If you’re in any doubt about how devastating bad politics can be for business, just ask Liz Truss. Or, in fact, Robert Mugabe, Jacob Zuma or Vladimir Putin.
Those who saw the rand tumble 4% and bond yields spike to their highest levels since 2020 as the full impact of the Phala Phala report sank in last week witnessed just such a moment first-hand.
Within hours, the Premier Group had postponed its listing on the JSE, citing uncertain markets, while the JSE saw the biggest net foreign selling of South African equities in three months (R3.6bn sold) and of bonds in nine months (R8.1bn sold).
While Ramaphosa didn’t resign last Thursday as he’d threatened to, the bad news is that markets are likely to remain volatile and the rand on the back foot until there is clarity over what will happen with the ANC’s leadership.
Worse: if the uncertainty is prolonged, it could shave as much as a percentage point off the Reserve Bank’s already low 2023 GDP growth forecast of 1.1%, warns North-West University Business School’s Prof Raymond Parsons. In the worst case, he says, growth could dip even below 1% next year.
As it is, the odds seem exceedingly slim that this uncertainty will be resolved by year-end. A number of business leaders contacted by the FM this week were deeply worried.
Business Unity South Africa CEO Cas Coovadia describes it as a “significant crisis” that risks further eroding confidence and increasing an already unstable political climate. Which is hardly something the country can afford right now.
“Business needs policy and political certainty, with a capable government that can fulfil its governance role ethically and efficiently,” he says. “All this has been lacking in South Africa and ongoing efforts to address these [issues] will be negatively impacted by the uncertainty and crisis.”
No-one is indispensable, of course. But when it comes to the economy, many executives see Ramaphosa as irreplaceable within the current ANC, says Parsons, as he has been the visible face of economic reform and pragmatism in his engagement with the business community.
Ramaphosa is seen as pro-business, and the fear is any successor won’t pursue his liberalising economic reform agenda or echo his tough talk on corruption.
One of his biggest backers is Johnny Copelyn, the former trade union stalwart and CEO of Hosken Consolidated Investments. Copelyn has no doubt that the independent panel report on Phala Phala by former chief justice Sandile Ngcobo, which said Ramaphosa has a “case to answer”, would be set aside on review.
The most disreputable people in the political landscape have been baying for Ramaphosa’s blood, using a report that Copelyn reckons is simply an incendiary political bomb, rather than a considered judicial document.
“The idea we must impeach a president for reporting the theft to the Hawks indirectly, because he only reported it to the head of the VIP protection unit of the police, is spectacularly silly,” he says.
Colin Coleman, the former CEO of Goldman Sachs in Sub-Saharan Africa, sees the Phala Phala affair as a blow to the country and “a victory for the regressive elements in the ANC”.
This has the potential to “imperil both ANC renewal and meaningful economic, social and pro-democracy reforms”, he says. It breathes oxygen into the “crime and corruption networks the president was seeking to target”.
Coleman warned last week that the bad news was not yet fully priced into the South African market, and the rand could weaken all the way to R18.50 to the dollar. And if the situation got worse, South Africa could even find itself facing new sovereign credit ratings downgrades.
We need to be urgently fixing things … like the energy crisis. There are solutions. Decisions need to be taken
— Christo Wiese
‘A defining moment’
Interestingly, however, not everyone agrees that Ramaphosa must stay.
Sibanye-Stillwater CEO Neal Froneman says Ramaphosa ought to have “done the right thing” by resigning.
“It’s a defining moment where, if the right things happen, it can set us on a new trajectory,” he tells the FM. “The leadership of an organisation or country sets the culture and if the right thing happens by resigning — which is exactly the right thing to do — it sets the scene for others to do the same and stop the lawlessness that has crept into society.”
This is perhaps not that surprising, given that Froneman has been among the most vocal of critics of the government among the ranks of mining CEOs. Last year, he laid into Ramaphosa’s administration for presiding over “a failed state”, saying his company could not justify billions of potential investment in new projects given the lack of political and social stability in the country.
