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President Ramaphosa’s in-tray

President Ramaphosa’s in-tray

Not since Nelson Mandela in 1994 has a South African president assumed power facing such a daunting list of challenges. Cyril Ramaphosa, who is set to be inaugurated within days, inherits an alarming mess from Jacob Zuma, who allowed many of the country’s already serious problems to get much worse during his largely disastrous nine years in power.

Ramaphosa’s task is made more difficult by the fact that elections are little more than a year away. Unlike most incoming leaders, he cannot make unpopular economic decisions at the start of his term, safe in the expectation that voters will be reaping the benefits by the time of the next election. The period until May 2019 will see Ramaphosa walking a tightrope, balancing the competing priorities of holding his party together while avoiding economic disaster.

Five key challenges stand out for Ramaphosa as he prepares to be sworn in:

1. Rescue Eskom

The budget statement – set for 21 February – is likely to make grim reading. The fiscal deficit was estimated at 4.3% of GDP in October, and is set to get even worse after Zuma scrapped most university fees just before leaving office without considering the budget implications. But the biggest fiscal threat is centred on Eskom, the state-owned electricity provider, which is on the brink of financial meltdown.

Although the government is claiming that it cannot afford a bailout of Eskom, in reality it will need to step in to ensure the company does not default on loan repayments. Given that many banks are highly exposed to Eskom debt, the utility’s collapse would threaten a banking crisis (as well as a crisis in electricity supply). Ramaphosa will push the company’s new board to swiftly rectify the critical failings in corporate governance, while reassuring creditors that the government will not allow Eskom to collapse – thereby removing the need for them to call in loans.

2. Contain ANC hardliners…

Ramaphosa won the ANC presidency in December, but his opponents within the party succeeded in getting several radical measures adopted as party policy. Most notably, the ANC now officially supports expropriation without compensation of white-owned agricultural land.

Having enjoyed a hugely successful business career, Ramaphosa understands that any attack on property rights would have serious consequences for business confidence well beyond the agricultural sector. At the same time, he cannot openly repudiate a policy now enshrined in party doctrine. He is likely to opt for delaying tactics as a result, occasionally adopting rhetoric that will concern investors but avoiding actions that result in material damage to their interests.

3. …while also placating Zuma supporters

The removal of Jacob Zuma was ultimately the less risky option for Ramaphosa, who could not afford to appear weak a year before the elections. But the move does carry electoral risks. Zuma remains popular with sections of the ANC, especially in his home province of KwaZulu-Natal.

Ramaphosa is therefore likely to soften the blow by keeping many of Zuma’s supporters in place, at least until after the 2019 elections. Nkosazana Dlamini-Zuma, who Ramaphosa narrowly defeated in the ANC presidential race, is likely to be offered a prominent position.

Leaving Zuma-era officials in place will not be welcomed by the business community. But throughout his career, Ramaphosa has played the long game. He is likely to allow the multiple probes that are now getting underway into ‘state capture’ to pick off Zuma loyalists one-by-one. This strategy will consolidate his control over the government and minimise risks to the ANC’s unity.

4. Send an olive branch to mining companies

One official who is not likely to keep his job for long is mining minister Mosebenzi Zwane. Ramaphosa can send a positive signal to mining companies, either by appointing a new minister immediately or waiting until incriminating evidence of corruption forces Zwane to resign. This will allow the government to review its plans to increase the equity share in mining companies reserved for black empowerment partners.

Political sensitivities are likely to prevent Ramaphosa from abandoning the current draft of the Mining Charter entirely before the election. Yet even if Ramaphosa does not remove regulatory uncertainty, more investor-friendly rhetoric will encourage firms to begin preparing to make investment decisions. Currently, a third of South African mining companies say they are not considering any new investment in 2018.

5. Move beyond crisis management

Perhaps Ramaphosa’s biggest challenge will be to avoid becoming excessively bogged down with managing the multiple crises that Zuma has bequeathed. The incoming president must take immediate action to keep state-owned entities from collapsing, save South Africa’s credit rating, deliver relief to the water-starved city of Cape Town, and juggle a host of other urgent priorities. But at the same time, Ramaphosa will need to lay out a vision for the next 10 years and beyond.

Ultimately, Ramaphosa’s success as president will be determined by his ability to deliver the societal transformation that has largely eluded the ANC during its first quarter of a century in power. If Ramaphosa leaves office with joblessness still exceeding 25% and an education system that still leaves the majority of young people lacking employable skills, then history will be no kinder to him than it will be to Zuma.

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