ANC leadership election outcome in South Africa—the dawn of a new era?

It has just been announced that Cyril Ramaphosa has been elected new president of the African National Congress (ANC) party winning 2440 votes against the other front running candidate Dlamini-Zuma who got 2261 votes, thereby marking a defeat for Jacob Zuma who supported his ex-wife Ms. Dlamini-Zuma.  

The election of Mr. Ramaphosa, the current deputy president of South Africa and a former successful businessman, is clearly market positive as he has run on a pro-business and anti-corruption campaign, trying to distinguish himself from President Jacob Zuma. In a recent important policy speech by Mr. Ramaphosa at a ANC Meeting in November (see here), he stressed the need for improving investor sentiment, promoting manufacturing-led growth through tax reforms and SME development, maintaining fiscal discipline, reforming of state-owned enterprises, and combating corruption etc. However, the speech is absent concrete policy proposals to tackle the significant structural obstacles which is undermining the growth prospects of the South African economy.

However, before getting too carried away, we need more clarity on a number of issues over the next days and weeks, including:  

1) How easy the transition of power is to Mr. Ramaphosa from Jacob Zuma (who technically can remain SA president to the 2019 election) and how well the divisions within the ANC party are bridged.

2) What economic team is picked by Mr. Ramaphosa—in general it should be a fairly well-respected finance minister.

3) What concrete reform proposals he intends to pursue (so far the policy speeches have been fairly vague as mentioned above) to improve the current weak growth potential of the South African economy.

The market had more or less priced in the likely victory of the Mr. Ramaphosa. Hence, in the aftermath of the announcement of the election result tonight,  the Rand gave up some of the gains against the USD, as investors took profits but probably also weighed in some of the unknowns mentioned above. Yet, the USD/ZAR is still down by 3.5% at 12.7 on the day and almost 9% over the past month. After the surge of the ZAR, we think that it is fairly valued.

We think that the USD/ZAR could move a bit higher over the next months, seeing the cross at 13.00 in 3M as the euphoria evaporates a bit. After that the cross may head modestly lower as the new ANC leader is able to lay out his policy programme  in more details and getting a better grip on the ANC party, seeing the USD/ZAR at 12.75 in 6M and 12.5 in 12M. However, it is clear that uncertainty remain significant at this stage.