Froneman says mining investors have already priced the risk of Phala Phala into Sibanye’s share price, just as the government’s talk of ruinous new policies — like expropriation of land with compensation — has been factored into the prices of South African shares.
“The market is efficient. [It] is desperately looking for a change and it is not seeing it from the current government,” he says.
While you might think the gyrations, and the rand weakness they caused, would be good for mining companies, which sell their product in dollars, Froneman warns that “rand weakness just leads to a lot of inflationary pressures”.
Still, the rand gold price topped R1m per kilogram last week — its highest level in six months.
“The big question is ‘what next?’” says Phoevos Pouroulis, CEO of platinum group metal and chrome producer Tharisa.
“There are two camps forming: people who say Ramaphosa needs to stay in power come hell or high water, and the ‘moral compass’ side, which says: ‘You have been preaching virtue, so stand by your own principles,’” he says.
As it is, political instability has been mounting in mining communities. There has been a “a lot of noise” and a “heightened level of intensity” on the mines over the past year, says Pouroulis.
Other business leaders, however, say executives need to remain calm.
Christo Wiese, Shoprite’s largest shareholder, says the business sector needs to resist taking drastic action right now. “We have been through many such crises over the decades,” he says. “Even to a blind man, there is much more to this than meets the eye.”
But Wiese makes a wider point, which is that South Africa can’t afford to have its government leaders taking their eye off the country’s problems. “We need to be urgently fixing things … like the energy crisis. There are solutions. Decisions need to be taken,” he says.
On this point, Chris Schutte, the CEO of poultry giant Astral Foods, says the “elephant in the room” is undoubtedly unemployment — and South Africa needs capital from foreign and local investors to fix this.
“The current political landscape and all the shenanigans inside the governing party do not create a positive medium-term outlook for investors and local businesses — which, of course, does not help with job creation,” he says.
Schutte reckons the ANC is “defunct”, with little chance of this changing any time soon. The government, he says, is supposed to “create certainty and fix the infrastructure”, but the reality is that the people have been serving the government, rather than the other way round.
“Astral has exited two other African countries due to a lack of political stability and uncertainty in investment confidence. We cannot exit South Africa, but we will think hard before we commit to any further major capital investments,” he says.
The current political landscape and all the shenanigans inside the governing party do not create a positive medium-term outlook for investors and local businesses
— Chris Schutte
Keeping the institutions safe
But if Schutte and Froneman capture the frustration at the sense that the country is slipping backwards rather than progressing, experts warn that, without Ramaphosa, this descent could gain pace.
Intellidex director Peter Attard Montalto tells the FM that investors underestimate the deterioration the crisis has caused to the fabric of the ANC and to South Africa’s political backdrop.
If Ramaphosa exits, he says, South Africans will need to get used to higher levels of corruption, even if some reforms continue.
Bureau for Economic Research chief economist Hugo Pienaar agrees that, over the short term at least, uncertainty is elevated. This will weigh on consumer confidence, denting sales of goods such as furniture or vehicles, and potentially private sector fixed investment.
Pienaar says business confidence hinges on whether Ramaphosa stays put and, if not, whether his successor keeps in place the trusted stewards of the economy such as Reserve Bank governor Lesetja Kganyago and finance minister Enoch Godongwana. And, he adds, whoever succeeds Ramaphosa would need to refrain from vote-buying populist policies.
Either way, the ANC will take a hit.
Jason Tovey, a senior emerging-markets economist at Capital Economics, fears that the government will loosen fiscal policy to shore up ANC support ahead of the 2024 elections, putting the sovereign debt ratio back on an upwards trajectory.
Right now, the odds seem to favour Ramaphosa remaining in his position — he seems likely to prevail at the ANC’s elective conference at Nasrec, for example — but whatever happens, the country’s already brittle economy will take a knock.
Copelyn says he hopes Ramaphosa survives this moment. “There are few, if any, who can improve South Africa more effectively than him. He is certainly not a corrupt person who deserves to be impeached.”
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