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Effect of South Africa’s political climate on our economy

By August 29, 2016October 3rd, 2023Newsletter

Effect of South Africa’s political climate on our economy

August 29, 2016

South Africa is bearing witness to a changing political climate, with many people seeing the results of the latest municipal elections as an indication of positive change.

We’ve discussed possible repercussions of the elections before, although at the time it wasn’t clear what coalition negotiations would yield.

With the DA now having formed coalitions with the UDM, ACDP, IFP, FF+ and Cope as well as having the backing of the EFF it’s clear that the ANC’s strongest opposition party would gain the upper hand in hung councils. Many analysts are however of the opinion that these collaborations will not necessarily be smooth sailing for South Africa.

The strain of collaboration

The EFF has made it clear that they will not be entering into any formal coalitions with opposition parties. Though party leader, Julius Malema, has announced an EFF vote in favour of the DA in Gauteng and Nelson Mandela Bay, while it will back the IFP in KZN. The announcement was made a mere 24 hours after proclaiming their outright hostility towards DA mayoral candidate Herman Mashaba – a U-turn which has many people scratching heads.

There are, of course, several problems with these collaborations. In a political sense, coalition is rather paradoxical – the etymology of the word is certainly undermined in a sense. It is undoubtedly rather uncomfortable finding yourself sandwiched between vastly divergent ideologies. As the strongest opposition party, the DA now treads a fine line – maintaining its top spot on the political tier of the opposition whilst having to give the requisite leeway for other parties to challenge its vision.

On the one hand, the Freedom Front Plus, a party which in their own words is a ‘moderate Afrikaner Party seeking Afrikaner self-determination’, a decidedly right wing movement which upholds the right to private land ownership, snubs black economic empowerment based on race, sees Christianity as the only true religion and strives to protect the cultural heritage of the Afrikaner. On the other hand, the Economic Freedom Fighters – a radical and militant economic emancipation movement which is resolutely leftist, anti-capitalist and anti-imperialist – a party which campaigns for the nationalisation of mines and banks, upholds black economic empowerment and canvasses for the restitution of land. Somewhere in between all this – the IFP, UDM, Cope and ACDP hover with hopes of proving their valour – while the DA sits nestled snugly in the middle.

Indeed, there are some overlapping ideologies in all this – like the other parties, both the EFF and FF+ want to weed out corruption, both parties seek better service delivery and job creation, both parties aim to build up the economy – but their strategies for reaching these goals are strikingly incompatible.

Nevertheless, a coalition government holds undeniably opportunity and merit – its potential for reinforcing our egalitarian disposition is a definite advantage. Not only can minority parties under a coalition government be ensured of representation in governing bodies, but it would intensify competition, which in turn could see better service delivery and a better class of debate in the political arena.

Conversely, it is exactly this competition which could topple these delicately placed dominoes. For although the opposition has now gained strength, it’s important to remember who’s still wearing the crown at the top of the food chain. With 55,33%, the ANC is still the head honcho in the political game. They may have lost a great chunk of their power, but the rivalry which is now transpiring will undoubtedly make for a tumultuous ride in the next three years.

And indeed, this should always be top of mind – we have another three years before our next national elections. Though we can argue that this time is necessary to give opposition parties some time to garner strength and affirm their relevance, we are undoubtedly heading into some turbulence.

Not only will the ANC try to gain back some of its clout (and we’re yet to see what means they will use to do this), but the DA will have to go all out to impress the masses. They will have to deliver twice over to maintain their second place on the podium – all the while maintaining the fine thread of fairness with their backing parties and their own followers. With limited resources and recourses at their disposal to achieve a complete service delivery overhaul in three years as well as a tenuous relationship with coalition parties, the DA will have a difficult task at hand; a task which will remain in the brightest of spotlights for all to scrutinise.

But of course, we cannot overlook the volatility within the ruling party itself. Some analysts believe these internal squabbles to point towards the likelihood of a leadership transformation – one which could see Deputy President Cyril Ramaphosa take over the reins from current leader Jacob Zuma. After all, the ANC hardly needs to wait another three years to change course – they have done so with Thabo Mbeki and interim leader Kgalema Mothlanthe. Ramaphosa is a man with indubitable economic prowess, but he also has the ghosts of Marikana following him around. Nevertheless, as a man who is believed to have been Nelson Mandela’s choice for future president, and one who has not funded an extravagant homestead from millions of taxpayer Rands, it is believed that the ANC could reclaim its following if it opts for a leadership change.

What does this mean for South Africa’s economy?

It’s hard to say how the evolving political climate will change our economy. The Rand has already made massive strides since the results of the elections were released, but at our current economic growth rate of 0%, it’s not likely that the picture will get rosy anytime soon.

This bleak growth rate undermines the projected 0.9% – essentially placing South Africa in a very tight spot. Minister of Finance, Pravin Gordhan, reiterated the problem, stating that our country simply cannot spend money we don’t have or borrow beyond our capacity to repay.

Additionally, with the ANC still holding the top seats in government, they are still in charge of policy initiatives necessary to overhaul our economy; something which seems to be a bit of an afterthought amid the internal bickering oozing from fissures throughout party factions.

The ANC has, however, indicated a reprioritisation of budget following the municipal elections. Though this may at first glance seem like a positive move, it has sent many investors running for the hills. Head of Citadel Investment Services, George Herman, voiced his concern, stating that this reprioritisation will not impress rating agencies. In June 2016, Pravin Gordhan assured rating agencies that the country would stick to its fiscal targets; a move which saved us from a credit downgrade in the interim. With the next credit review looming in the distance this December, any budget adjustments could therefore spell disaster for our economy.

Another glaring problem is the maintenance of our 717 state-owned enterprises (SOEs) – enterprises which make up 27% of our gross domestic product and amount to more than 30% of the total government investment. Many of these SOEs, like South African Airways, are simply no longer viable – and yet the government has not shown any indication of abandoning this reckless spending.

Moreover, three more years of political solicitation and apple-polishing equates to three more years of campaign expenditure, political unrest and an economic growth rate sitting on the side lines. Do we know what the future holds? Certainly not. But it would be wise to maintain a conservative outlook, hedge your bets and perhaps opt for investment opportunities offshore.

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