Ramaphosa poised to lead South Africa to recovery, Standard Bank says

By David Whitehouse
Posted on Thursday, 24 June 2021 20:36

South African President Cyril Ramaphosa's first major reshuffle includes the appointment of Enoch Godongwana as finance minister. (AP Photo/Kim Ludbrook/Pool)

South Africa is “unequivocally” on the path to recovery as President Cyril Ramaphosa’s strengthened authority is reflected in a series of recent reforms, Standard Bank chief economist Goolam Ballim tells The Africa Report.

Reform of power-generation rules, agreement to allow majority private ownership of South African Airways (SAA) and prosecutions for alleged corruption under former president Jacob Zuma mean Ramaphosa now stands as a “president unleashed,” Ballim says from Johannesburg.

The odds are improving that Ramaphosa will win a second term, which, Ballim says, would open the prospect of a “decade of resurgence” for South Africa.

Ramaphosa this month publicly overruled Gwede Mantashe, minister for mineral resources and energy, by announcing that private companies will be able to generate up to 100MW of their own power without a licence. The reform will create pressure for further changes.

NKC African Economics analyst Louw Nel argues that power generation has joined a long and growing list of things that companies and affluent South Africans are looking to source privately rather than from the state.

  • Given the country’s heavy tax burden, “the sustainability of the system comes into question,” Nel writes in a research note.
  • Power-generation reform also threatens the long-term income generation of state-owned Eskom and the plans to split the utility into three business with a view to privatisation, Nel argues.
  • The deadline for the legal unbundling of the utility in December is “an ambitious goal”, Nel writes.

The government has also agreed to relinquish its controlling stake in SAA after selecting the Takatso Consortium, which is now conducting due diligence, as its preferred strategic equity partner, with a stake of 51%. The prospect of SAA being majority held by a private shareholder is a “substantive leap,” Ballim says.

Ballim also points to the establishment of an independent national ports authority as a subsidiary of Transnet as likely to spur improvements in the country’s rail network. He is optimistic that the momentum will continue in the second half of this year, leading to a “material mood lift” on South Africa’s prospects.

  • Institutional and macroeconomic reforms will continue.
  • Covid-19 vaccine deployment will speed up, with Ballim anticipating that several million South Africans will have been vaccinated by year end.
  • There will be further investigations into alleged malfeasance under former President Zuma, when, Ballim says, “impunity was the order of the day”.
  • Zuma has claimed that allegations of corruption against him are politically motivated and that judges are being bribed to favour Ramaphosa’s agenda.
  • Evidence of alleged corruption, which Ballim expects to be presented by the National Prosecuting Authority, will “strengthen the sense of an improved governance environment,” he says.

Rest of Africa

Equities in South Africa are cheaper than emerging-market peers on measures like price-to-earnings and price-to-book, Ballim says. The country’s banks, he argues, have shown “enormous resilience” during Covid-19 and together with retail and real estate investment trusts (REITs) now offer “compelling value”.

Ballim sees the rand as currently close to fair value, and, though a volatile currency, unlikely to drop substantially in the near future.

Ballim predicts an “asymmetric” global economic recovery, with prospects for Africa as a whole held back by the “dark face of vaccine nationalism”. Still, Western economic recovery will benefit South Africa due to the country’s strong external linkages, he says.

Prospects for recovery are less clearcut in oil-dependent African countries, he argues.

  • Nigeria and Angola may remain trapped in single-digit growth because of their reliance on oil, he says.
  • Ballim sees the Democratic Republic of Congo and Zambia as having better growth prospects due to their non-oil resources.
  • Zambia, he argues, could follow Ghana’s trajectory in recovering from deep debt to achieve consistent economic growth.
  • Mid-sized East African countries such as Kenya also have strong potential to outperform in coming years, he adds.

Bottom line

Ramaphosa has managed to create the strongest narrative of South African recovery for years – the challenge is to turn the narrative into economic growth and jobs.

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