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SOUTH Africa is on the verge of an economic turnaround after years of stagnation. This week’s election puts that at risk.
Opinion polls show the African National Congress is in danger of losing its national majority on Wednesday for the first time since Nelson Mandela led it to power in 1994, ending White-minority rule.
The ANC has shed support because of graft and mismanagement on its watch. But the party has been on a cautious pro-growth path since President Cyril Ramaphosa took over in 2018 and the best result for investors, according to Bloomberg Economics, is one that keeps him in office.
Some investors are betting that’s exactly what’s going to happen, driving a recent rally in the rand. A Bloomberg survey of emerging-market specialists found most of them overweight or neutral on the country, reflecting optimism it will avoid a post-election populist shift.
South African President Cyril Ramaphosa, center, during the ANC’s manifesto launch in Durban on February 24. Image: Leon Sadiki/Bloomberg
Ramaphosa’s reforms are slowly bearing fruit, which analysts see helping lift economic growth to 1.1% this year from a measly 0.6% in 2023 and advancing further in 2025. That might not be much, but it could get a lot worse, depending on how badly he fares in the vote. A couple of polls have shown ANC support falling below 40%.
If the ANC dips under 50%, it will be pushed into a coalition government. Dropping a bit under that threshold likely means teaming up with a smaller rival who will go along with Ramaphosa’s agenda.
But larger losses could force it into a pact with one of the main opposition parties, and a couple of those options look pretty scary to foreign investors.
They range from the business-friendly Democratic Alliance, led by John Steenhuisen, to the leftist Economic Freedom Fighters led by firebrand Julius Malema and former President Jacob Zuma’s uMkhonto weSizwe Party. The latter two want to nationalize the central bank and expropriate land without compensation.
“Foreign investment would be very cautious to invest into the country, certainly until they’ve seen the roadmap of policy,” said Trevor Garvin, head of multi-management for Nedgroup Investments.
Economic Freedom Fighters leader Julius Malema, right, during the party’s manifesto launch in Durban on February 10. Image: Leon Sadiki/Bloomberg
First prize for investors would be an ANC-DA tie-up. Neither have warmed up to that idea yet, though the DA has not closed the door on one to prevent what it calls the “doomsday scenario” of an ANC-EFF government.
Uncertainty over whether the election delivers a sharp lurch to the left or it’s business as usual is causing some to hesitate. Companies have stockpiled cash at twice the rate of inflation ahead of the polls and foreigners remain net sellers of stocks.
“You’ll have business sit on the sidelines,” said Kevin Lings, chief economist at Stanlib Asset Management Ltd. “That degree of uncertainty can last for a chunk of time. Months. Maybe a year.”
Such cause for pause could be costly when South African growth is finally shifting onto a firmer footing.
“While business holds back on a lot of stuff, what they don’t want to feel is they are losing out if things start to go well,” said Lings. But business won’t invest amid coalition uncertainty and “that’s a lost opportunity.”
Bloomberg Economics examined the possible election outcomes and what they may mean for the economy and policy:
ANC retains majority vote, policy continuity
Opinion polls don’t suggest this, but the ANC could still retain its majority if the opposition splinters and voters keep faith with the party.
Policy direction:
In this scenario there would be little change in policy:
Economic impact:
ANC with 40-49% of vote, policy implementation expedited
The ANC has suffered a steady decline in its share of the national vote, dropping from 69.7% in 2004 to 57.5% in 2019 and dipping to 45.6% in the 2021 local government elections. The trend suggests this is the most likely scenario from Wednesday’s ballot, compelling it to form a coalition with one or two small opposition parties, most likely including the Inkatha Freedom Party.
Policy direction:
Economic impact:
ANC’s vote falls below 40%, policy pragmatism
If the ANC vote falls below 40%, an alliance with the EFF or the DA becomes more probable. Polls have shown Zuma’s MKP eating into the EFF vote, but still trailing it, so if the ANC shifts left, it’s more likely toward Malema than its former leader.
Policy direction:
Economic impact: