Ratings firm Moody’s, which is the only one of the ‘big three’ ratings agencies to hold South Africa above junk status, says that new ANC president Cyril Ramphosa could turn things around for South Africa.
In a brief statement on Tuesday, Moody’s described Ramaphosa’s victory as ‘credit positive’, saying that any “new approach to any of the weaknesses in SA’s credit profile” could boost business confidence and support a pick-up in investment and growth in the country.
However, there was no direct message that South Africa was in the clear.
Moody’s previously put South Africa’s credit status on review, delaying the process to the end of February 2018, after the budget speech.
In late November, the ratings firm said that South Africa’s fiscal problems were a lot worse than it anticipated, though the country retained a number of features that support its current Baa3 (one notch above junk) rating.
It said that it would likely downgrade South Africa to junk if it concluded, after the review period, that South Africa’s economic, institutional and fiscal strength will continue to weaken.
“A downgrade would likely result were the rating agency to conclude that measures to address funding gaps over the next two years lacked credibility or that the lack of progress with structural reforms effort would result in an environment not conducive to investment and growth,” it said.
“Lack of structural reforms would also send a negative signal regarding the strength of South Africa’s institutions, in particular about government effectiveness in enacting sound policies. Relatedly, any developments which cast further doubt over the independence and credibility of core institutions including the National Treasury and the Reserve Bank would be strongly credit negative.”
Ramaphosa had placed tackling these issues high on the list during his campaign, which Moody’s said, if implemented, could begin to change South Africa’s fortunes.
However, the group said it was unclear whether the new ANC president currently has the political weight in parliament to implement such a shift.
“Jacob Zuma remains president for now,” it said, saying that the narrow margin of victory made it less likely that he will step down to allow Ramaphosa to take up the presidency. Zuma is under no obligations to give up power until 2019.
Ramaphosa win, but doubts remain
While markets reacted to Ramaphosa’s win with some jubilation, the political reality has also started to set in.
For the first time, the ANC has elected a mixed-slate leadership team, comprising candidates from both ‘sides’ of the election battle, which could make governance tougher.
Most notably is the victory for the so-called “premier league” in new deputy president David Mabuza, and new secretary general, Ace Magashule, who are both seen as Zuma-allies and tied to his legacy.
Analysts have pointed out that despite Ramaphosa’s victory, the election result should not be seen as the silver bullet for South Africa’s problems, as it will now be up to the party to ‘walk the talk’ on its promises of fighting graft and turning the economy around.