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Ramaphosa’s victory welcomed by investors provided he fulfills promises

2019-05-22  Edgar Brandt

Ramaphosa’s victory welcomed by investors provided he fulfills promises

WINDHOEK – The recent election of Cyril Ramaphosa as South African president augur’s well for investors, provided the newly elected leader sticks to his promises to stamp out escalating corruption, turn around ailing state-owned enterprises and drastically reduce unproductive government expenditure. However, local economists have cautioned that the South African rand, and by default the Namibia dollar, will continue to be volatile against major currencies as its performance is also determined by external factors. 

“The share of the votes the African National Congress received will strengthen Ramaphosa’s hands to address the corruption within the party, but also in the economy, in particular certain public enterprises. It can improve the confidence of domestic and foreign investors in the economy if he follows through with his promises to clean up. The first test will certainly be the naming of his new cabinet, not only the new ministers but also the size,” said local economist Klaus Schade. 

However, Schade cautioned that quick fixes should not be expected because turning around some of the crucial state-owned enterprises such as Eskom and South African Airways will take time. 

“Furthermore, the prospects for the South African economy do not only depend on internal factors, but also on the global economic environment. This has changed for the worse after the increase in tensions between the USA and China, the USA and Iran, the USA and the EU as well as the continuing uncertainties surrounding Brexit. These are also the factors that will influence the South African rand. We can expect a continuation of the rand’s volatility, depending on investors’ sentiments towards emerging markets,” said Schade in response to questions by New Era. 

The South African rand firmed on Monday after a sharp slide last week as a global sell-off in risk assets slowed. At 1510 GMT on Monday the rand was 0.52 percent firmer at 14.3725 per dollar compared with its Friday close of 14.4475 in New York. Last week the rand and other emerging market currencies weakened as the trade spat between China and the United States of America worsened, while solid economic data from the USA also pushed money towards the greenback. This means that the rand shed close to two percent in the previous week but remained one of the better performing emerging currencies as the post-election positivity limited losses, with investors awaiting the announcement of a new cabinet.

Weighing in on the debate, Managing Director of Twilight Capital Consulting, Mally Likukela, said South Africa’s economic outlook looks bright and has improved investor confidence as all the signals point to a continuity of Ramaphosa’s policies after he took over from previous President Jacob Zuma. Likukela noted that this outlook will remain steadfast provided policies Ramaphosa introduced will continue uninterrupted. 

“The South African rand will continue to experience volatility as it is extremely sensitive to any new political developments. In fact, it is completely natural for a currency to fluctuate. However, in the long term I expect the rand to firm even more due to the strengthening of gold and other precious metals,” Likukela concluded. 

2019-05-22  Edgar Brandt

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