South Africa has till 2019 elections to cash-in on global windfall: Citi


South Africa’s new President Cyril Ramaphosa must quickly show international investors his government can implement reforms to take advantage of a weak dollar and growth in China, according to Citi’s head of emerging markets.

The crucial period starts with Wednesday’s annual budget and runs until elections, due next year, Citi’s David Lubin told Reuters.

The rand, bonds and stocks have climbed to record highs due to what analysts have dubbed the “Ramaphosa rally”, a buoyant market mood that has taken hold since businessman Ramaphosa was elected leader of the ruling African National Congress in December and then President of South Africa.

During Ramaphosa’s maiden state of the nation address on Friday, a day after replacing scandal-plagued Jacob Zuma as state president, the rand surged to a three-year best.

Lubin said in an interview late on Monday that while Ramaphosa was respected by international markets, moving fast on economic reforms was key to turning optimism into long term investment.

“There’s been a very dramatic reassessment of South Africa’s fundamentals in the last three weeks,” Lubin said.

Once the dust settles after the budget, urgent implementation of fiscal and structural reforms was needed to retain investor support, he said.

“It’s not a straightforward thing to implement reforms in mining, education and the structure of corporate ownership and parastatals. What the president chooses to tackle first and when he’s able to do that will become big questions,” Lubin said.

“Conditions to go into the international (bond) market are absolutely better than they were a year ago. SA (South Africa) is a member of an asset class that’s in very good shape, because growth in the Chinese economy is robust and the dollar is weakening.”

With commodities globally priced in dollars, South Africa’s chief exports such as gold, platinum and coal earn the country higher revenues when the greenback depreciates, helping to close the country’s capital deficit.

In September the Treasury issued a pair of dollar bonds in overseas capital markets worth $2.5 billion, attracting more than double that in bids.

In October it said it would raise international borrowing, pushing total debt to 3.4 trillion rand ($290 billion) in 2020 as it looks to plug a gaping budget deficit triggered by years of weak growth and bailouts to state firms, including state airline SAA which received 10 billion rand in 2017.

Lubin said portfolio flows into South Africa would remain solid despite U.S. bond yields rising by their most in years.

He said to attract more direct investment flows, South Africa needed policy changes compared with changes in cabinet.

Ramaphosa is expected to change his cabinet soon and appoint a new finance minister to replace Malsui Gigaba, hired in March by Zuma in a midnight reshuffle that triggered credit downgrades by all three major rating agencies.

“A lot depends on Wednesday. If South Africa delivers a budget that maintains confidence in its ability to stabilise debt, that would go a long way,” Lubin said.

“Building up some credibility and buying some time in what remains a transition going into election requires a high degree of credibility,” he said, referring to national elections due next year.

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