Momentum Investments have released their report based on ‘Cabinet reshuffle’ prepared by the Momentum Macro Research Team. Please see below, a summary of highlights from the team, as well as a downloadable PDF of the research paper. Commentary and highlights below by Sanisha Packirisamy, Economist at Momentum Investments.
- Ever since President Cyril Ramaphosa’s announcement at the State of the Nation Address that an electricity minister would be appointed in the Presidency to oversee the implementation of the Energy Action Plan, South African (SA) households, businesses and investors have been eagerly awaiting the outcome of a reconfiguration of the national executive.
- The president admitted that given that we are in the final year of the sixth administration, this was not meant to be a complete overhaul. The announced changes are, however, focused on addressing urgent vacancies (Deputy President, Minister of Electricity, Minister of Transport and Minister of Public Services and Administration) as well as to focus on the performance of government.
- While the formation of Cabinet is instrumental in shaping government’s commitment to furthering economic and political reforms to drive higher levels of growth and socio-economic development, a few institutional and structural hindrances will prevent a faster acceleration in SA’s growth path, in our view. A constrained fiscus, endemic corruption and a lack of skills in key areas of government to effectively execute it’s reform agenda will continue to cap potential growth. Moreover, internal resistance in the ruling party is preventing more effective delivery of public services, higher economic growth and better job outcomes.
- The latest Cabinet reconfiguration is likely to have disappointed markets with a number of underperforming ministers left unchanged in their portfolios. Some of these ministers have not displayed a clear willingness to support the president’s reform agenda in the past and have been seen as significant stumbling blocks to achieving a higher level of inclusive growth in SA.
- It is unlikely that Cabinet, in its reshuffled form, will meaningfully alter the course for the economy before the 2024 national elections. As such, we still attach a high probability to a scenario in which electoral support for the ANC slips below 50% at next year’s elections, raising risks for political coalitions at a provincial and national level.
- The changes in the Cabinet should have very limited immediate impact on financial markets. Only when members of the new Cabinet implement concrete policy adjustments to rectify the current major deficiencies in the SA economy should the markets react positively to indications that the country’s growth potential could be lifted from current low levels. Until then, markets are unlikely to give government the benefit of the doubt, after too many previous announced policy plans failed to come to fruition.