Johannesburg fin24 – As the country awaits the final exit of President Jacob Zuma, economists believe the climate of renewed hope bodes well for South Africa’s future.
The ANC on Tuesday confirmed its decision to recall Zuma after he refused to resign voluntarily, despite being asked to do so by the ANC’s Top 6. Economists however speculate that this is only a short-term obstacle and that his office will be vacated shortly.
Zuma was not given a deadline to resign, but the ANC was hopeful that it could happen on Wednesday.
Fuelling optimism was the belief that pro-business new ANC president Cyril Ramaphosa will get South Africa’s lacklustre economy going again. However, economists said next week’s Budget Speech could be a crucial indication of whether the tide has turned in South Africa.
Lullu Krugel, chief economist for PwC Africa, said the last couple of weeks have provided interesting developments, with portfolio inflows coming into the country due to perceived positive sentiment.
“The rand has strengthened as news of the potential change in government started taking seed,” she said.
For the first time, the Reserve Bank could talk to investors at the World Economic Forum in Davos without having to explain the poor conditions back home, she added. And last week at the Mining Indaba, business confidence was probably at its highest level in 10 years.
“There is a lot of positive sentiment as the markets prepare for a new presidency they perceive as pro-business,” Krugel said. However, she cautioned that structural challenges remain and that the new leadership has to address this to keep positive sentiment going.
“The euphoria might abate, and implementation of the new policies will be crucial,” she said, urging South Africans to keep an eye on the Budget Speech as the country’s way forward under Ramaphosa.
Krugel said despite the slow progress in convincing Zuma to leave, the markets believe that it will happen.
“It believes this is going to happen,” she said. “The markets are convinced the ANC has made the decision.”
Political economist Daniel Silke admitted the level of uncertainty creates concern in the business sector. But he said the uncertainty is short term, holding the view that businesses have moved to a post-Jacob Zuma era.
He cautioned there still needs to be a centre of power before the Budget Speech, scheduled for February 21.
“The impasse of leadership can affect the Budget Speech,” Silke said.
If there is no leadership change, the budget could be postponed and the economy could enter a danger zone, possibly leading to a weakened rand.
He called for an urgent resolution, adding that Ramaphosa should be decisive and build positive sentiment for the country.
“Ramaphosa needs to show political leadership – with that he could succeed in achieving an economic revival,” Silke said.
Efficient Group chief economist Dawie Roodt said there are only two options on the table: Zuma either resigns or he will be removed.
‘Sugar high’ for markets when Zuma leaves
The financial market is likely to respond positively when Zuma leaves, giving it a “sugar high”. He believes the rand could spike by 10 cents or 20c at most, before returning to normal.
The rand did initially firm on news of Zuma’s recall on Tuesday afternoon, but reversed gains over the uncertainty around the timing of his resignation.
“The Budget Speech will reveal that we are in trouble,” Roodt said, adding that a change in political leadership is just the beginning.
Standard Bank economist Kim Silberman also believes the market might experience some uncertainty as Zuma’s future is bashed out, and cited next week’s budget as a crucial moment.
“I have heard analysts say that the Budget Speech could be put on hold and I think such assumptions are negative,” Silberman said. A postponement, she said could have a negative effect on the economy – but she doubted that this would happen.
Assets have been pricing well and there is hope for an optimistic political response, she said, adding that markets seem to be aspiring towards a positive resolution as soon as possible.
source – fin24