When President Trump tweeted in August that South Africa was engaged in ‘the large-scale killing’ of white farmers to seize their land, the nation\u2019s president, Cyril Ramaphosa, didn\u2019t respond personally. A fabricated accusation from the leader of the free world was the least of his problems.<\/p>\n
Ramaphosa probably felt his time was better spent doing his job. These days that includes confronting his top deputies, his fractured party, the powerful labor unions he helped found, an unemployment rate of 27%, deep-seated corruption, and a clutch of heavily indebted state companies that have been mismanaged for a decade. Oh, and the economy unexpectedly fell into recession in the first half of the year.<\/p>\n
The scope of the task is exceeded only by its urgency. After Jacob Zuma\u2019s ruinous, almost nine-year run as president, many inside and outside South Africa regard Ramaphosa as the last best hope to restore the country\u2019s luster. The damage\u2014billions of dollars looted from state coffers\u2014has been on vivid display in judicial hearings set to extend beyond next year\u2019s elections.<\/p>\n
No place symbolizes all those flashpoints more than the bunker-style building housing Eskom, the colossal state-power utility. Goldman Sachs Group Inc. says the company, laden with $28 billion in debt and a passel of power plants it doesn\u2019t need and can\u2019t finance, is the biggest systemic risk to the economy.<\/p>\n
Domestic and foreign capital markets are increasingly disinclined to provide yet more credit\u2014with the exception of China, which has stepped in with $2.5 billion. And the government can\u2019t grant Eskom, or other state companies, unlimited bailouts without undermining its own solvency. Eskom will present a broad turnaround plan in November, postponed from an earlier target of September.<\/p>\n
So far, South African officials have been reduced to tinkering around the edges, trying, for example, to nudge local banks to create credit lines for state companies through a special purpose vehicle, according to people familiar with the policy.<\/p>\n
Simi Siwisa, a sovereign debt adviser at Stratvest, an investment advisory company, says piling on more borrowing may be precisely the wrong way to go at it.<\/p>\n
“South Africa needs to start looking at various opportunities for dealing with debt pressures,” including restructuring state enterprise debt that, she says, is \u201cthe biggest risk to the South African economy.\u201d<\/p>\n
Indeed, financial markets want to see South African leadership with the political will to shrink Eskom\u2019s 49,000 staff by a third (employment at Eskom has risen 25% since 2010); for the country as a whole, they\u2019d like a clear plan to reduce public debt, which ballooned from 32% of gross domestic product to 55% during the Zuma years.<\/p>\n
Sighs of relief greeted Ramaphosa\u2019s arrival as head of the African National Congress party in December and then as president in February after he and his allies engineered Zuma\u2019s departure. Zuma had entrenched a ruinous brand of personal politics in Africa\u2019s most industrialized nation, coming close to destroying most institutions, the economy, and just about everyone else\u2019s interests to look after his own.<\/p>\n
“South Africa can be turned around, and Ramaphosa is the man to do it,” says Michael Jordaan, chairman of Bank Zero. “We just need to implement a few tough decisions like acting against corruption to restore confidence.”<\/p>\n
Ramaphosa has clear advantages\u2014and surprising disadvantages\u2014in pursuit of those goals. On the positive side, he\u2019d been the late Nelson Mandela\u2019s early choice to succeed him as president until his party colleagues vetoed his candidacy in the 1990s.<\/p>\n
Today that\u2019s become a plus, making him the logical choice to lead the ANC out of a serious legitimacy crisis. Although he started his political career as a labor organizer and leftist firebrand\u2014much like Mandela\u2014he became a successful businessman largely untainted by the Zuma scandals.<\/p>\n
His commercial interests and wealth, however, have distanced him from his proletarian sympathies\u2014and are likely to put him at odds with the potent left wing of the ruling party.<\/p>\n
