South Africa: Hopeful times

Yesterday in South Africa, President Jacob Zuma resigned from his office. By so doing, he prevented both himself and his party from being defeated by a no confidence vote in parliament. Zuma has survived such votes on many occasions in the past, but this time the opposition and ruling ANC seem to have agreed that the time had come for the President’s departure. Vice President Cyril Ramaphosa, who has also been Chairman of the ANC since December 2017, is now the country’s new President. Parliament has thirty days in which to confirm this and is most likely to do so, given the ANC majority. The vote should reveal the extent to which Ramaphosas enjoys the support of his party.

What advantages are to be gained from this swift and comparatively smooth change in power? Cyril Ramaphosa can now start earlier with his political agenda that focuses on growth by improving conditions in the corporate sector, greater support for education and implementing anti-corruption measures. This should strengthen confidence within the country as well as among external investors and thereby make an urgently required contribution towards boosting growth. Over the last three years, GDP has gained on average less than 1 percent per year. It might even be possible to prevent the imminent rating downgrade by the agency Moody’s provided the country can convincingly convey its political new start swiftly and credibly. An important indication of this will most likely be the presentation of the key budget figures which are due for release in the coming days.

Aside from these expectations, it should still be borne in mind that even a new President will only be able to resolve the considerable structural problems of South Africa after a period of time, backed by favourable economic conditions and a great deal of political support. The government will still be able to promptly influence the institutional framework which needs to be strengthened after having suffered under Zuma’s rule. On the other hand, the enormous social imbalances, the now limited fiscal scope, the chronically deficit current account and infrastructure deficiencies represent considerable and long-term challenges.

The latter-named factors should prevent investors from becoming overly euphoric about South Africa, particularly as the new government must now first of all „deliver“. Nevertheless, the reduction of the political risk and the prospect of South Africa’s growth gathering fresh momentum nurture hopes of a new upturn on the Cape which could mean the end of the very pessimistic perspectives of past years.

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