Johannesburg - ANC presidential hopeful Nkosazana Dlamini-Zuma has been campaigning with the slogan Radical Economic Transformation firmly entrenched in her policy view. But she is no favourite of the market, which is likely to react negatively to her election.
Dlamini-Zuma touts land expropriation without compensation, and listed three priorities to put the country on a different trajectory in an opinion piece in the Business Day in October:
- Transform the economy;
- Invest in people; and
- Build a democratic developmental state.
Juicy policy catchphrase, sparse on details
Dlamini-Zuma writes of the need for an economic Codesa - a partnership between government, labour and business - and told TV channel ANN7 that she would ensure buy-in from all sectors if the ANC adopts land expropriation without compensation at its 54th national conference, which begins this week.
Nazmeera Moola, co-head of fixed income at Investec Asset Management, said on the surface, Dlamini-Zuma’s policies are similar to her rival Deputy President Cyril Ramaphosa’s ‘New Deal’.
“But the fear in the markets is the risk of these being executed in a populist manner, and that risk is higher from Dlamini-Zuma,” she told Fin24.
The former African Union (AU) Commission Chair has made her campaign slogan “Radical Economic Transformation Now or Never”, but it’s unclear exactly what she and her and supporters mean by this.
“Because the ANC comes up with policy; you can’t as a presidential candidate decide on policy, alone,” said Carien du Plessis, author of Woman in the Wings: Nkosazana Dlamini-Zuma.
Du Plessis added that Radical Economic Transformation (RET) has been a successful rallying point for Dlamini- Zuma on her campaign trail.
“It’s a nice juicy catchphrase,” she added.
Dlamini-Zuma’s website lists 7 ‘Strategic Pillars’, including industrialisation, youth empowerment and land reform, and she promises 7% economic growth is possible. But the details on how to achieve this are sparse, with the World Bank only forecasting a tepid 1.1% GDP rise for South Africa in 2018.
Daniel Silke, a Cape-Town based political economist, warned that even if Dlamini-Zuma pushes for RET, it’s unclear if this will be implemented.
“The ANC has to agree collectively on policy and it’s such a divided organisation right now,” he said.
Rand and ratings agencies
The rand, one of the world’s most volatile currencies, confounded investors in November by strengthening 3.5% to R13.67, days after ratings agency Standard and Poor’s downgraded South Africa again.
Analysts speculated that the rally was in part driven by market expectations that Ramaphosa will triumph at Nasrec.
He received the majority of ANC branch nominations over Dlamini-Zuma, but this could change as voting at the conference is secret and some branches are allowed two delegates, due to their size.
Silke predicts if Ramaphosa wins, it could be a small gift to South Africans likely to give them something to “smile about this Christmas”.
Dlamini-Zuma's election, however, would dampen the Christmas spirit. "She is negative for the currency; I expect a moderate decline [if she wins]. I don’t expect an imminent collapse,” he said.
Silke added that investors will be looking to the February Budget Speech before there are any major swings in the currency.
Moola also believes that the markets and ratings agencies will be waiting for the 2018/2019 budget plan but she cautioned that the currency and South Africa’s credit rating depends on what Dlamini-Zuma will immediately say and do, if she’s elected ANC president.
“If she promises to nationalise, the rand could go to R18 [to the US dollar] and Moody's could act in early January,” she said.
Moody's is the only one of the three major ratings agencies to score South Africa’s local and foreign debt as investment grade. It placed South Africa on a 90-day review for a downgrade in November. If the downgrade goes ahead, South Africa will be removed from the World Government Bond Index, which will trigger massive foreign outflows.
Investors and business confidence
Dlamini-Zuma has struggled during her campaign to break free from the image of her former husband whose backing she enjoys, despite her objections that she’s her own person and is the target of sexist thinking.
Silke commented that she has failed to “articulate a view” about state capture and the “mismanagement of the South African economy” by Zuma.
“Even though it might be unfair to label her more of the same, perception will run against her,” he said.
Dlamini-Zuma, who has held three Cabinet posts, complains that business is opposing her.
Du Plessis said that she tackled tobacco and pharmaceutical companies during her tenure as health minister from 1994 to 1999, and she’s seen within ANC branches as someone who will implement RET.
“She has a big overall view of the economy and is highly educated; don’t think she will do anything stupid. She might not be an economist but had to interact with economic policy at the AU and in Foreign Affairs.”
To see growth in the short term, Moola said households will need to have increased confidence in the economy to buy durable goods such as furniture and appliances. This will then translate into a rise in business confidence, and there’s concern that Dlamini-Zuma could implement this.
“Business and markets have a greater comfort Ramaphosa will support investment and growth,” she added.
The South African Chamber of Commerce and Industry's business confidence index has remained under 100 points since 2015 and dropped to its lowest level since 1985 in August this year.