There seems to be a lack of congruence in how investors, both South African and foreign, are thinking about the country. While some are enthused by the progress made under the fledgling Ramaphosa presidency, others remain unconvinced about the extent to which reform can occur and are sceptical about the trajectory of the economy.

With President Cyril Ramaphosa’s honeymoon period over and a national election on the horizon, should investors be bullish or bearish about SA? Interestingly, investors themselves, torn between facts and feelings, seem to lack high-conviction views about this.

In a shift from the giddy “Ramaphoria” and the hysterical “Ramageddon” of 2018, a more sober assessment of issues is emerging. Conscious of not seeing the wood for the trees, a number of investors have begun segmenting the political and economic dimensions of their analysis. In short, while a large number feel the worst is over politically, they are still struggling to see how the moribund economy, grossly mismanaged for a decade, can be fixed. This incongruence is at the heart of the dilemma.

Here’s why: in the near term uncertainty over the key policy issues, an upcoming election, the lack of fiscal consolidation, a potential rating downgrade and low growth are weighing on investor sentiment. Along with a bearish environment for emerging markets, these will see a continued negative bias towards the country.

While countries such as India and Turkey continue to undermine the independence of their central banks and Brazil pivots right, SA has reaffirmed the role and independence of the SA Reserve Bank, as well as the judiciary.

Yet, in the medium term they sense a clear directional shift, governance improvements in key state entities and an acknowledgement of the issues as well as remedial efforts. The appointment of technocrats and Ramaphosa allies to key positions has left investors hopeful of a more assertive reform agenda. Importantly, there seems to be a rapprochement between the government and business, reflected in the series of pledges emanating from the recent investment summit.

These are encouraging signs, says Alexander Forbes Investments chief economist Isaah Mhlanga. “The improvement in political outlook usually precedes a positive turn in economic growth. It’s only eight months since the change in political leadership, but we’ve already seen big changes.”

First among these positives is the state-capture commission, which is truly remarkable in many respects. Ironically initiated by former president Jacob Zuma, it is in effect a sitting government putting itself on trial. Though somewhat bizarre, this should be lauded — there are very few countries in the world, never mind emerging markets, where something like this would transpire so openly and transparently.

Further, though there is justifiable outrage at the ongoing revelations of corruption and malfeasance being exposed in the process, it is important to bear in mind that these transgressions have already transpired and are simply now being brought into the public domain. In this sense, rather than reflecting an ongoing malaise or raking over old coals, they could be interpreted as the start of a cathartic clean-up process, with associated consequences (Nhlanhla Nene’s resignation a case in point).

Second, there has been noteworthy progress in improving governance. Starting with the resignation of Nene and followed by that of Malusi Gigaba, a culture of accountability is slowly beginning to take shape under the Ramaphosa presidency. Certainly, one swallow does not make a summer, but the symbolism matters, and these moves mark a clear and radical departure from the culture of impunity that characterised the Zuma years.

This is particularly impressive when noting that Ramaphosa has not yet fully consolidated his power either internally within the ANC or externally via a national election. Taken in conjunction with the major improvements in key institutions that were gutted under Zuma, including the SA Revenue Service, Eskom and the National Prosecuting Authority, recent moves illustrate  the president’s growing assertiveness and influence. This has led to a more buoyant political outlook, which should further improve once Ramaphosa obtains his own mandate from the electorate.

Third, it is important not to look at SA’s issues in isolation. In a global context, where much of the word is backsliding to authoritarianism and populism, SA is bucking the trend. While populist elements have emerged in the mainstream in other countries, and to some extent in SA through the expropriation of land without compensation narrative, in the main they remain on the fringes.

The EFF, though bombastic, is unlikely to receive more than 10% of the vote in the upcoming ballot, while the country’s integration into global financial markets and adherence to constitutionalism further limits the extent of extreme policy in either direction. Meanwhile, the country’s democratic and economic institutions have proven resilient and are a huge comparative advantage relative to its peer group.

While countries such as India and Turkey continue to undermine the independence of their central banks and Brazil pivots right, SA has reaffirmed the role and independence of the Reserve Bank, as well as the judiciary. Repairing the government’s adversarial relationship with business has been another positive. In the midst of a global “geopolitical recession”, this is important perspective.

But are we running the risk of hailing neutral developments as positive? Is it merely a case of the rot having been stopped, rather than anything substantive? 

As Peter Attard Montalto of Intellidex argues: “We need to be quite clear on the difference [between] removing negatives and actually real positives when it comes to policy and reform. Removing negatives takes away issues that were holding the economy below potential growth, but you need actual positive reforms to boost potential from 2% towards 5%. The Mining Charter is one example where the previous policy uncertainty was holding the sector down, but the new charter is still a high cost/high barrier to entry model that will not help boost potential growth. The same can be said of the visa rules.”

So, while recent changes may buy time and goodwill and avert a  credit rating downgrade for now, the more important question for investors relates to growth and where it will come from. More specifically, the question is whether there is sufficient political will and time for the economy to catch up with political progress, particularly given the complex structural and political rigidities associated with restoring competitiveness in a low-growth, highly regulated, highly taxed and highly unemployed country.

Is it simply a case of too little too late? Probably, argues Teneo Intelligence’s Anne Fruhauf, who attended the recent investor summit in New York. “Many financial investors seemed to be strenuously looking for an upside but didn’t know where to find it”, she noted. “And although President Ramaphosa’s government enjoys infinitely greater goodwill than its predecessor, the dire economic context clearly means the government needs to be even bolder to address structural impediments to growth or employment creation, especially on the necessary scale. No-one is expecting much ahead of the elections, but will the reform outlook really improve markedly after the polls given the extreme sensitivities surrounding the land debate or even state-owned enterprise management?”

Though there are notable improvements, these come off a very low base and the extent of meaningful progress will be limited by the political cycle. Optimists are hopeful that post-election Ramaphosa will get a healthy mandate to kick-start an aggressive reform drive, though he will probably face strong push-back from the Zuma faction of an ideologically divided ANC. This, combined with the shadow of a credit rating downgrade, will create an uphill battle to create sufficient economic momentum to turn things around.

The reality is that SA is driving on a potholed road. And though the flat tyre has been changed (politically), the road ahead is still treacherous (economically). Averting a crash requires skill, agility and, most importantly, a sense of urgency.

• Gopaldas is a director at Signal Risk and a fellow at the Gordon Institute of Business Science.