The 3 August local elections are crucial for South Africa and the risk narrative for investors, according to Nomura research analyst, Peter Attard Montalto.
In a note published on Tuesday, Attard Montalto said that the elections will likely mark the start of a ‘war’ between ANC factions, and will prove important in any (though likely unsuccessful) attempts to unseat President Zuma.
“(This) will lead to a period of introspection within the ANC and, from there, provide an accurate picture of the balance of power within the organisation,” he said.
According to Attard Montalto, Nomura expects only a moderate loss of national support for the ANC, falling to around 56.5%, almost all from urban areas.
“At least one new key metro should fall from ANC majority control, though Johannesburg looks somewhat safe for the ANC,” he said.
The analyst noted that any coalitions that may come from the aftermath of the elections “may be messy and unstable”, and will not meaningfully damage President Zuma, “allowing him to exit eventually on his own terms in 2018”.
“Local elections are normally uninteresting and held every five years; with the odd, small municipality somewhere investors probably have never visited changing hands,” Attard Montalto noted.
“This time is very different. Major metropolitan areas that investors know well are in close contention. Equally, the result will directly affect the ANC’s internal power dynamics between the tenderpreneur and anti-tenderpreneur factions and the succession struggle that is also occurring within the organisation.”
According to Nomura, the 2016 local elections see a weakened President – as ‘tenderpreneurship’ has become much more widely exposed after Nkandla and its Constitutional Court case, and after the Guptas’ involvement in politics became much more widely known and after Nene-gate and the exposure of the exercise of arbitrary power.
“Equally, it occurs before a much more openly hotly contested ANC elective conference in December 2017 and a leadership battle that has already commenced,” Attard Montalto said.
However, despite this, the analyst believes investors – and the public at large – are overestimating the impact the Zuma scandals will have on the election results.
“We think, in general, investors are overestimating the electoral hit the ANC will have from Nkandla, Nene-gate etc on support levels.”
“We think investors need to watch the share of the national vote for the ANC and also the key municipalities and how they may fall into the opposition’s hands,” he said.
“We are expecting a likely moderate acceleration of a trend decrease in support, with ANC voters particularly staying away and opposition party supporters gaining share – as opposed to mass abandonment of the ANC for opposition parties which would see a much bigger vote shift.”