Will Ramaphosa’s game of musical chairs benefit the country?

On the night of 5 August 2021, President Cyril Ramaphosa finally executed his long-awaited cabinet reconfiguration, arguably persuaded by the failure of the security cluster to prevent the July looting and vandalism in KwaZulu-Natal and Johannesburg, and the discord in responding to the mayhem.

What does this mean for the country? Alexander Forbes took a close look at the new cabinet and its impact on future investments in the country.

More so, the president used this opportunity to let go of the reluctant former Finance Minister Tito Mboweni, who has always viewed his appointment, after the resignation of former Finance Minister Nhlanhla Nene, as a transitory one to someone younger. Beyond these two apparent reasons, the reconfiguration appears to be a consolidation of political power as the President’s loyal supporters have been appointed into key departments.

New commers enter the arena
There were three departures, in addition to the vacant position that became available after Jackson Mthembu’s passing. Mondli Gungubele, the president’s supporter, became the new minister in the Presidency responsible for planning, monitoring and evaluation. Gungubele was former deputy finance minister for just over a year from the beginning of 2018 and a former mayor of Ekurhuleni where he led it to successive credit rating upgrades. He is expected to bring stability to this department, although the accountability that is expected across government will eventually happen remains to be seen.

Zizi Kodwa, a strong loyalist for the president, has been appointed as the Deputy Minister in the Presidency responsible for state security, which has now been folded under the Presidency from a separate standalone department. Kodwa is one of 10 new Deputy Ministers who have been appointed – a move we see as balancing the political factions in the ruling party.

Will Cyril Ramaphosa’s game of musical chairs pay off in the long run?
Photo By: Presidency

Another new finance minister
The president announced that former Finance Minister Tito Mboweni requested to be relieved of his duties; a call he has unsuccessfully made several times before. He steered National Treasury, after the resignation of former Finance Minister Nhlanhla Nene, through credit rating downgrades and the Covid-19 pandemic.

There was stability at National Treasury after a tremulous period with rising debt and fiscal deficits. The fact that he was not beholden to the position was arguably a positive as he could speak his mind and stand his ground on fiscal matters. National Treasury’s revenue outcomes for the fiscal year 2020/2021 exceeded the medium-term budget policy statement estimates by nearly R100 billion and they are set to exceed the 2021/2022 fiscal year targets.

National Treasury, under Mboweni’s leadership, resisted calls for more spending and rather opted to reduce bond issuance and build cash balances, which will be used to fund the recent relief package to the tune of R36.2 billion, without increasing debt. Despite this stability, Mboweni was often alleged to be unengaged and alienating to the ruling party’s tripartite alliance partners.

Mboweni is now replaced by Enoch Godongwana, who until his appointment as the new Finance Minister, served as the head of the ANC’s Economic Transformation Committee, the party’s economic policy arm, for a decade. He was also the Chair of the Development Bank of Southern Africa (DBSA), a position we expect him to relinquish. On matters of economic policy, Godongwana is not a stranger. He has played a crucial role in major policy debates such as the expropriation of land without compensation, prescribed assets, the nationalisation of the South African Reserve Bank and more recently, the debate about the universal basic income grant.

 In our engagements with him and investors, he has been more pragmatic than many of his colleagues in the ruling party. His recent column in the Business Day, “We must balance growth interventions, job creation, social grants” confirms his pragmatism when it comes to the need for structural economic reforms for boosting long-term economic growth, while implementing short-term measures to support vulnerable communities.

He is also no stranger to international and domestic investors, having socialised them to the land expropriation and prescribed asset debates. Overall, we believe there will be continuity as far as the management of the fiscus is concerned. However, we have a sense that he has some inclination for an interventionist state and a somewhat neutral support for an inflation targeting framework. How he handles the universal basic income grant debate and his views on the inflation targeting framework under review will be important signals for how he will mould National Treasury going forward.

The health ministry and defence merry-go-round
Dr Zweli Mkhize resigned as Minister of Health due to the Digital Vibes allegations of corruption and was replaced by Dr Joe Phaahla, an actual medical doctor who was Mkhize’s Deputy Minister. We expect continuity in the Department of Health given that the incoming minister has been there throughout the Covid-19 pandemic.

Thandi Modise, the President’s supporter and the no-nonsense parliamentary speaker until this appointment, replaces Nosiviwe Mapisa-Nqakula as the Minister of Defence. The removal of Mapisa-Nqakula was expected given the slow response and the contradictions that arose in the characterisation of the looting and violence in KwaZulu-Natal and Johannesburg.

Thandi Modise is the new Defense Minister
Photo By: Ministry of Defense

Other aspects of the reconfigurations
The Department of Human Settlements and Water Affairs, headed by Minister Lindiwe Sisulu, has been split into two new departments:

• the Department of Water and Sanitation will be headed by Minister Senzo Mchunu, who previously headed the Department of Public Service and Administration

• the Department of Human Settlements, will now be headed by Minister Mmamoloko Kubayi-Ngubane, who was previously heading the Department of Tourism

This split, as the President announced, is due to the recognition of the importance of water and the need for significant reforms in the water sector in the economy.

The Department of Tourism is now headed by Minister Sisulu, while the Department of Public Service and Administration is now headed by Minister Ayanda Dlodlo, her second stint at this department. The 2018 public sector wage settlements that were well above inflation were negotiated with Dlodlo in charge, thus this development might prove to be a negative for the fiscus as we go into the new public sector wage bargaining.

Minister Stella Ndabeni-Abrahams was moved from the Department of Communications to the Department of Small Business Development. Minister Khumbudzo Ntshavhen takes over the Department of Communications, a positive for a department that has grappled with the auctioning of spectrum for years.

In addition to the four newcomers, the President appointed ten Deputy Ministers, which makes South Africa’s government executive one of the largest in the world. Possibly, this demonstrates the need to appease different factions in the ruling party while consolidating political power, a fact that characterises the political dynamics and slows economic reforms.

Implications for the economic and investment environment
With the major economic cluster departments left unchanged, while those that changed now have reputable ministers who are supporters of the President, there is a better chance that economic reforms will receive a boost.

In particular, the reduction of the budget deficit will continue, populist spending pressures will be resisted and spectrum auctioning now has a better chance of speeding up. The investment climate will likely improve over the next year and ultimately benefit the economy and investors. In addition, investors should get some comfort from knowing that we are unlikely to see a negative change in the general policy direction.