South Africa's ruling party, the African National Congress, late on Monday night elected a new leader after a tense two-day elective conference. Businessman Cyril Ramaphosa was elected by a thin margin to lead the party for the next five years.
Investors got what they wanted in South Africa with Mr Ramaphosa putting himself in prime position to be the nation’s next president.
"Historically he's been seen to be extremely market friendly," the economist Lebohang Pheku told the state broadcaster SABC. The Johannesburg Stock Exchange banking index also soared 5 per cent before falling back to 3.7 per cent up at the close.
The rand pared gains on Monday after ANC officials at the party’s conference in Johannesburg announced Mr Ramaphosa had beaten his main rival, Nkosazana Dlamini-Zuma. It was 2.8 per cent stronger at 12.74 per dollar by 9.23am UAE time in South Africa’s commercial capital, after strengthening as much as 4 per cent earlier, the most in two years. Yields on the government’s US$1.25 billion of 2026 Eurobonds fell 12 basis points to 4.58 per cent, a three-month low, Bloomberg data show.
Earlier, South Africa’s local-currency bonds and banking stocks rose as investors awaited the election result, which came after the market had closed. The yield on benchmark rand bonds due in December 2026 had dropped 22 basis points to 8.94 per cent and an index of bank stocks climbed 5.2 per cent to a record.
This is the 54th congress of the movement established more than a century ago to spearhead black liberation. The ANC's own rules limit its leader to a two-term seat only, for a five-year time period. In 2019 the country goes to the polls.
Globally also, traders were betting on a Ramaphosa win, Bloomberg reported. “The rand is stronger on the likelihood of Cyril Ramaphosa being elected ANC head,” Stephen Innes, Singapore-based head of trading for Asia Pacific at Oanda said in a note before the results were announced. “And indeed Tokyo ‘carry traders’ will be smiling this morning.”
The rand has rallied since falling to a more than one-year low on November 13 as investors priced in a Ramaphosa victory. It’s year-to-date carry return against the dollar has gone from negative to 14 per cent in that period.
But the currency could slide as much as 15 per cent to 14.50 per dollar by the end of 2018, according to the median estimate of analysts in a Bloomberg survey. And the premium of options contracts to sell the rand over those to buy the currency, known as the 25 Delta risk reversal, jumped 30 basis points on Monday to 3.15 percentage points, the most since October.
Both candidates had their fair share of baggage. Mr Ramaphosa was an ex-trade unionist turned billionaire businessman. His much derided pure-bred buffalo herd worth millions of dollars, was frequently cited by his critics as an indication of him being out-of-touch with the interests of most South Africans who are poor and black.
His seat on the board of platinum miner Lonmin had also haunted his campaign. A strike at the mine in 2012 resulted in police shooting and killing 34 workers in what is remembered as the Marikana massacre.
Even though the subsequent enquiry cleared Mr Ramaphosa of any part of the police action, his detractors continued to use the incident against him.
Dr Dlamini-Zuma too had her problems – particularly her association with ex-husband Jacob Zuma. A medical doctor by training and a former head of the African Union, she herself has few recent scandals attached to her name.
However, Mr Zuma's term as leader of the ANC and the country's president was marred by corruption revelations and his association with a Dubai based family of businessmen. Dr Dlamini-Zuma's detractors said her links to her ex-husband, to whom she remains close, would ensure that his influence lingered over the party, and government along with it.
The conclusion of the elective conference will not necessarily put an end to South Africa's troubles, said George Nicholls, senior partner at Control Risks Southern Africa.
"2018 will see a continuation of divisions within the ANC following the December 2017 election of a new party president," he said. "Competing factions – and the possibility of a split in the party – will drive policy uncertainty and political instability, with president Jacob Zuma likely to step down before the end of the year."
Africa’s most-industrialised economy expanded at an annual rate of 0.8 per cent in the third quarter after emerging from a recession. The budget deficit is forecast to jump to 4.3 percent of gross domestic product in the current fiscal year, up from a projected 3.1 per cent. S&P Global Ratings and Fitch Ratings cut the country’s debt to junk this year, and Moody’s Investors Service warned it could follow suit.
As for Mr Zuma himself, he left his successor with a surprise parting gift; a couple of days before the elective conference began, he declared university education would now be free for lower income families. He gave no other details nor mentioned how this would be funded. Most analysts agree it would require at least 15 billion rand (Dh4.31bn) to implement during the first academic year that begins in February 2018.
A relaxed Mr Zuma made a brief appearance at the conference as final votes were being tallied shortly after lunchtime. Speaking to reporters he said he was "bowing out happy.”
After thanking the press pack that had reported on his numerous scandals over the years, he said: "Don't worry about the other things. Life is life."