‘Ramaphoria 2.0’ hitting South Africa
The increased optimism associated with the Government of National Unity (GNU) could mean South Africa has entered a new ‘Ramaphoria’ moment.
PSG Chief Investment Officer Adriaan Pask said that the rand dropping below R18/$ following the 2024 elections and the establishment of the GNU highlights the confidence buy-in.
“This appears to be a tentative vote of confidence in the GNU, with 18 members of opposition parties now occupying ministerial or deputy ministerial positions,” said Pask.
The last period of Ramaphoria came in early 2018 when Ramaphosa took control of the ANC. The early optimism didn’t last, with Ramaphosa’s tenure impacted by load shedding, Covid-19 and the Phala Phala scandal.
“The question is whether this is another ‘Ramaphoria moment’ or if our optimism is justified this time around. There are some encouraging signs that the GNU is injecting fresh air into the national government in portfolios such as farming and Home Affairs,” noted Pask.
“However, the reality is that the GNU’s benefits, or potential benefits, will only become apparent over time as policy reforms are implemented. It is also important to consider how things might have turned out if the election had gone differently to appreciate the advantages we have seen so far fully.”
Although the rand has strengthened since the elections, the improvement is largely attributed to a weakening dollar.
This means that the real benefit to the rand has been limited, which is probably due to the cautious commentary over whether this development is actually positive.
That said, a coalition between the ANC and the populist MK and EFF would have likely resulted in a far weaker rand.
It could also have led to the passage of further controversial reforms, including the National Health Insurance and prescribed assets.
While the NHI was signed into law by Ramaphosa ahead of the 2024 elections, it is not yet in effect. Further to this, the GNU under Ramaphosa has expressed a degree of openness to consulting on the health scheme—though not much has happened yet on that front.
Moreover, international relations might have suffered if a coalition government with left-wing parties had been formed.
“Instead, we have observed not only some strengthening of our currency but also a gradual return of foreign investors,” said Pask.
“In the first five months of 2024, South African equities and bonds experienced average outflows of around R10 billion per month.”
“Post-elections, we observed an inflow of R4.5 billion in June and R5.8 billion in July. This indicates that foreign investors may be starting to reassess their view of South Africa, contributing to rallies in both bonds and equities.”
With South Africa’s currency stable and stronger and inflation only a single percentage point above the South African Reserve Banks’s target of 4.5%, interest rate cuts look certain for September.
“Upward revisions in GDP forecasts and positive assessments from major global banks also reflect an improving outlook,” said Pak.
“Additionally, some controversial reforms have been paused, now requiring a majority vote from the GNU members to proceed. The strength of the GNU government lies in achieving broader consensus, which is integral to its purpose.”
Room for improvement
However, there is still room for improvement despite the early wins.
Due to the rand’s current strength relative to the dollar, there is further room for appreciation. PSG also believes that bonds and equities can see further rallies.
Despite the weak global sentiment towards emerging markets, South Africa is still a far more attractive investment destination than it was a few months ago.
Pask noted that interest rate cuts could be the most immediate factor that could be a catalyst for further growth.
“We expect rate cuts of 75 to 100 basis points over the next 12 months, which will be favourable for our listed companies and support earnings. This could generate further renewed interest in South African assets.”
Nevertheless, South Africans should not get too optimistic. Due to the massive philosophical differences between the parties, friction will exist within the GNU.
“But ultimately, we need a good mechanism for governing controversial issues.”
“With the GNU in place, we can expect a higher level of oversight and a more thoughtful approach to finding practical solutions.”
“Given the government’s limited resources for various projects, it’s crucial to spend carefully and wisely.”
Read: The woman driving one of the biggest employers in South Africa
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