New research and analysis from Nomura shows why any extreme outcome in the 2016 municipal elections, will set the country up for a wild ride.
The group predicts that the ANC will maintain a majority vote in the election, winning 56.5% of support, nationally.
This outcome matches the trend of the ruling party slowly losing support, though not in the extreme as painted by polling ahead of the elections, which show the Democratic Alliance jumping ahead of the ANC in three major metros.
However, should the ANC fall from majority control – counter to predictions – the country could be in for a tough time.
“The ANC falling from majority control (ie getting below 50%) does not indicate a smooth ride, because we do not see the DA (or any other party) gaining outright majorities,” the Nomura said.
“Elsewhere in the country the DA has shown its ability to govern in coalitions, but running a metro is more complex.”
It could take a lengthy period for coalition agreements to emerge and, as such, investors may well be kept waiting with heightened headline risk – something which does not bode well for the economy.
“Such coalitions would also likely be unstable with the EFF as part of them, meaning changes in format could occur or even the need for early re-elections.”
There is also the possibility of ANC minority rule in metros where coalition agreement are not possible and confidence and supply agreements with the DA could be a possibility here.
“As such we should be clear that while the ANC loses support, it seems unlikely that we get a simple transition to opposition rule in metros without a big surprise leap in electoral support for the DA,” the group said.
Impact on the market
While the municipal elections are often regarded as boring and of little consequence to investors and the market at large – the 2016 elections are different.
This is because 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.
The elections also take place ahead of an elective conference for the future leadership of the ANC – and the outcome will determine how ‘safe’ president Jacob Zuma is in his seat of power.
According to Nomura’s projections, the most likely outcome will be one where Zuma is safe and will leave the position of president on his own terms in 2018. However, any result will have an effect on the market.
A very weak outcome for the ANC (getting less than a 55% national vote share and losing three metros) would likely be viewed as a market positive (increasing in the market’s mind the chances of Zuma’s early removal), the group said.
A moderate outcome of a 55-58% national vote share with one or two metros lost would be fairly neutral to slightly positive in terms of market reaction (with the market still with a bias to seeing Zuma go early).
A 58%+ outcome (with no or one metro lost – not Johannesburg) would be market negative with a much faster realisation that Zuma is secure in a position.