Business confidence was undermined by the uncertainties regarding political leadership, state-owned enterprises and fiscal discipline.
Ramaphosa’s stance on corruption and the respect that he has from virtually all business leaders both in South Africa and in the rest of the world could result in the normalisation of business confidence from the current depressed levels.
Furthermore, consumer confidence, especially in the middle to higher income groups, was very shaky, and reflected in poor retail sales as reported by retailers so far for the Christmas season. Ramaphosa’s victory is likely to lead to to those consumers opening their wallets again.
Perhaps most important of it all is the possible impact on the stance of the rating agencies and especially Moody’s. With business confidence a leading indicator for South Africa’s credit rating, and the normalisation and improvement of business confidence, the rating agencies are likely to call a stay on South Africa’s credit rating.
Moody’s review period for a downgrade runs until the 2018 Budget is known in February. Moody’s this month effectively gave South Africa 90 days to do the right thing, otherwise the economy may suffer a major implosion. Ramaphosa’s victory is a major step in the “right thing”.
If Moody’s do not downgrade South Africa, South Africa will remain in the Citi World Global Aggregate Bond Index and $5 billion (R64 billion) will not be sold back into the market.
The SA Reserve Bank’s Monetary Policy Committee (MPC) will be hugely relieved by Ramaphosa’s victory and while its hawkishness will probably remain until Moody’s final decision after the Budget, it is likely the MPC will take a more dovish stance after that and focus on growth.
Ramaphosa’s victory was a victory for all South Africans and, more importantly, realism. Yes, a major turning point in the country’s young democracy indeed.
Ryk de Klerk was co-founder of PlexCrown Fund Ratings and a consultant for PlexCrown Fund Ratings.
The views expressed here are not necessarily those of Independent Media.
- BUSINESS REPORT