The South African rand has strengthened in recent days in light of ongoing indications that scandal-hit President Jacob Zuma could be about to step down.
While this would suggest that investors should consider one of Africa’s largest economies sooner rather than later, financial experts CNBC spoke to were more cautious.
“February will be volatile for South African assets,” BofA Merrill Lynch Global Research wrote in a note Wednesday. “The potential for Zuma leaving office provides upside risks, while the February 21 budget and the looming Moody’s local debt downgrade may trigger a sell-off. We think too much optimism has been priced into South African assets.”
Echoing this caution, the rand’s rally “is likely to be modest” should Zuma resign, Ben Payton, head of Africa research at risk consultancy Verisk Maplecroft, told CNBC via email. “Investors have already priced in Zuma’s removal to a large extent, while any rise in U.S. interest rates would contain the rand’s rise against the dollar.”
Cyril Ramaphosa, recently elected African National Congress (ANC) leader and front runner for the South African presidency, is viewed as a boon for the national economy. He is expected to put an end to the corruption claims that have plagued Zuma’s government.
“For multinationals looking to make longer-term commitments, for instance by localizing major aspects of their operations or expanding their existing base further … Ramaphosa’s rise to power moves the dial in South Africa’s favor,” William Atwell, practice leader for sub-Saharan Africa at emerging markets specialist Frontier Strategy Group, told CNBC via email.
But, “companies making investments in the real economy need to have a long-term outlook,” Payton warned. “Attracting investors into sectors such as mining and manufacturing depends to a large extent on Ramaphosa signalling a clear break with the Zuma era.”
Ramaphosa is expected to “forge more fruitful relations with local companies and international investors by pursuing more pragmatic policies,” Atwell added.
Capping any optimism is the belief that South Africa’s economic fundamentals are not as positive as they could be. Its economy grew at just 0.7 percent in 2017, according to the International Monetary Fund, well below emerging markets as a whole which grew at 4.6 percent.
The uncertainty of Zuma’s political future crystalized earlier this week when South Africa’s annual State of the Nation speech, to be given by the president, was canceled just days before it was expected to take place Thursday. No date was given for its rescheduling, and rumors have been swirling that senior ANC leaders are now focused on ousting Zuma.
South Africa’s Johannesburg Top 40 index has plunged in recent days on political uncertainty and closed over 1.5 percent lower Friday afternoon.
Atwell picked “areas prioritized for government spending, for example, the health sector” as those to invest in, as well as technology stocks.
“Ramaphosa is likely to take a ‘do no harm’ approach to the economy. But politics will get in the way of more fundamental reforms, at least until after the elections in 2019,” Payton said.