While a Cyril Ramaphosa win could mean a positive shift for policy and the country’s ratings outlook, his narrow victory and opposition within the ANC top six means “substantial political obstacles” to reform remain.
This is according to credit ratings agency Moody’s, which released a statement in the wake of the results of the ANC’s elective conference on Tuesday.
Moody’s is the last ratings agency that holds South Africa’s local currency debt at investment grade, which allows South Africa to remain in key global bond indices such as the Citigroup World Government Bond Index (WGBI).
After a series of recent downgrades by Fitch and S&P Global, Moody’s placed South Africa on negative ratings watch but stopped short of downgrading South Africa outright.
Instead it opted to wait until the 2018 February budget, and after the elective conference to make the decision.
Should South Africa finally get downgraded by Moody’s and exit the likes of the WGBI, it is estimated by some analysts that as much $14-billion in capital flows, will leave the country.
Zuzana Brixiova, a senior analyst at Moody’s said that Ramaphosa’s victory meant there could be a “tentative prospect of a shift in policy and a rise in business confidence that could reverse the gradual deterioration in South Africa’s credit fundamentals.”
The “market-oriented” reforms that Ramaphosa had outlined on his campaign were evidence of this, she said, including a balanced macro-economic policy that maintained fiscal discipline; governance reforms at state-owned enterprises and strengthening key state institutions to combat corruption and state capture.
But the relatively strong representation of the opposing faction in the ANC leadership “will likely complicate policy negotiations and could delay agreement on key reforms,” Brixiova said.
Alongside Ramaphosa, the top six is split evenly between those from the Nkosazana-Dlamini Zuma camp, namely Ace Magashule as Secretary General, Jessie Duarte as his deputy and David Mabuza as deputy president.
“In principle, the ANC President is mandated to implement the policies concluded during the ANC policy conference in July 2017. In practice, Mr. Ramaphosa’s narrow victory complicates reaching consensus and leaves room for delays,” she said.
Nevertheless the speedy implementation of even a “subset” of reforms, such those on fiscal stability and SOE governance was likely to boost confidence and growth she said.