South Africans can expect more of the same in 2021, says Intellidex analyst Peter Attard Montalto, as political will stagnates, and the economy bumbles along the same path it has been on for the last decade.
In a research note published this week, Intellidex broke down its forecasts for 2021, touching on South Africa’s biggest issues, including the municipal elections, the Covid-19 pandemic and vaccine rollout, as well as the country’s economic prospects.
Attard Montalto said that while the overall scenario for South Africa will improve – it will take time, and is unlikely to happen at a pace that will keep the country competitive, or on equal footing to its emerging market peers.
This is because the necessary political capital that needs to be applied to the various remedies for the country’s issues – ie, reforming the economy, balancing the budget, restoring trust in government, etc – are lost in the stalemates of South African politics.
Structural reform will happen, Attard Montalto said, “but not with the speed required – given a mixture of lack of capacity, lack of functioning of the state, an ineffective presidency machine, the ineffective deployment of political capital, endless social compacting, ideological challenges and negative fallout risk policies.
“All those factors, we think, will keep animal spirits from emerging to accelerate a recovery,” he said.
This line feeds into other likely outcomes in 2021, such as tackling corruption, effectively balancing the budget, negotiating with unions over public wages, resolving the country’s power crisis, dealing with a looming water crisis, and seeing any changes within the ANC.
Budget and the economy
According to Attard Montalto, given the length of time it will take for any real shift in the economy – South Africa’s 2021 budget is unlikely to be different from the finances that have been presented over the last year.
The budget, scheduled for 24 February, will likely happen long before there is any resolution to government’s legal battles with unions over public sector wages.
This is a crucial part of government’s promise to cut spending, and so without resolution, the numbers previously mentioned will stay in place.
Money will have to be set aside for bailing out state companies, and the spend on Covid-19 vaccines, he said, which are negatives for the expenditure side of things. On the income side, higher taxes and tighter tax efficiency will be the likely messages.
However, a big sticking point comes in the wider economic plans, particularly around government’s infrastructure projects which are supposed to be driving economic recovery following the massive Covid-19 fallout.
This will not be the economic driving force that government is playing it up to be, Attard Montalto said.
“As with reform, this doesn’t mean ‘nothing happening’ – but we do not see the trend rate of infrastructure rollout meaningfully improving.
“More broadly, we think the mindset remains wrong – the government ‘policy’ on infrastructure is state-led and state-directed rather than private sector, especially in areas like roads and water. We need to see a meaningful mindset change to unlock a much faster pace of rollout through PPP models especially. ”
Given this, the analyst said that South Africa is likely to hit a wall, economically, and will be knocking on the International Monetary Fund’s door for a financing programme – possibly within three years.
However long it takes, Intellidex sees this as inevitable.
Covid-19 and lockdown
Following the trend of moving slowly through crises, the rollout of vaccines to address the Covid-19 pandemic is following suit.
Already late to the party on securing doses, Attard Montalto said that the government will likely only meet its 67% ‘herd immunity’ goals by mid-2022 – which means the country will face a third or even fourth wave of Covid-19 infections.
The third wave is likely to hit in May, as winter approaches, and the fourth could see a flare up again at the end of 2021 as the festive season kicks in and people start travelling again.
As the vaccinations start taking effect, the subsequent surges in infections should be less severe, with the analyst noting that the lockdown status shouldn’t be any more severe than it is now, with the focus largely on the tourism and hospitality sectors.
With a poorly-handled pandemic and frustratingly slow reforms taking place, the expectation is that the election numbers will show a move against those who orchestrated this.
However, Attard Montalto said that the wheels of change turn slowly, with municipal elections unlikely to hold any surprises.
Politically, all of South Africa’s parties are facing their own internal issues: the ANC has no viable alternatives to the current leadership, and its factional battles are well known; the DA has to fight off the Freedom Front Plus and GOOD, which are encroaching on its voter base; and the EFF hasn’t had much to do.
In this dearth of political substance, voters are likely to consolidate support behind Ramaphosa, Attard Montalto said.
Some shifts that may happen are a move away from DA-led coalitions – which crumbled in the years following the last municipal elections – and a possible loss of support for the DA in its ‘home base’ in the Western Cape.
“Tshwane is probably the most interesting and closest to watch metro coalition outcome,” the analyst said.