wait for Moody's decision to review the country’s ratings to junk status and possibly drop the country’s ratings to junk status (all of SA’s credit ratings from the key agencies would then be on junk status) after the budget.
"Such uniform junk credit ratings for SA could see the rand move towards R13.00/USD with the national Budget (21st February) a key factor for SA’s credit ratings", concludes Bishop.