Ramaphosa's 'new dawn' faces same dark clouds as SONA set to get underway

One year into the “new dawn” that South African President Cyril Ramaphosa promised when he took power, the economy is battling many of the same old problems.

Growth in Africa’s most-industrialised economy is sluggish, unemployment is still at record levels and the debt of mismanaged state companies such as Eskom is weighing on finances.

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That’s a challenging backdrop for Ramaphosa, who promised a slew of regulatory reforms when he became leader of the ANC in December 2017.

Economic Growth

Ramaphosa, like his predecessor Jacob Zuma, began his presidency with a recession. The country has emerged from that slump, but expansion hasn’t exceeded 2% annually since 2013 and will only reach that level by next year, according to central bank forecasts. That’s far from the 5% growth he pledged in his campaign for leadership of the ANC.

Business Confidence

Business confidence surged to a two-year high early in 2018 on hopes that Ramaphosa’s leadership would mark an end to years of economic mismanagement and alleged graft under his predecessor. Sentiment has since cooled.

“There was an expectation that reforms would come through very quickly,” said Sanisha Packirisamy, an economist at Momentum Investments. “That was an unfair expectation given the political reality of a ruling party that has two very strong and opposing factions.”

Unemployment

Slow growth and low business confidence mean steps to boost employment, such as hosting a jobs summit and partnering with the private sector for a youth-internship program, haven’t made a dent in record-high unemployment. But Ramaphosa’s introduction in January of a minimum wage “may end up being a policy that boosts demand and buoys the economy,” according to Daryl Glaser, a political science professor at the University of the Witwatersrand in Johannesburg.

Capital Inflows

Foreign direct investment has begun to recover from an 11-year low. Ramaphosa’s plan to attract $100 billion in investment over five years has brought pledges from China, the UK, the UAE, Saudi Arabia and Daimler AG’s Mercedes-Benz unit.

State Companies and Ratings

Moody’s Investors Service changed its outlook on South Africa’s credit ratings to stable from negative in March, keeping the country at investment grade. Despite this reprieve, the debt loads of state companies remain a key risk for the sovereign rating. A cut to junk by Moody’s could trigger outflows from some of the world’s largest funds.

Ramaphosa’s televised state-of-the-nation address is due to begin at 19:00 in Cape Town.