South Africa: Promising to tackle rampant corruption, Ramaphosa is sworn in as president
February 19, 2018
Cyril Ramaphosa was sworn in as South Africa’s new president on 15 February after Jacob Zuma resigned from the post the previous day, following intense pressure from the African National Congress (ANC) party. The news has led to cautious optimism on the country’s economic course, as analysts expect that policymaking and governance will improve. This was demonstrated in the FX and financial markets, with the South African rand reaching an almost three-year high on 16 February. While recent developments are welcome news, the medium- and long-term outlooks remain clouded, and the new president faces the daunting task of reviving the economy.
The election of Ramaphosa, the former deputy president, as ANC president in December was a defining factor that catalyzed Zuma’s rapid exit, following nine years of rule. The ANC pushed Zuma to step aside from his presidency, which had been plagued by corruption scandals and poor economic management, before next year’s presidential elections. Shortly after taking office, Ramaphosa pledged that tackling corruption and taking on high-profile corruption cases involving Jacob Zuma’s inner circle will be main priorities. The government is hoping to quickly improve the ANC’s tarnished image and distance itself from Zuma’s presidency. Since Zuma took office in 2009, GDP growth slowed substantially, public debt soared, unemployment climbed, and the currency depreciated sharply.
The first challenge Ramaphosa faces is the 2018 budget, to be unveiled on 21 February. It will outline the government’s fiscal plan and how the administration envisions putting public debt levels on a more sustainable trajectory. If the budget fails to convince analysts, it could trigger a credit rating downgrade by Moody’s. Such a decision would likely trigger a sell-off of South African bonds, putting pressure on the currency. Economic measures will also take a key role in the budget, as growth will remain sluggish without deep-seated reforms.
In his State of the Nation Address on 16 February, the new president pledged to reform the country’s dysfunctional state-owned enterprises and cut the bloated public sector to contain soaring public debt. Programs to boost employment and improve access to tertiary education will also be implemented to lower the unemployment rate, which closed 2017 at 26.7%. These measures, along with targeting corruption more actively, are necessary to restore confidence among investors and put the country on a faster growth path.