Category Investments

ANC are given one last chance to implement reforms, as likely election victory emerges

13 May 2019 Old Mutual

With around 85% of the vote counted it seems as if the positive outcome that many had hoped for is playing out. By midday the latest results reflect an ANC share of the vote at around 57.1% with the DA around 21.5% and the EFF around 10.2%. This is according to Old Mutual Investment Group Chief Economist, Johann Els, whose base case assumptions for a positive outcome were ANC at 58% to 60%, DA at 20% and EFF at 10%. With the outstanding 25% likely to be largely a rural vote, Els believes that the ANC can still get to this target assumption, giving President Ramaphosa one final chance to implement reforms.

“This is therefore the positive election outcome we had hoped for in order to boost economic confidence,” says Els. “The likely result, while not as high as the last national elections in 2014, is a marked improvement on the 54% share of votes that the party achieved in the 2016 local elections and should enable President Ramaphosa to institute policy changes more decisively over the next few months and to further build on the reforms he has managed to implement since taking office.” Els does not believe that these changes will happen overnight, but he says that confidence should improve gradually going forward and the President’s $100 billion investment target should be met with little trouble over the next four to five years once confidence and growth have recovered into 2020/2021. “Ultimately, the next three to five years will be a far better environment for the SA economy than the past five to eight years.”

While the rand continued to be buoyed by the positive sentiment around the latest result, building on its gains over the last few days, he highlights that, given the result, the balance of power in the NEC is likely to shift more decisively in favour of the President. “This is encouraging as we have seen steady progress in turning around key government institutions since Ramaphosa became President of South African in 2018,” explains Els. “He has overseen the appointment of state-owned enterprises boards and management; the appointment of a credible SARS Commissioner and, critically, the appointment of the respected Shamila Batohi as National Director of Public Prosecutions.” He believes these changes should improve governance over time, which is necessary to rebuild confidence in South Africa.

“This result is positive in more than one way. The improved share of the ANC’s vote share is obviously the first consideration, but the outcome also clearly points to the pressure from the voting public to accelerate economic reforms. This should be encouraging for President Ramaphosa as it gives him a clear mandate to move decisively to get the economy off the ground,” he says. “On the negative side, this is probably the last opportunity for him to do this – it is clearly now or never.” He adds that foreign investors and ratings agencies will not give SA further leeway. “We have called this theme the ‘Winds of Change’. Over time, we think it will result in lower risk premiums being embedded in South African assets. It can also result in better confidence in South Africa’s long-term future and this should lead to somewhat higher growth. We’ll be watching carefully in the weeks and months following the election to see how this theme evolves. Critical signposts will be how effectively Ramaphosa restructures his administration and how he handles the restructuring of Eskom.”

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