Cyril Ramaphosa was elected president of the ruling African National Congress (ANC) party in December 2017 by an incredibly slim margin, securing just over 51% of the vote.
Two months later, following the resignation of his scandal-plagued predecessor Jacob Zuma, he stepped up to the top job and became president of South Africa.
The Zuma legacy has collided with challenging economic and social conditions to make this election one of the year’s most interesting.
But, amid the chaos and rhetoric, South Africans are just trying to live their lives and plan for the future.
To get a better understanding of the politics and what it could mean for South African investors, International Adviser reached out to Citadel Wealth Management and Ascor Independent Wealth Managers to get some insights.
ANC election performance
South Africa’s ruling party has enjoyed considerable success since its blazed to power in 1994 under Nelson Mandela, securing 62.7% of the vote.
The Thabo Mbeki years saw this proportion rise to 66.4% in 1999 – then to 69.7% in 2004.
Zuma’s leadership of the ANC, however, saw people become disenchanted with the party. The percentage of votes garnered following his election campaigns fell to 65.9% in 2009 and then to its lowest ebb of 62.2% in 2014.
But the national campaigns are only one part of the story, Citadel chief economist and advisory partner Maarten Ackerman told IA.
“The ANC has moved backwards over the past five years and the real evidence of that is in the municipal elections, which are similar to the US mid-terms,” he explained.
The 2016 elections saw the ANC lose ground, achieving just 53.9% of the vote. This compares with nearly 62% in the previous election.
South Africa’s second-largest party, the Democratic Alliance, recorded a nearly 3% rise to garner almost 24% of the vote.
Third place was claimed by newcomers the Economic Freedom Fighters (EFF) with 8.2%.
For Ackerman, the important thing to note is that voters did not switch allegiance. “If you look at the numbers, people who had voted for the ANC before simply decided that they were going to stay home and not vote at all this time around.”
This means that one of the biggest tasks for Ramaphosa is to convince voters to turn up.
Not just to ensure that his party is not forced into a coalition, but to demonstrate that he was chosen by the people and not just the ANC.
Economic Freedom Fighters
Firmly positioned on the far left of the political spectrum, the EFF has been making a lot of noise and generating a lot of headlines ahead of the election.
It was founded by Julius Malema in 2013 after he was expelled from the ANC in 2012 for bringing it into disrepute.
His party has very radical views on how to improve the massive inequality still prevalent in the country and, according to the media, is the only one showing signs it will gain votes next month.
Ackerman sees the EFF as benefitting from the rise of populist movements around the word, in terms of the media attention it is getting. “A more middle-of-the-road party in a similar election would not have received the same airtime.”
He added that it is typical in South Africa for parties to be formed, garner less than 10% of the vote in a couple of elections and then disappear.
But if Ramaphosa is not able to convince the people to come out and vote for him it could force the ANC to form coalitions in some part of the country.
“Then the EFF could have a bit more leverage and power,” Ackerman said. “But that is something that we will need to look into at that point in time.”
South Africa’s president is not just fighting off newcomer parties while trying to convince the public that they should vote for him, he also has to bridge the divide within his own party.
“You have a very strong Zuma faction and then there is the Cyril faction, which we know is split about 50/50,” Ackerman said. “This won’t change after the May election, that will only happen after the next ANC conference, which is in 2022.”
Add to this inadequate infrastructure hampering development plans, a struggling economy, labour market inflexibility and high unemployment – Ramaphosa is in an unenviable position.
But what about South Africa’s investors?
Don’t get emotional
The advice from Ascor managing director Wouter Fourie is “do not panic and make rash decisions based on emotions and insufficient information”.
His colleague Martin de Kock, who is a director at Ascor, added: “Assuming you have a robust investment strategy, the best advice is to stick to your plan and not pay too much attention to market noise.”
A sentiment with which Ackerman concurs.
“People should not conflate the economy and the markets,” de Kock said. “While the economy has taken severe strain under Zuma, the markets have been relatively stable.
“Keep in mind that almost 75% of the income from the top 20 companies on the Johannesburg stock exchange is now earned outside of SA’s borders.”
Fourie added: “If Ramaphosa can gain the internal support he needs, we believe that he will enact the political and economic changes he has been talking about.
“This, in turn, gives investors and the rating agencies the stability they have been calling for.”
Again, Ackerman agrees. “If the current team gets a mandate to executive the policy that is on the table right now and in the pipeline, then the next 10 years are probably going to be much better for South Africa than the last 10 years.
“And that should be beneficial for most investors as a result.”
That’s not to say it will be smooth sailing, as “investors should be under no illusion that it won’t take the better part of three-to-five years to see progress. But it is do-able”, Ackerman added.
“I do not think it is a Doomsday scenario and the current polls point towards Cyril making progress.”