Jacob Zuma, South Africa’s embattled former president, is now officially out of power and is facing prosecution for corruption charges. Can his replacement, the 65-year-old Business tycoon Cyril Ramaphosa, bring stability to what was once one of the world’s top performing emerging markets?
Global investors are certainly hoping he can. The new government has made a good start, with a cabinet reshuffle that has restored familiar faces like Nhlanhla Nene as finance minister and Pravin Gordhan to the ministry of public enterprises.
Last year, the political turmoil prompted ratings agencies S&P and Fitch to downgrade South Africa’s sovereign rating from BBB- to BB+, to speculative or “junk” levels, with a negative outlook. Meanwhile, Moody’s also placed its Baa2 rating on downgrade review.
Markets have cheered the delivery of a new budget, but the number of Zuma holdovers lingering within the government could be a bad omen.
“The government will need to prove it is free of the cronyism and incompetence of Zuma’s government despite these remnants,” Craig Botham, chief emerging markets economist with Schroders Investment Management told CNBC.
“On top of this, it needs to address the yawning fiscal deficit, restore confidence and bring back investment, and address the thorny issues of state-owned enterprise governance, the mining charter and energy policy.”
In 2017, South Africa’s economy ended on a note that was stronger than many expected. Still, the International Monetary Fund recently downgraded its growth estimates for both 2018 and 2019.
Investors, however, remain sanguine that the end of a political crisis fomented by Zuma can repair the damage to confidence and investment.
“That this has been resolved favorably will do a lot on its own to give South Africa a bit more growth,” Botham added – and could be enough to stave off a credit downgrade that could scare away foreign capital.
“The review is due this month, I believe. My assumption would be that the cabinet changes and budget have been enough to buy the country time, but progress will need to be maintained,” he added.
Source : CNBC