What will happen to the rand if Ramaphosa or Dlamini-Zuma is the next ANC president

A new survey of 320 businesses in and outside of South Africa, compiled by Rand Merchant Bank, shows what most believe the outcome to the ANC’s 2017 elective conference will be – and how it will impact the local currency.

The ANC’s deciding conference is still scheduled to take place in December 2017, with deputy president Cyril Ramaphosa and former African Union chair, Nkosazana Dlamini-Zuma seen as the front-runners to take over from Jacob Zuma as leader of the party.

Ramaphosa is the favoured candidate among businesses and companies, and is seen by economists to be the most market-friendly. Should he come through as the winner, most of the business leaders surveyed expect the rand to strengthen by 50 cents to R1.00 to the dollar.

Dlamini-Zuma, on the other hand, is seen as the preferred candidate of Zuma, and expected to continue his legacy of rent extraction, cadre deployment and networks of patronage. In the scenario where she emerges as the new president of the party, business leaders expect the rand to weaken by between R1.00 and R2.00 to the dollar.

This view is shared among both local and foreign businesses – though foreign businesses are more optimistic about the rand under Ramaphosa, RMB’s report showed.

Where the candidates stand

According to the survey report, most business people believe that Ramaphosa is currently the most likely to take over the ANC presidency come December, however a lot of uncertainty persists.

More than half (58%) of respondents see Ramaphosa as the front runner to be the next ANC president; while a third (34%) see Dlamini-Zuma as the front runner. Only 8% see a third candidate as the likely winner – and almost all of the 27 respondents who see this as the outcome noted ANC treasurer general, Zweli Mkhize’s name.

However, there is not that much conviction over these views – with most respondents saying they are only party confident in their view, or not being very confident at all.

This is a feeling that has been repeated among many economists and analysts, who say that the country’s political race is too close to call because of deep divisions within the ANC.

Some, like research analyst at Nomura, Peter Attard Montalto, have even warned that the elective conference could be postponed, or even called off, if political tensions reach a point where president Zuma is unable to ensure victory for his preferred candidate – Dlamini-Zuma.

Meanwhile, doubts have been expressed whether Dlamini Zuma will be in the running, or enjoy support from those perceived to be pro-Zuma at all.

Whatever the outcome of the ANC’s conference, a negative cloud will likely remain over South Africa in the longer-term, with most (80%) of business leaders expecting another ratings downgrade in 2018.

“Currently, CDS spreads on foreign currency debt reflect that South Africa is sub-investment grade rated, although they do not fully price another downgrade,” RMB said.

“It is likely that if the sovereign is ‘downgraded’ again then South Africa will also lose investment grade status on local currency debt. It is not clear whether this is yet priced into the market.

Overall, businesses view South Africa’s political risk as far higher than other emerging markets.

Read: Dlamini-Zuma’s bid for the presidency takes a massive knock: report

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What will happen to the rand if Ramaphosa or Dlamini-Zuma is the next ANC president