South Africa's rand was zooming, but that may be over because Jacob Zuma won't go away

The South African rand has rallied since businessman-turned-politician Cyril Ramaphosa won the leadership of the ruling African National Congress (ANC), but investors’ hopes that this signified the end of corruption associated with embattled President Jacob Zuma may be dashed.

The dollar has fallen 7 percent against the South African rand since Ramaphosa won the ANC leadership contest on December 18.

But, “the positive market reaction to Ramaphosa’s win – which still leaves the rand way below where it was a few years ago – has gone as far as it is likely to,” James Lockhart Smith, head of financial sector risk at consultancy Verisk Maplecroft, told CNBC via e-mail Wednesday.

Rumors concerning Zuma’s future are rife.

CNBC Africa, citing unnamed sources, reported on Friday that the ANC leadership is trying to negotiate an exit deal for the president, aiming for a “pleasant walk away” despite hundreds of corruption charges against him. This is to pacify his supporters within the party.

But, the ANC’s National Executive Committee met for the first time Wednesday since the party’s leadership election, at which it emerged that Zuma’s position was not discussed. Contrary to mounting speculation, “the matter was not for any discussion or debate,” ANC Secretary-General Ace Magashule told reporters, according to Reuters.

Reflective of the rand’s political sensitivity, the currency rallied one percent Tuesday following unconfirmed reports that Zuma had been ousted.

Piotr Matys, emerging market strategist at Rabobank, warned that ousting Zuma could also cause trouble for the South African currency, saying that: “The governing ANC could be engulfed in political bickering between Zuma’s camp and members of the party who voted for Ramaphosa.”

“If such negative scenario unfolds, optimism among investors may fade leaving the rand vulnerable to a round of profit taking,” he told CNBC via e-mail Friday.

“South Africa is poorly positioned relatively to many other emerging markets vis-a-vis the gradually tightening external environment, which will inevitably exert downward pressure as well,” Lockhart Smith added.

The ANC is currently meeting in East London ahead of its 106th birthday on January 13.

“Jacob Zuma’s removal as president is an increasingly urgent priority for the new ANC leader Cyril Ramaphosa,” Ben Payton, head of Africa at Verisk Maplecroft, wrote in a note Tuesday. But, he added that “the details of the power transfer, however, are likely to prevent Ramaphosa from implementing much of his own agenda, at least until after 2019.”

South Africa is in “crisis,” but “ironically that opens up opportunities in certain sectors,” Anna Rosenberg, director for sub-Saharan Africa at Frontier Strategy Group, told CNBC Friday.

The country, which faces “several huge infrastructure challenges” including a lack of electricity and water in some areas, means that “mining companies and the coal sector are doing quite well because there is a lot of money going into electricity generation,” she explained.

Reflective of short-term optimism on Ramaphosa’s potential as a reformer, South Africa’s business confidence index rose for the second month in a row in December, it was announced Wednesday.

But regardless of the hope he may instill in voters and investors, South Africa’s problems will “take several years to address,” Rosenburg added, citing high unemployment and a “huge skills deficit” due to an ill-adapted education system.

Nonetheless, South Africa is “such a large market” meaning that it is “too important to ignore,” she argued.

Facebook Comments

Leave a Reply