Ramaphosa goes from zero to hero

The optimism surrounding the formation of the Government of National Unity (GNU) and its potential benefits for the South African economy has bolstered President Ramaphosa’s image as a business-friendly leader. 

South Africa has been plagued with high levels of political uncertainty since 2008 when Jacob Zuma replaced Thabo Mbeki as the ruling party and country’s leader. 

Seemingly random Cabinet reshuffles late at night were coupled with ambitious nuclear deals with Russia and the hollowing out of state institutions. 

Despite widespread optimism, Ramaphosa’s first term was more of the same. The government sought to maintain state monopolies in key areas of the economy, such as electricity and logistics. 

In the buildup to the country’s national elections at the end of May 2024, political uncertainty surged as pollsters predicted the ANC would lose its majority. 

This meant the country would have a coalition government at the national level, and there was much debate as to who would form part of it. 

The ANC under Ramaphosa appeared to be split between working with more ideologically similar parties, such as the EFF and MK Party, or the more business-friendly DA and IFP. 

One would potentially plunge the country into another era of state capture, while the other had the potential to reignite the local economy. 

On 17 June, Ramaphosa and the ANC formed the GNU with the DA and IFP as its key partners alongside seven smaller parties. 

This marked a watershed moment for South Africa, with its future no longer reliant on the decisions of a single party for the first time. 

The GNU has also been broadly seen as more business-friendly than any other government, which has significantly boosted investor sentiment. 

As a result, South African financial assets have seen a broad-based recovery, with the rand strengthening by nearly 5% since the elections at the end of May. 

The JSE All Share has also hit all-time highs in recent weeks and is up over 10% since the end of May, despite giving up some gains so far in September. 

Investors are also more positive about the financial health of the country, with the 10-year bond up 17% since its pre-election lows. 

In the first five months of 2024, South African equities and bonds experienced average monthly outflows of around R10 billion. Post-elections, there were inflows of R4.5 billion in June and R5.8 billion in July. 

Standard Bank CEO Sim Tshabalala told Daily Investor that the bank is seeing far greater interest from foreign investors regarding South Africa following the formation of the GNU. 

81% of foreign investors surveyed by the bank said they were either positive or very positive about the outcome of South Africa’s election. 

More importantly, 95% of respondents suggested they plan to or are considering increasing their investments in South Africa in the next few years. 

Improved investor sentiment can be seen in the below graph, showing how the rand had strengthened since the end of the election and a decline in government bond yields. 

This marks a strong contrast from the sentiment towards South Africa before the election and, more particularly, how President Ramaphosa was viewed. 

In the years leading up to the election, Ramaphosa was seen as lacking a backbone and unable to unite his party behind increasing private-sector participation in the economy. 

However, the election has appeared to free up space for the ANC under Ramaphosa to be accommodative towards greater private sector involvement in key economic areas. 

The ANC has now come to the realisation that it needs help from the private sector to grow the economy, and the government ought to create an enabling environment for companies to expand. 

Ramaphosa has driven this process, making it clear at several State of the Nation Addresses and recent speeches that the government has to work with the private sector. 

Reforms in the electricity sector have had a particularly positive impact, with the country not experiencing load-shedding for over 165 days. 

PSG chief investment officer, Adriaan Pask, said the GNU has injected a breath of fresh air into the national government and President Ramaphosa. 

There appears to be a real commitment to reform, and crucially, these reforms are already underway and are not merely being discussed. 

Last month, Ramaphosa reaffirmed the government’s commitment to a new era of business and government collaboration. 

Following a meeting between the Cabinet and key business leaders, Ramaphosa called for the acceleration of the implementation of vital reforms opening up sectors such as electricity generation and logistics to private competition. 

Ramaphosa also flagged improved business confidence since the election as evidence of the positive impact provided by the GNU. 

He said the country was seeing increased confidence from investors and businesses in the country that would filter through to investments and economic growth.