Roadblocks lie in wait for Ramaphosa


New South African president Cyril Ramaphosa will need all his dealmaking skills to overhaul ailing state-owned firms and tackle land reform if he wants to capitalise on Moody’s decision not to downgrade the country’s debt to junk.

Moody’s said its decision to keep South Africa’s rating at investment grade reflected its view the country’s institutions would regain strength under more transparent and predictable policies – though the new government has to stay on track.

Since replacing Jacob Zuma in February, Ramaphosa reappointed the finance minister his predecessor fired in 2015, sacked some ministers allied to Zuma, put another respected former finance minister in charge of struggling state-owned firms and suspended the head of the revenue service.
“It’s a big deal,” political analyst Ralph Mathekga said about Moody’s decision. “What he has been able to achieve in two months is to reverse some of Zuma’s influence in key sectors. The message he sent is: ‘I can do more’.”

After his whirlwind start, Ramaphosa’s challenges now include keeping the unions on side as government overhauls cash-strapped national carrier South African Airways (SAA) and heavily indebted state power utility Eskom.

Perhaps his stiffest test will be to push through land expropriation, as promised, to address racial disparities in ownership – while keeping the left wing of the ruling African National Congress (ANC) on board and not scaring off investors.

Parliament passed a motion last month seeking to change the constitution to allow land expropriation without compensation. Ramaphosa promised to speed up transfer of land to black people, but stressed the need to preserve food security.
“A big deliverable is to initiate the land debate under his leadership to control the narrative and discourse. Should he fail to do this, he runs the risk of undoing good work already done,” said Daniel Silke, director of Political Futures Consultancy.

Ramaphosa’s negotiating skills have been respected for decades, ever since Nelson Mandela turned to the former trade union boss to lead negotiations to end white minority rule.

More recently, Ramaphosa had to strike a fine balance between pressuring Zuma to go, while still affording him a dignified exit. Now, some analysts say land reform is Ramaphosa’s litmus test.
“Are we over-estimating Ramaphosa’s ability to deal with this land issue? It is undoubtedly one of his biggest challenges. Investors are worried about this and watching him very closely,” said independent political analyst Nic Borain.

When it comes to South Africa’s struggling state-run companies, Ramaphosa will need to perform a balancing act and he has named respected former finance minister Pravin Gordhan as minister of public enterprises.

Eskom and SAA are weighed down by massive wage bills but the country’s powerful unions are likely to dig in their heels at any attempt to cut jobs, especially with elections looming in 2019.

Influential labour leaders, sections of the ANC and the opposition Economic Freedom Fighters are likely to baulk at moves to partially privatise the companies, a strategy backed by the Treasury.

South African Airways runs one of Africa’s biggest fleets but years of operational losses have left it on the brink of bankruptcy. It needed a bailout in July to repay debt and 20 billion rand ($2 billion) in state guarantees to keep it afloat.

Eskom received a five billion rand loan in February from the state’s Public Investment Corporation (PIC), which holds a large amount of government bonds and ranks as Africa’s biggest investment fund, or it would have defaulted on its debts.
“There is going to be some tension when job cuts are announced. It is a delicate balance because it could impact the support base of the party ahead of next year’s elections,” said Borain.

Ramaphosa has already taken the politically risky step of raising value-added tax (VAT) for the first time since apartheid to reduce the budget deficit and analysts say he is unlikely to back down on reforms.
“He did not give in to populism on VAT; this was a good example of him having to do something unpopular but necessary,” Borain said. “He is known to be a good negotiator.”

Finance minister Nhlanhla Nene expressed hope S&P Global Ratings and Fitch might also look favourably on South Africa during upcoming reviews, saying investors he met at a roadshow in London before Moody’s decision were upbeat.

S&P downgraded South African local currency debt to “junk” in November citing deterioration in the economic outlook and public finances. Fitch cut its rating in April to sub-investment grade after Zuma fired Gordhan as finance minister. S&P will publish its review on May 25. Fitch has not given a date.
“I want to call this a honeymoon phase – and for that reason we cannot be complacent about it,” Nene told Talk Radio 702.