Indeed, once in office, Ramaphosa saw his honeymoon end quickly. First, he ended up with a deputy president he didn\u2019t want\u2014David Mabuza, one of the so-called rural barons, ANC bosses who control huge numbers of voters in the countryside\u2014because his running mate, a polished diplomat and ANC aristocrat, lost the race for the spot. To make matters worse, another rural baron and Zuma supporter, Ace Magashule, became the third in command.<\/p>\n
The staffing issues compound Ramaphosa\u2019s second obstacle: the ANC itself. The 106-year-old organization often still behaves like the determined, banned guerrillas who were exiled and jailed while taking on the apartheid regime. The ANC has a pragmatic, market-friendly side, but its rhetoric still reflects its liberation movement days.<\/p>\n
ANC members, for instance, continue to address each other as comrade. At the policy level, members often argue for economic measures that have failed in many countries, including Venezuela. Any attempt by Ramaphosa to articulate market-oriented reforms would be drowned out by politics \u00e0 la vuvuzela\u2014the hornlike instrument that produced an eardrum-assaulting sound during the 2010 FIFA World Cup in South Africa.<\/p>\n
The contending ideologies within the ANC clash in what South Africans call the land debate, the issue that attracted Trump\u2019s attention in his one and only tweet as president about South Africa. No government-sanctioned killings have occurred, and what seizures have taken place have involved compensation.<\/p>\n
But there is serious discussion about how to redistribute land after what\u2019s widely been seen as a highly unequal pattern of ownership\u2014an issue that pits the rural barons and the left of the ANC against the party\u2019s market-friendly, mostly urban-based faction. In December the National Conference of the ANC decided to call for a constitutional amendment that would back expropriation without compensation.<\/p>\n
Ramaphosa has tried to play to both sides of his party. In London in April as part of South Africa\u2019s ambitious plan to raise as much as $100 billion in investment, he tried to soothe fears by promising \u201cwell-crafted incentives that will attract people.\u201d But he still had to balance interests from home, saying at a lunch with investors at Bloomberg\u2019s London offices that the land-redistribution drive would go on. He insisted it wouldn\u2019t damage the economy or hurt agricultural production.<\/p>\n
Ramaphosa didn\u2019t help matters when he made a dramatic announcement on July 31 that he recognized the proposed constitutional change was one that \u201cour people want.\u201d This roiled the markets, and opposition parties said he\u2019d undermined a parliamentary hearing on the subject. Currency markets are clear about what they see as Ramaphosa\u2019s slog ahead: Since he took office, the rand is down 19% against the dollar, the fourth worst performance among emerging-market currencies.<\/p>\n
Ramaphosa sees that as an incentive to push reform. \u201cThe position of the rand is a function of the market,\u201d he said in an interview at the Bloomberg Global Business Forum in New York on Sept. 26. \u201cIt has to do with what we need to do ourselves to put our economy on a much better footing.\u201d<\/p>\n
It\u2019s not just the ANC that Ramaphosa has to contend with. He came to power with the help of what\u2019s called the Tripartite Alliance: the ANC, the South African Communist Party, and the Congress of South African Trade Unions. The latter two are completely opposed to any form of privatization. Fighting capitalism is their stated raison d\u2019\u00eatre.<\/p>\n
The union group alone represents about 1.6 million workers who aren\u2019t inclined to support downsizing the state or selling state companies to the private sector. Both alliance partners campaigned vigorously for Ramaphosa to be South Africa\u2019s leader, and they have a clear expectation that their interests will be protected.<\/p>\n
“The optimistic people are going to be disappointed, because for him to downsize the state and reduce the public-sector wage bill, he is going to fight with key stakeholders, including the unions that backed his leadership campaign,” says Ralph Mathekga, an independent political analyst and author of a new book, Ramaphosa\u2019s Turn: Can Cyril Save South Africa?<\/p>\n
