While talk of a potential ratings downgrade to junk status for South Africa is off the cards until the end of the year, the one thing every ratings agency warned the government against has played out already.
In June, ratings firms S&P Global and Fitch gave South Africa some economic breathing room by holding the country’s credit rating at BBB-, or one level above junk status. The reprieve did not come without warning however.
Amid extremely slow economic growth, high levels of unemployment and inequality, the firms warned that political instability was a key concern among foreign investors – and in a politically volatile year like 2016, government should move cautiously towards the municipal elections to be held in August.
Fitch, in particular, warned that the government should steer clear of making populist decisions or seeking “quick fixes” to lingering problems, as such actions would undoubtedly cost the country’s economy in the long run.
S&P, meanwhile, singled out the cohesion of the executive; increased political tensions since the removal of former finance minister Nhlanhla Nene; disputes between key government institutions, and disputes within the ANC as key factors being watched moving forward.
According to Craig Featherby of Carric Wealth, ratings firms would not expect South Africa to fix all its problems in 6 months, but the country would need to show progress – both economically and politically.
While finance minister Pravin Gordhan has managed to reel things in economically – in the few weeks following the ratings firms’ declarations, South Africa has gone in the complete opposite direction on the political front.
In the past week, violent protests have erupted in the Tshwane municipality as ANC members fight against the party’s mayoral candidate for the city. While Tshwane has received the most media attention, tensions are high across several provinces.
According to Nomura analyst, Peter Attard Montalto, while the Tshwane riots haven’t had much of an economic impact now, the underlying cause of the anger paints a bleak picture for what lies ahead for the country.
The current political landscape is one of factionalism within the ruling party, where cadre-deployment has become the name of the game – leading to violent conflict.
Other analysts have pointed out that if the ANC cannot even support its own candidates, and turn to violence when things do not go their way – there is little hope the same communities will welcome opposition parties, should they come to power later in the year.
Head of Political Economy at Mapungubwe Institute for Strategic Reflection, Ralph Mathekga told radio 702 that members of the ANC refuse to accept the legitimacy of decisions taken by the party, which poses a serious problem for the country looking ahead to the elections.
“If another party wins in Tshwane, you’ll still be stuck with issues of legitimacy of authority. Will they respect the authority of another party?”
According to Attard Montalto, in the past the answer would have been yes – but in light of recent events, the prospects of a peaceful cession of power is looking less likely.
Chief economist at Efficient Group, Dawie Roodt, believes the answer is a definitive “no”.
“What we are seeing is what may happen on a greater scale after the elections. If the ANC (supporters) behave like this while they are still in power, how will they behave if they lose power?” Roodt said.
‘We need a miracle to avoid junk’
And things are only going to get worse.
“Possibly a recession, more unemployment, poverty and to add to all of this, sharply higher food prices. A toxic mix,” Roodt said, with the addition of a vote by Britain to leave the European Union complicating matters.
To avoid getting downgraded to junk status at the end of the year, “we need a miracle”, he added.
Despite a recent poll from Ipsos showing the Democratic Alliance taking two metros from the ANC (Tshwane and Nelson Mandela Bay), the ruling party is expected to have a strong showing across the country in August.
However, even a win for the ANC in Tshwane in August would not be a win in the bigger picture, as political division and unrest marches South Africa steadily to the junk status it barely escaped in June.
More on South Africa