September 4, 2018 / 3:22 PM / 18 days ago

Breakingviews - South Africa slump comes at worst possible time

LONDON (Reuters Breakingviews) - Newly installed chief executives like to get bad news out of the way early on. South African President Cyril Ramaphosa is taking that practice to extremes. The “Ramaphoria” that surrounded his accession six months ago was extinguished on Tuesday when official data showed the economy sunk into recession in the first half of the year. The ruling African National Congress is still destined for election victory next year. But without a solid win Ramaphosa’s grip on the party, and his ability to push through growth-boosting economic reforms, will be in doubt.

South Africa's President Cyril Ramaphosa, July 26, 2018. REUTERS/Mike Hutchings

The multi-millionaire businessman can be excused some of the woes that have followed the departure of scandal-plagued Jacob Zuma in February. After nine years of neglect, it was never going to be easy to rein in spending and turn around bloated state firms. The recent sell-off in the rand owes more to the economic crisis in Turkey, rising U.S. interest rates and fears of a trade war than to major mistakes by the government in Pretoria.

However, Ramaphosa’s image as economic saviour makes it harder for him to dodge blame for gross domestic product contracting 0.7 percent in the second quarter, following a revised 2.6 percent shrinkage in the previous three months.

True, a drought in Cape Town and a hail storm in the country’s maize belt contributed to the drop in agricultural output. But household consumption fell 1.3 percent, suggesting that voters are also feeling the pinch. If they fail to turn out for Ramaphosa in elections due to be held next April or May, he has a problem.

The ANC ditched Zuma because it saw him as an electoral liability who let the opposition Democratic Alliance seize Pretoria and Johannesburg, to add to its grip on Cape Town. Meanwhile, the ANC’s share of the vote fell from 70 percent in 2004 to 62 percent a decade later.

If Ramaphosa shores up the vote, he can justifiably claim to have stopped the rot and saved the party. That would make it harder for labour unions and those on the ANC’s far left who want to seize white-owned farms and nationalize banks to stop a much-needed shake-up of the economy. This is likely to include selling chunks of state firms and introducing employer-friendly labour laws. But if electoral support continues to slide, Ramaphosa’s challenge will become a lot harder.

Breakingviews

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