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Cape Town - President Cyril Ramaphosa has been a hit with business leaders and investors during his first three weeks in office.
Since succeeding Jacob Zuma, who was immersed in scandal during his nine-year tenure, Ramaphosa has fired several ineffective ministers, taken a stand against graft and ordered a review of draft rules that deterred investment in the mining industry.
Improved confidence may boost weak economic growth and investment and could help stave off a downgrade to junk by Moody’s Investors Service later this month.
“If you take the South Africa we have today and compare it to the South Africa we were sitting with in the middle of December, we have come a long way,” Stephen Koseff, the chief executive officer of Investec said at a Bloomberg conference in Cape Town on Wednesday.
“A great leadership in South Africa is a start.”
The rand has gained the most of any currency against the dollar since Ramaphosa won control of the ruling party in December, and business confidence is close to its highest level in more than two years.
Ratings risk
Despite the improved sentiment, Ramaphosa will have his work cut out for him. Economic growth averaged just 1.8% while Zuma was in office, and S&P Global Ratings and Fitch Ratings cut the country’s debt to junk. Moody’s is due to give an assessment on March 23 and another junk rating would exclude South Africa from Citigroup's World Government Bond Index, triggering capital outflows.
A delegation of chief executives held a “very good” meeting with officials from Moody’s on Tuesday and emphasised the strength of South African institutions and improvement to the economic outlook, Colin Coleman, head of sub-Saharan Africa at Goldman Sachs, told the conference.
Goldman Sachs expects the economy to expand 2.4% this year, 0.9 percentage points more than the National Treasury forecast in the February budget, rising to 2.8% in 2019. It sees the rand strengthening to 11 to the dollar in 12 months’ time, from about 11.89 on Wednesday.
The government’s decision to review proposals requiring mining companies to maintain at least 30% black ownership should help revive the industry, and talks between the Chamber of Mines and new Mineral Resources Minister Gwede Mantashe on Tuesday were very positive, according to Mark Cutifani, the chief executive of Anglo American.
READ: Cutifani: Mining needs clear govt game plan
Land, Eskom
“The industry should be twice the size that it is today,” Cutifani said. “If you look back at the opportunity lost in the past 10 years, that’s one of the great tragedies. We can turn that around. We are in a very new place and very excited about the future.”
Land reform and the precarious finances of Eskom, the state power company, remain concerns for investors. Eskom’s debt has climbed as construction of new plants miss deadlines and run over budget.
A decision by the ruling African National Congress to allow the expropriation of land without compensation will be dealt with responsibly, according Paul Mashatile, the party’s treasurer-general.
“We have to deal with the injustices of the past,” he said in Cape Town. “The president has made it clear that we will deal with this matter in a manner that does not disrupt the economy, does not disrupt production.”
Rebuild trust
Pravin Gordhan, who was appointed the minister in charge of state enterprises, including Eskom, last month, said the government is targeting graft and would bring in new boards to improve governance as it seeks to renew sentiment.
READ: Gordhan calls for visible govt action to restore trust in SA Inc
“We have a new leadership in the country which has exciting ideas,” he told delegates. “It is very clear that we need to work with a greater sense of urgency on issues such as jobs for the young people, getting a greater deal of confidence in our economy, more trust from our citizens and above all getting more investment.”* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER
