(Reuters) - South Africa’s good vibes are undergoing a stress test. The rand has appreciated nearly 14 percent against the U.S. dollar since mid-December and 10-year government bond yields have fallen more than 80 basis points because of growing optimism that Cyril Ramaphosa’s election as president of the ruling African National Congress would usher in brighter economic prospects. But a furore around a state of the nation speech gives investors reason to temper their enthusiasm.
The country’s economic problems have grown under Jacob Zuma, who has been president since 2009. Real GDP growth was less than 1 percent in 2017 and will fail to surpass this level either this year or next, according to the International Monetary Fund. Both the budget and the current account are in deficit. Government debt has risen above 50 percent of GDP, and will exceed 70 percent by 2022 if growth remains sluggish and debt guarantees offered to state-owned enterprises are factored in.
No wonder Ramaphosa, the ANC candidate in next year’s presidential election and a shoo-in to replace Zuma, is keen to tackle deep structural problems, such as an unemployment rate of more than 25 percent, rampant inequality, and corporate oligopolies. The stumbling block is that Zuma has been insisting on seeing out his term.
A majority of the ANC’s 100-odd national executive committee back the president-elect so it should have been possible to turf Zuma out early, as was the case a decade ago with Thabo Mbeki. But Ramaphosa, whose party has ruled South Africa for over two decades, has seemed reluctant to force the issue and risk splitting the ANC. Instead, his party is postponing the state of the nation speech.
Had Ramaphosa succeeded in forcing Zuma to step down without a fuss, it would have been a sign that he had the political backing to embark on significant economic reforms. That would have a green light for foreign direct investment, which has slowed to a trickle. Even if Zuma leaves sooner rather than later, the standoff has been a reminder that Ramaphosa may have a limited ability to overhaul the economy.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.