Investment analysis: ANC Elective Policy Conference: Cyril Ramaphosa’s Poisoned Chalice

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Date: 19th December 2017

Cyril Ramaphosa’s victory as the next president of the ANC was marred as a consequence of the announcement of David Mabuza as deputy president of the ANC and Ace Magashule as ANC secretary-general. The factions and divisions which have characterised the 54^th ANC Elective Conference have emerged within the ANC’s top leadership of the National Executive Committee (NEC). The ANC’s top six is evenly split between the Dlamini-Zuma faction (Mabuza, Magashule and Jesse Duarte) and the Ramaphosa camp, comprising Gwede Mantashe (elected as national chairperson) and Paul Mashatile (treasurer-general).

Mabuza and Magashule will assume important roles within the ANC’s top leadership at a time when the ANC needs to unite a fractured party, revive an ailing economy and decisively address state corruption. Attempts by Ramaphosa to rid the party of incompetent and corrupt government officials may be hampered by the fact that Mabuza and Magashule themselves have checkered pasts.

‘The Cat’

David Mabuza (also known as ‘The Cat’), is the premier of Mpumalanga and is a key figure in the ANC ‘premier league’ – a lobby group which is close to and supportive of Jacob Zuma. Mabuza is very much like a cat with nine lives – he bounced back after being fired by Mathews Phosa for inflating matric results while he was MEC for Education. After supporting Jacob Zuma’s bid for ANC president at Polokwane in 2007 he was appointed premier of his home province and voted onto the ANC’s NEC. Allegations of corruption and links to a ‘private army’ involved in political killings in Mpumalanga have plagued Mabuza.

Magashule’s shock win  

Possibly the largest shock at the elective conference was Ace Magashule’s appointment as secretary-general. Magashule has been plagued by allegations of corruption, tender irregularities, close ties with the Gupta family and was recently sanctioned by the courts on two occasions for irregularities in his provincial ANC elective conference. Dlamini-Zuma may have lost the election, but the ANC premier league faction certainly won the day. This is indeed a pyrrhic victory for Ramaphosa.

NEC election

Given the divisions within the ANC top six, the upcoming NEC elections where an additional eighty members will be elected to the national executive committee will become even more important.  Nominations for the structure started on Monday night, with finance minister Malusi Gigaba, former ANCYL deputy president Ronald Lamola, police minister Fikile Mbalula and former treasurer-general Zweli Mkhize at the top of the list. Nkosazana Dlamini Zuma also accepted a nomination to serve in this structure as well former finance minister, Pravin Gordhan.

Market reaction

The ZAR/USD rallied to a strong R12.60/USD in anticipation of Ramaphosa’s win. SA Inc. shares such as banks rallied yesterday (up 5 .21%) and continue to do so today. SA 10-year government bond yields rallied from 9.1% to 8.9% last night. The ZAR has weakened this morning to levels of around R12.80/USD now that reality has sunk in that Ramaphosa leads a divided house and that implementation of his business-friendly election manifesto may be hampered.

Portfolio positioning  

It is too early to gauge if yesterday’s market optimism will be sustained as there is a risk of political reverberations post yesterday’s election. At the time of writing, the ANC steering committee was probing the ‘disappearance of 68 delegates’ votes.

Given the divisions within the top leadership and the overarching need to unify the ANC in the run up to the 2019 national elections, we are very cautious that definitive economic policy can be implemented to address our anaemic economic growth trajectory as well as decisive measures to arrest our fiscal deterioration. We suspect that Moody’s will wait for the 2018/19 budget speech in February next year to decide if South Africa should retain its domestic investment grade sovereign rating.

jlamprecht