Ramaphoria vs ‘GNU Dawn’ – why it’s different this time

Old Mutual Wealth Investment Strategist, Izak Odendaal says the formation of a Government of National Unity (GNU) presents South Africa with a ‘new’ New Dawn, that is different from previous false starts, like the so-called “Ramaphoria” of 2018.

The period of “Ramaphoria”—when Jacob Zuma was replaced as state president by Cyril Ramaphosa in 2018—did not last very long, despite what Odendaal described as “flowery rhetoric” of a “New Dawn” and “Thuma Mina” (send me).

“This is partly because global market conditions turned unfavourable and partly because Ramaphosa struggled to get a grip on his divided party. After all, he won the ANC leadership race with a slim margin during the previous December,” Odendaal said.

There was also a severe underestimation of the damage done during the Zuma era, which decimated SARS and the NPA and gutted state-owned companies, saddling them with debt.

“Cleaning up this mess took time and met considerable resistance—and unfortunately, there was collateral damage. For instance, the emphasis on improved maintenance at Eskom after 2018 meant that load shedding was ironically worse under Ramaphosa than under Zuma, hobbling the economy.

“The Covid pandemic also set the country back many years. While one can argue whether it was handled well or not, it would have devastated the economy either way,” he said.

This time around, however, Odendaal said that South African investors have “something to cheer about”, noting that local assets rallied strongly last week after the GNU became official.

While the newly inaugurated GNU under President Cyril Ramaphosa is not going to solve all or even most of the country’s problems, Odendaal said that it can address a handful of big blockages that hinder economic growth.

“It has also placed adherence to the Constitution at the centre of its agreement, as well as professionalising the public service.”

Odendaal said it is also primed to continue the more recent policy of working with business and the private sector—and markets have already seen the positive impact of business-friendly positions by the government.

Private sector participation in electricity supply has helped deliver three months without load shedding. There is progress at Transnet, too, and encouragingly, its current leadership is aligned with government policy to boost private-sector participation.

“The penny seems to have dropped in the past two or three years that if the government includes, rather than excludes, the private sector in infrastructure provision, there is both better infrastructure and considerable investment spending,” he said.

Be realistic

This more positive tone does come with some risk, however, with Odendaal cautioning that “no one should be unrealistic“.

“It everything was easy, it would have been done by now. And there will be disagreements along the way.”

For example, as of Monday, tough negotiations over cabinet positions were still ongoing. Further to this, there are questions about whether any GNU would be able to last a full term—especially as Ramaphosa’s time as ANC president nears its end.

“It might be too much to expect the GNU to serve out a full five-year term, but a lot can be achieved in 24 months to cement key reforms,” Odendaal said.

The trickiest area will probably be fiscal consolidation, he said, noting that South Africa cannot afford to spend 20 cents of every rand collected by SARS on debt interest payments.

“It is relatively easy for the various coalition partners to agree on feel-good economic reforms that lead to private investment and photo opportunities for hard hat-wearing politicians. It is much more difficult to commit to being disciplined with state money when each party has its own spending priorities,” he said.

Already, speculation is rife that South Africa’s already bloated cabinet may bloat even further to accommodate the GNU and the need to keep all parties happy.

“Encouragingly, the agreement between member parties includes fiscal discipline as a key principle. But that is not the end of the matter, rather the starting point,” Odendaal said.

“Fiscal consolidation will really be the litmus test for the GNU and its commitment to doing what’s best for the country’s long-term interests, including a few unpopular things.”

Read: What happens if the GNU falls apart – what the law says