The 2016 local government elections has seen the ANC’s worst showing ever in both national and municipal elections – delivering a very strong message to the ruling party, says financial services firm, Citadel Advisory.
Although the party has still come in with a majority, at under 54% it is substantially below expectations of around 58% and puts it in the weakest position we have seen, said Maarten Ackerman of Citadel Advisory.
In addition, the ANC failed to secure a majority in five of the country’s eight metros, a significant loss which includes the economic powerhouse of Gauteng, the seat of parliament Cape Town and the hotly contested Nelson Mandela Bay. “Quite clearly, people on the ground are unhappy with the status quo and have voted to show this,” he said.
The investment strategist pointed to suggestions that the outcome of the elections was more an anti-Zuma vote than an anti-ANC vote, a demonstration of dissatisfaction with party leadership rather than with the party itself.
“However, we will need to wait and see how the ANC will react to this possibility. Cyril Ramaphosa has already made moves to allay fears and has indicated that the party will ‘do its own analysis of its performance, listen to the people and self-correct’.”
This business friendly election result has been welcomed by the investment community with the rand reaching R13.67/$ on Friday. It traded at R13.71 on Monday morning.
Ackerman put the rand’s strength into context. Bumper US employment figures were published on Friday, revealing an additional 255,000 jobs and boosting the US dollar. In spite of this, the rand rose against the dollar and was also stronger against the cross rates.
“A strong rand should provide inflation relief, reducing the likelihood of further interest rate hikes this year. A further cut in the fuel price can be expected next month, after the generous cut in August, which will provide the consumer with urgently needed relief while also boosting sentiment,” Ackerman said.
“While the South African economy is certainly weak, we can see a few green shoots are beginning, which points to the possible bottoming of the current weak cycle,” the strategist said.
He added that since February, government finances have been improving and the fiscal deficit is moving in the right direction. Better mining and manufacturing figures have been posted and trade stats are also looking up. “While this won’t propel us into a high growth phase yet, the signs are certainly encouraging.”
Combine these factors with a business-friendly election result and the prospect of a sovereign credit rating downgrade in December starts to recede, Citadel said.
“The South African economy does remain fundamentally weak, and a downgrade at some stage remains on the table, but it is increasingly likely that we can stave this off in December,” Ackerman said.
He said that different management in some of the municipalities, and far greater control in others where the ANC will be forced to enter into a coalition, is likely to find favour in the markets translating into further rand strength for the balance of 2016.
“With confidence up in the wake of the 2016 local government election results and the possible beginnings of a bottoming in the economic cycle the rand can enjoy further support creating some exciting investment opportunities towards year end,” Ackerman said.