Fitch says Phala Phala — the farmgate scandal hanging over President Cyril Ramaphosa’s head — continues to pose risks to policy continuity, even after Ramaphosa was successfully elected party leader at the governing party’s elective conference in 2022.
Fitch solutions, the research wing of the US-based Fitch Group, said even though the ANC rallied behind Ramaphosa after allegations he failed to properly handle the theft of foreign currency at his farm in 2020, “risks to his position persist until he is cleared by ongoing police investigations”.
Speaking during a webinar on Africa’s macroeconomic outlook in January, Fitch’s senior analyst for Sub-Saharan Africa, Gianmarco Capati, said risks persisted because if Ramaphosa were charged, he would be expected to step down as per the party’s “step-aside” rule.
“That possibility causes risks to government continuity and reforms,” Capati said.
He said the Phala Phala matter, as well as the country’s upcoming election in 2024, had seen an increase in political instability and uncertainty about policy continuity, as captured by the falling score in the political continuity component of Fitch’s short-term political risk index.
The agency said the case against Ramaphosa meant that his staying and leading the ANC into the 2024 general election was now in doubt.
Other state institutions investigating the farm robbery include the Reserve Bank, Revenue Service, the police and the public protector. Fitch said if any of the law enforcement agencies brought criminal charges against Ramaphosa in 2023, it would increase the political risk.
Given the lack of a viable political alternative in the ANC, Ramaphosa was elected party leader at the elective conference in December, showing that many within the party still rally behind him.
Capati said that that was welcomed by investors, who saw Ramaphosa as the most pro-reform figure within the ANC.
In a research paper, Bank of America said it thought markets were underpricing the increasing political risk as Ramaphosa faces legal and political challenges in 2023.
“For 2024, the risk of the ANC receiving less than 50% of the votes is rising, producing uncertain coalition dynamics,” Bank of America Sub-Saharan Africa economist Tatonga Rusike said.
“With the political situation uncertain, 2023 and 2024 are set for turbulence,” Rusike said.
Fitch said even if Ramaphosa stayed, the farmgate scandal and the increase in divisions within the ANC will further weaken its electoral appeal ahead of the May 2024 general elections where they expect the ANC to really struggle to obtain the majority after years of declining popularity.
“So we believe that the government will remain committed to the reform agenda in the coming quarters including the reforms in the ailing power sector, but we think the need to boost electoral support, particularly at a time when there is a lot of unrest and strike action in the pay disputes it will make fiscal consolidation more challenging ahead of the vote,” Capati said.
The concern around Ramaphosa stepping aside from the leadership position is that economic and institutional reform may slow. Ramaphosa’s presidency is seen by investors as the most appropriate to allow SA to see rapid implementation of reform to the electricity, rail and ports, and water infrastructure, bolstering economic growth, state revenue and economic stability.
Rusike said if new leadership emerged that had a tilt towards left-leaning radical economic transformation, that could result in a policy shift from the current centre right of the Ramaphosa administration.
He added that the next likely deputy president of the ANC would be Paul Mashatile, who is a moderate and would stick with the current framework.
“Furthermore, the 2024 general election could throw up no winners and uncertain coalition dynamics if the ANC were to get less than 50%,” he said.
The Economist Intelligence Unit (EIU) also said general elections in SA — and those in other African countries — would pose a risk to stability.
The EIU said there was a high risk of political protests, mass demonstrations and strikes in a range of countries.
Flagging SA as one of the countries to look out for, the EIU said social unrest could easily be stoked by disinformation campaigns and disgruntled losers, as well as by public discontent with political institutions, ruling elites and poor public services.
“Worsening socioeconomic conditions in some countries driven by subdued wage growth, the rising cost of living and food security concerns could prove problematic for incumbent or new government administrations,” the EIU said.
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