The pro-market factions in the ANC and the country see Ramaphosa\u2019s moves as political necessity. They say he has to ride with the unions for now until reformists achieve an overwhelming victory at next year\u2019s polls. Such a popular impetus may be the only way for him to introduce dramatic change, say sources in Ramaphosa\u2019s entourage. A recent poll estimates ANC support at 52%, down two points from 2016.<\/p>\n
Few have experienced South Africa\u2019s political arithmetic more sharply than Ramaphosa. Since he founded the National Union of Mineworkers and since the dismantling of the apartheid regime, he\u2019s profited from capitalism. After the ANC spurned him as Mandela\u2019s successor, he went into business in 1996 and later founded the investment company Shanduka Group, which accumulated stakes in platinum mines operated by Lonmin Plc, and a coal-mining venture with Glencore Plc.<\/p>\n
In the early 2000s, Shanduka was one of the beneficiaries of a program to increase black ownership in the private sector.<\/p>\n
Ramaphosa also held the McDonald\u2019s Corp. franchise in South Africa and was chairman of MTN Group Ltd., Africa\u2019s biggest mobile-phone company, and Bidvest Group Ltd., a holding company with interests including catering and office supplies.<\/p>\n
He\u2019s seen his revolutionary credentials questioned. In 2012 police shot and killed 34 striking protesters at Lonmin\u2019s Marikana mine. In an email days before the police action, Ramaphosa called the protests \u201cdastardly criminal\u201d and urged police to take \u201cconcomitant action.\u201d A 2015 investigation cleared him of instigating the killings.<\/p>\n
Critics have also harped on what they say is Ramaphosa\u2019s lavish spending. He has a financial stake in the wildlife industry, and in 2012 he made a R19.5 million ($1.4 million) bid for a buffalo. Realizing the optics were awful, he apologized. But he still owns an antelope ranch and another where he breeds expensive, long-horned Ugandan Ankole cattle. He\u2019s also an avid fly fisherman. All that might lead the 34% of his countrymen living in poverty to doubt his commitment to reform.<\/p>\n
Zizi Kodwa, head of Ramaphosa\u2019s office at the ANC, says Ramaphosa is up to the job.<\/p>\n
“Over the past 10 years, both domestic and international factors eroded confidence in the South African economy,” he says. “Wide-scale corruption contributed hugely to the low growth in the economy and the lack of confidence. What the president is attempting is a 180-degree turn to undo all the damage and revive key sectors of the economy that have been battered in recent years.”<\/p>\n
For now, the fight against corruption remains promising. The Constitutional Court of South Africa in August effectively removed the head of the National Prosecuting Authority, Shaun Abrahams, who\u2019d been accused by opposition figures and advocacy groups of delaying action on prosecuting Zuma and his associates.<\/p>\n
Ramaphosa thus has an opportunity to appoint someone who\u2019ll pursue the kind of investigations needed to attack corruption. That will appease the markets and many in business, but powerful ANC members face serious allegations of graft, and Ramaphosa will likely make more enemies.<\/p>\n
A look at one of Ramaphosa\u2019s heroes may provide clues to how he\u2019ll work through South Africa\u2019s labyrinth. A student of Asia\u2019s economic miracles, the president has often said that China\u2019s Deng Xiaoping is an inspiration. A committed communist, Deng manoeuvred through personal humiliation and the perilous politics of Mao Zedong\u2019s Cultural Revolution to create what is now the world\u2019s second-largest economy. Using methods often subtle but sometimes brutal, Deng got his way.<\/p>\n
Ramaphosa faces more active opposition than did Deng, who never assumed the top job titles in China even though he was its undisputed ruler. But the South African seems to thrive on the adrenaline that comes with tough times, according to close associates. As it was for Deng, it hasn\u2019t been an easy road.<\/p>\n
“Cyril has never been chosen in any organization when things were going smoothly,” says James Motlatsi, a retired labor leader who helped Ramaphosa establish the mining union in 1982. “If there is a right time for Cyril, this is the time.”<\/p>\n
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