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Ramaphosa shows his mettle

A glimmer of hope has emerged for South African miners following decisive and widely applauded action by president Cyril Ramaphosa in tackling coronavirus.
Ramaphosa shows his mettle Ramaphosa shows his mettle Ramaphosa shows his mettle Ramaphosa shows his mettle Ramaphosa shows his mettle

Richard Wachman in London

The president's speedy implementation of a rigorous lockdown that means even walking the dog isn't permitted has spiralled into a wave of optimism that Ramaphosa means business. His demonstration of decisive action after a wobbly tenure up to now has led to speculation he will get a window of opportunity to fix the broken South African economy when the crisis subsides.

The talk in the market is that the impact of the virus, as well as a downgrade by Moody's of SA government debt to junk status, has all but silenced the opposition.

So could Ramaphosa emerge to fulfil his cherished mandate that seeks to balance structural economic reform, and liberalisation of the energy market in particular, with social justice?

A banker in Johannesburg texted me to say: "It's a severe lockdown, but he's [Ramaphosa) got all political and religious organisations to pledge support for these actions. Otherwise in a country with so many in poor health [HIV/Aids and TB are widespread] this disease would have devastated the economy, not to mention lead to a more deaths than one cares to imagine."

Of course, unrest in the townships is a worry but luckily, said the banker, "we have a strong healthcare system (relatively speaking)  - so people are feeling confident those in charge care about them".

"They have been doing mass testing in the townships for a while now. The low rate of infections and death here are testament to such policies and actions."

The one thing that unsettled him was seeing "very wealthy whites complaining [about the lockdown] loudly, maybe because having to listen to a black president sticks in their craws".

Up to now, Ramaphosa's opponents within the ruling ANC have hobbled his every move to liberalise the economy. Eskom, the national electricity provider, is bleeding cash and on the verge of collapse.

The new mood of hope on trading floors and beyond isn't to say mining in SA doesn't face a harsh winter.

For some operators, it will be difficult to maintain ongoing operations in the face of a double whammy of decreased revenue from lower commodity prices, and the drying up of income from overseas exports to key markets such as China.

Fitch Group has forecast South Africa will witness a contraction of 5.1% in mining industry value (MIV) over 2020, despite the introduction of an improved draft mining charter.

The lockdown will constrict output at most operations, undermining growth across most minerals.

A key segment of South Africa's mining industry, the gold sector, will continue to struggle, thus lagging on the country's MIV ahead. A combination of declining ore grades, high costs of production, ongoing labour strife and a restrictive regulatory environment (which affects other minerals, not just gold) means South Africa has dropped from being the largest gold producer in the world just over a decade ago to the seventh largest as of 2019.

Said Fitch: "Moving forward, we expect these challenges to continue hampering new projects in the sector, while the integration of technological solutions to improve competitiveness will remain constrained by a number of obstacles, including comparatively lower infrastructure access, a poorer start-up environment, less R&D investment and labour skills shortage, among others".

For now, however, Ramaphosa and his health minister are getting high marks.

If South African opinion leaders continue to see Ramaphosa exerting strong leadership during this crisis, it will likely strengthen his hand within the ANC, and once the crisis is over, facilitate implementation of his reform program.

The government has already used the cover of the economic fallout of the virus to tackle one of its biggest problems. On March 18 it said it would renege on a costly agreement to raise pay for most of the country's 1.3 million civil servants by more than inflation and would instead leave their wages unchanged.

"It gives them a window to march through certain things that they can package as part of the health crisis," said Ralph Mathekga, an analyst and author of books on South African politics. "You can rationalise expenditure severely. As long as the president is seen as protecting the nation, he will prevail," he said in an interview with Bloomberg.

On March 29, two days after Moody's cut the country's debt to junk, key allies of Ramaphosa - finance minister Tito Mboweni and central bank governor Lesetja Kganyago - said the economic crisis was an opportunity to fix the economy. Mboweni said South Africa might seek funding from the IMF for the first time, ignoring the ANC's previous ideological opposition to taking money from an institution viewed as a lackey of the US.

Today, there's no room to be emotional about ideology. Put simply, SA doesn't have the funds or resources to generate economic recovery as well as deal with the potentially deadly effects of coronavirus.

A silver lining?