The resignation of Thabo Mbeki brings some clarity for investors after months of political turmoil in South Africa.
Investors show cautious confidence
JOHANNESBURG // The resignation of Thabo Mbeki brings some clarity for investors after months of political turmoil in South Africa, but disquiet persists about a volatile transition or a swing to the left. In the biggest political upheaval since the end of apartheid, Mr Mbeki, who as president embraced pro-business policies and presided over South Africa's longest period of economic growth, said on Sunday he had resigned after the ruling ANC asked him to quit before his term ends next year.
Investor confidence in Africa's biggest economy has been damaged by a bitter rift in the ANC between supporters of Mr Mbeki and those of left-leaning Jacob Zuma, who ousted Mr Mbeki as party leader and will likely become president after the 2009 elections. Although the rand weakened yesterday, equities rallied and analysts said Mr Mbeki's departure would boost investor sentiment in the short term by easing uncertainty, especially given his respected finance minister, Trevor Manuel, would stay.
"The relative continuity plus the tenor of Mbeki's resignation and the fact he resigned at all can be seen as an affirmation of South Africa's democracy," said Nic Borain, an independent analyst who advises several international banks. "The certainty is a plus for investors - the conflict seems to be over." Mr Mbeki's sudden departure arguably averts a more drawn-out political crisis, and some analysts applauded the peaceful democratic transition on a continent where leaders often cling to power and tussles over succession can unleash violence.
Mike Davies, an analyst for Eurasia Group, said Mr Mbeki's resignation ended the era of "two centres of power" - the presidency and the ANC - and allowed the ANC, which dominates the political landscape, to start planning for next year's elections. But big questions remain about how far the new-look ANC - influenced by its trade union and Communist allies - will veer from Mr Mbeki's pro-business policies and about how it will manage the transition.
Investors want a swift, transparent and orderly change in the guard and any signs of chaos could hit sentiment and the rand, especially given the country is already facing a brain drain and debilitating power crunch that has hit business confidence. "While investors may welcome greater certainty in terms of the future political outlook, a more volatile political transition is likely to cost the country dearly," Razia Khan, regional head of research for Africa at Standard Chartered Bank, wrote in a note.
Mr Zuma sought to assure investors South Africa's economic policies would remain "stable, progressive and unchanged", but did not give specifics. JP Morgan said in a statement that the change in leadership did not change its outlook for monetary policy but did raise the risk of "fiscal slippage". Mr Borain predicted "more adventurous" policy-making from the ANC's new leaders, who argue Mr Mbeki's government has failed to translate economic growth into a better life for the poor, but said they would soon realise the value of placating investors.
"I would expect more of a Lula than a Chavez," he said, referring to the leftist Brazilian president who proved much less radical than his more fiery Venezuelan counterpart. * Reuters