Ramaphosa wields a new broom

published 23 February 2018

884_MW_P05_Markets — Ramaphosa: the main mover in an extraordinary and uplifting week

"It has been an extraordinary, uplifting" week in South Africa, says Ivan Fallon in The Sunday Times. Jacob Zuma's inept and scandal-ridden presidency finally limped to a close on 14 February when he stepped down as president. His ruling ANC party had threatened to force him out by supporting the opposition's no-confidence motion in his government on Thursday. The pragmatic, reformist Cyril Ramaphosa, who had already been elected the next ANC leader in December, was sworn in on 15 February. Stocks soared, the currency the rand jumped to a three-year high against the dollar, "and a leading economist got so carried away by the euphoria that he doubled his growth target for this year".

New leader's strong start

Zuma came to power eight years ago "and lived down to the lowest expectations", says the Financial Times. The economy is in intensive care (see below), while Zuma faces 783 counts of corruption. "A culture of graft has permeated right down to local councillors," says The Economist.

The new president will have to tread carefully as he sets about cleaning up the mess. Powerful ANC factions will try to shield incompetent ministers and if he moves too fast "he risks splintering the party", says The Economist. Still, Ramaphosa is up to the job. He led the ANC delegation during talks to secure the end of apartheid in the early 1990s, proving he was "patient and prudent". He also has experience as a trade unionist and as a leading businessman in both careers he earned "a deep well of goodwill."

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Ramaphosa has made an excellent start, says David Everatt in South Africa's Mail & Guardian. Shortly before Zuma was ousted, the home of the powerful Gupta family, who are said to have had undue influence on government tenders, was raided by police. The board of the state-owned power company, Eskom, riddled with Zuma cronies, was cleaned out last week. Now "fear has begun to percolate through to all those eating South Africa's public funds".

A long to-do list

There are also several structural problems facing the new president, adds The Economist. The labour market is inflexible and workers are poorly educated; a survey by the OECD club of rich countries ranks South Africa's education system as 75th out of 76. The health system is a mess and the country's infrastructure needs investment. It's a daunting task. But for now, says The Sunday Telegraph's Ben Marlow, "there is a palpable sense of optimism".

How Zuma trashed a golden economic legacy

The South African economy is "teetering" following the "Zuma melodrama", says The Wall Street Journal (see left). Post-apartheid growth was brisk under Nelson Mandela and Thabo Mbeki during the 2000s. With the commodity boom providing an additional fillip, GDP expanded by an average of almost 4% per year.

Zuma's spendthrift and corrupt regime threw sand in South Africa's economic engine. Public debt has soared from around 30% of GDP to more than 50%. Spooked by Zuma's transparent attempts to get rid of a finance minister who had tried to stem the cronyist tide, credit-ratings agencies have downgraded South African paper to junk.

Foreign investors, irritated by the inefficiency resulting from corruption one of Zuma's ex-girlfriends ran South African Airways into the ground, for example decided that their money would be better spent elsewhere.

Business confidence hit a 32-year low in 2017, further undermining growth. Now annual GDP growth is around 1%, which is nowhere near enough to make a dent in the unemployment rate of 26%.

Output per head has stagnated. And longer-term obstacles to growth such as poor education remain unaddressed. But at least now, says George Hay on Breakingviews, "the brakes on South Africa's economy are about to be removed".

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.