Investors approached the fate of President Cyril Ramaphosa in office with trepidation and concern following the release of a report on the Phala Phala scandal.

Ramaphosa faces possible impeachment over the findings of a panel of experts into the theft at his Phala Phala farm in Limpopo. A report from the panel, headed by retired chief justice Sandile Ngcobo, found that Ramaphosa may have broken some of the country’s anti-corruption laws, violated his oath of office, and committed misconduct.

The president has denied any wrongdoing. Ramaphosa has not been charged with any crimes. The big worry is about who will take over from Ramaphosa if he resigns and whether the would-be successor is fit enough to ensure continuity in his economic policies, the structural reform agenda, and the exercise of prudence over public finances.

This worry can be seen in the local currency market. Since the start of 2022, local political developments have not impacted the US dollar-rand exchange pair. International factors, mainly the trajectory of interest rate increases in the developed world (mainly the US) and harsh Covid-related lockdowns in China, have mostly done so. But in recent weeks, local politics have stalked the local currency. 

The rand has gone from its strongest level at R16.96 on 23 November 2022, levels last seen in August during the same year, to firmly being at the R17 level on Thursday, 1 December 2022. In afternoon trade on Thursday, the rand extended losses and weakened by 3.66% to R17.85 by 3.35 pm on the day — levels last seen during September. The local unit retreated to a narrow range of R17.32 to R17.60. 

This kind of volatility in the local currency was seen in the moments leading up to the resignations of Thabo Mbeki and Jacob Zuma as presidents on 21 September 2008 and 15 February 2018, respectively. Both were recalled by the ANC and didn’t finish their second presidential terms. 

“The possible Ramaphosa resignation has sent shivers down investor spines,” David Shapiro, the chief global equity strategist at Sasfin Wealth, tells Business Maverick. “They are not sure what will happen now. It is a scary moment as we don’t know who will replace him if he resigns. There is nobody that stands out to manage the country,” says Shapiro. 

A David Mabuza presidency

 As Daily Maverick’s Marianne Merten writes here, should Ramaphosa decide to resign, it could effectively put Deputy President David Mabuza in the running as president.

Sasfin Wealth’s Shapiro says investors are nervous about Mabuza because they don’t know what he stands for or whether he will continue on the path already set by Ramaphosa when it comes to managing the economy, public policies, and public finances. “It is a fearful situation. Mabuza has not been tried and tested. You don’t know what he is going to do.”

These worries have also been shared by Cassie Treurnicht, a money manager at Cape Town-based Gryphon Asset Management. “My biggest fear is who will be next to replace Ramaphosa. We seem to go from bad to worse. South Africa carries considerable political risk and we have stepped that up over the past few years following the Zuma years. We have a structural political problem. This will be hard to come out of.”

Also for Wayne McCurrie, the portfolio manager at FNB Wealth and Investments, the political uncertainty and market rout will only settle depending on who takes over from Ramaphosa. “If someone from the Zuma and radical economic transformation camp wins, then we are in trouble. It will be much the same if someone from the Ramaphosa’s camp comes in,” says McCurrie.

Stock and bond market

The worry about Ramaphosa’s future is also reflected in the JSE and bond market. 

The FTSE/JSE All Shares Index finished 0.3% higher on Thursday. But shares that are most exposed to South Africa’s economy and political developments were down and became the biggest losers of the day. These included commercial banks Absa, Capitec, FirstRand (owner of FNB), and Nedbank. 

The earnings generated by these companies depend on South Africa maintaining political certainty and stability in its leadership as high as the Presidency. About 25% of the JSE or companies listed on the bourse are exposed to South Africa’s economy and politics. So, any developments, such as Ramaphosa’s possible resignation, would cause shifts in the local stock market. 

Even investors that buy the government’s debt have been rattled by the future of Ramaphosa in office. For buying the government’s debt and funding its spending priorities, investors have added a layer of risk in their assessment of South Africa as the yield (or interest) on the 10-year government bond (or debt) increased by 62.5 basis points to 10.91%. This is the biggest move since March 2020 when financial markets faced a meltdown over the start of Covid related lockdowns. In other words, investors are now demanding higher interest on the money that they are lending to the government because they now view South Africa as being risky and at risk of defaulting on debt payments.

 For now, markets are adopting a wait-and-see approach. Ramaphosa is reportedly planning to address the country as he faces the possibility of stepping aside. DM/BM