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(CNBC) South Africa’s political shift is good news for investors — but don’t expect a ‘magic bullet’

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  • Cyril Ramaphosa, the newly elected leader of South Africa’s ruling African National Congress (ANC), sparked a jubilant election in markets
  • But, experts warn that his potential to reform may be constrained by politics
  • Ramaphosa is expected to contest the South African presidency on behalf of the ANC in 2019
By Justina Crabtree

Cyril Ramaphosa, the newly elected leader of South Africa’s ruling African National Congress (ANC), may have sparked a jubilant reaction in markets, but experts warn that his potential to reform may be constrained by politics.

Ramaphosa’s victory “signals that the era of economic vandalism under (South African President) Jacob Zuma is now drawing to a close,” Ben Payton, head of Africa at consultancy Verisk Maplecroft, said in a note Monday. But, “Ramaphosa will not provide a magic bullet to solve the country’s economic problems,” he added.

“Fiscal reform implementation may be challenged by the close proximity to the May 2019 national elections,” Gyorgy Kovacs, chief economist for emerging EMEA at UBS, said in a note Tuesday. Kovacs tempered hopeful sentiment by reiterating that UBS was still “neutral” on South Africa.

South Africa's ANC elects Cyril Ramaphosa to be next leader

South Africa’s ANC elects Cyril Ramaphosa to be next leader  

Ramaphosa is expected to contest the South African presidency on behalf of the ANC in 2019. He desperately needs to shore up electoral support given the party’s slipping popularity among voters, largely on the back of ongoing corruption allegations against the government.

Ramaphosa also faces a divided party which could prove a stumbling block to strengthening the South African economy. “Ramaphosa has been reluctant to put flesh on the bones of his economic plan” to avoid alienating factions of the ANC who may be “suspicious of big business” and “favor sweeping measures to redistribute wealth,” Payton added.

A former trade union leader and one of South Africa’s richest men, Rampahosa beat former cabinet minister and Zuma’s ex-wife Nkosazana Dlamini-Zuma (NDZ) to the ANC’s leadership on Monday. NDZ’s loss, given that she is associated with the incumbent Zuma, throws the current head of state’s position into uncertainty. Zuma faces nearly 800 charges of corruption dating back as far as the late 1990s.

The ANC’s selection was announced late Monday afternoon after initially being expected Sunday morning. While many commentators weren’t overly optimistic on South Africa under Ramaphosa, emphasizing that the country’s problems were deeply ingrained, many did believe that he would at least work to solve economic issues.

What's happening in Zuma's South Africa?

What’s happening in Zuma’s South Africa?  

Francois Conradie, head of research at South Africa-based NKC African Economics said in a note Tuesday that Ramaphosa was likely to spearhead a “credible plan to revive the economy,” including addressing corruption, clear policy and cleaning up state owned enterprises.

Adding to Ramaphosa’s popularity with the business community, “confidence will be matched in consumer sentiment, particularly amongst South Africa’s middle classes,” Aberdeen Standard Investments Investment Director Kieran Curtis wrote in a note Tuesday.

CNBC’s sources agreed that South Africa could expect to see a mild economic recovery at the very least, and a boost to growth. The South African rand rallied to a nine-month high on news of Ramaphosa’s victory though it pared back gains on Tuesday, while the Johannesburg Stock Exchange jumped in morning trade.

Source: CNBC

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