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South African business counts on Ramaphosa to plot path to growth

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Cyril Ramaphosa Cyril Ramaphosa

Ndumiso Madlala, head of the Soweto Gold Brewery, says he is banking on new South African President Cyril Ramaphosa to kick-start the economy and help his business grow.

 

The micro brewery was founded five years ago in the Johannesburg township but has struggled to grow in a fiercely competitive market for beer as high unemployment and a weak economy strangled consumer spending. 

 

Madlala places much of the blame on the administration of Jacob Zuma, who reluctantly resigned as president last week after a nine-year tenure plagued by corruption allegations and economic stagnation. 

 

“We started at the time when the economy was not doing so well,” Madlala, a chemical engineer who previously worked at Heineken, told Reuters at his brewery where the walls are adorned with photographs of anti-apartheid heroes. 

 

“Now with Ramaphosa coming in, we really hope the economy is going to grow fast and with the economy growing fast, small businesses like ourselves can also grow at a much faster rate.” 

 

He did not give more specific details of his expectations for the new government, but said his goal of selling 1 million hectolitres of beer by 2020, from 50,000 hectolitres now, could be achieved sooner if Ramaphosa boosted consumer confidence. 

 

Soweto Gold currently only distributes its products to South Africa’s wealthiest province Gauteng, but plans to extend to five more provinces by the end of March before launching nationwide in August. 

 

Madlala is one of many business leaders in South Africa, as well as investors at home and abroad, who are pinning hopes on Ramaphosa, a former businessman who held stakes in mining company Lonmin LON.L, mobile operator MTN Group (MTNJ.J) and McDonald’s South African franchise. 

 

Yet despite the early optimism of Madlala and others, some economists and analysts caution there may be no quick fix for an economy that is forecast to grow just 1.4 percent this year and 1.7 percent in 2019. 

 

Africa’s most developed economy needs faster economic growth to reduce the high joblessness rate - currently at 27 percent - and alleviate the widespread poverty that has persisted since the end of white-minority rule in 1994. 

 

‘NEW COURSE’ 

 

Financial markets roared their approval when Ramaphosa of the ruling African National Congress (ANC) was sworn in last week. South Africa's main stock index surged as much as 5 percent, the rand ZAR=D3 hit its strongest levels in three years while bond investors pushed the yields on the benchmark 2026 ZAR186 note sharply lower. 

 

Banks, considered the barometer of South African political and economic sentiment, are among the best performing stocks on the bourse, up nearly 8 percent - far outpacing a largely flat blue-chip JSE Top-40 index .JTOPI as of Monday. 

 

“President Ramaphosa has an opportunity to set out a new course and chart a clear vision for South Africa,” said Mike Brown, chief executive of No.4 lender Nedbank “We urge him to set out clear policy ambitions that will help unlock investor confidence and pent up economic activity long stymied by policy uncertainty.” 

 

Apart from the revitalizing the economy, business executives would like see more policy certainty - particularly in the mining industry, an important economic engine which has been fighting in court with Zuma’s mines minister over an increase in black ownership targets. 

 

Mining industry lobby group, the Chamber of Mines, agreed at the weekend to delay a court challenge, which was set to resume on Monday, against the regulations following an intervention by Ramaphosa. 

 

Mining companies have said the new rules, which also stipulate they must pay 1 percent of their turnover to local communities, were deterring investment in a sector grappling with unpredictable commodity prices. 

 

“I‘m very optimistic about the future of South African mining,” said Peter Steenkamp, chief executive of Randfontein-based gold miner Harmony Gold. “It’s early days but we know the leadership of the new elected ANC leadership is very familiar with mining, we’ve got both (ANC chairman) Gwede Mantashe and Cyril Ramaphosa, ex-mining people there.” 

 

Investors, business leaders and rating agencies are watching closely for how Ramaphosa is going to deal with corruption and clean up cash-strapped state-owned enterprises. 

 

“There is no time to celebrate,” said Bonang Mohale, chief executive of business lobby group Business Leadership South Africa. “Our state-owned enterprises (SOEs) are bankrupt. We need to address the leadership, capital structure and governance issues gripping these SOEs.” 

 

But for Madlala, the real test awaiting Ramaphosa is to raise the disposable income of consumers. 

 

“We’ve had doom and gloom for the past few years under the Zuma leadership and now with Ramaphosa coming in there’s new energy and we certainly hope it will translate into people visiting restaurants and trying out our brand,” he said.


 

Source

Reuters

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