South Africa’s fractious politics might conceivably benefit from the Covid-19 pandemic, to the extent that the government’s adroit management of the public health aspects of the crisis could boost the popularity of president Ramaphosa and his team of reformers.
This would give them an upper hand over the opposing faction within the ANC, said Absa in a research document.
“This might allow them to drive faster structural reforms – but this is a hope, rather than a certainty, the financial services group said.
“The longer the lockdown lasts, or the more brutal the economic fallout, the more impatient and frustrated the population could become, with potentially adverse consequences for South Africa’s dysfunctional politics,” it said.
Absa said it is unclear at this stage if the ANC will be able to hold its planned mid-term National General Council, given the likely ban on big gatherings.
“Ramaphosa’s opponents allegedly plan to push for a negative review of his performance in terms of implementing ANC policies agreed at the National Conference, in 2017 including NHI and the nationalisation of the SARB.”
Bloomberg has highlighted the shifting power dynamics in president Ramaphosa’s inner circle, bolstering finance minister Tito Mboweni’s influence.
The economy, which was already in its worst state since the 2008 financial crisis, has been hit by the coronavirus pandemic and the loss of South Africa’s last investment-grade credit rating from Moody’s Investors Service.
Absa forecasts that GDP will contract by 6.4% in 2020, “but we caution that this forecast, like all others right now, has more than the usual degree of uncertainty and downside risk”.
It pointed out that its forecast is very close to the SA Reserve Bank’s forecast that GDP would contract 6.1% this year, and the IMF’s projection of a 5.8% contraction.
This has left Mboweni, a former labour minister who’s called for asset sales and an end to bailouts for state companies, in the strongest position he’s been in since returning to the cabinet, Bloomberg said.
“He is the winner,” said Ralph Mathekga, an analyst and author of books on South African politics. “Tito Mboweni is on the rise. His case has been made more real.”
And the new economic reality confronting South Africa has also aided Ramaphosa in wresting control of decision-making from ANC officials loyal to former president Jacob Zuma, Bloomberg reported.
“The positive side of this crisis is we can see how the government should actually work, without the day-in, day-out intervention by elements within the ANC,” said Theo Venter, a political analyst at North-West University in Potchefstroom.
There’s little room to implement policies favoured by the communist party or the Congress of South African Trade Unions, the country’s biggest labour group, such as inflation-beating pay rises for civil servants and a bigger role for the state in the economy.
“Government has to make hard choices,” said Martin Kingston, the vice president of Business Unity South Africa, the nation’s main business group, and chairman of Rothschild & Co’s local unit.
“It is going be very difficult to demonstrate largesse in this environment.”
Mboweni has spoken of his newfound strength. At a March 29 media briefing, he recounted how he had been told by Ramaphosa that the downgrade by Moody’s Investors Service meant he could forge ahead with economic reforms and he had responded “hallelujah.”
“The balance of power in the ANC-led government has shifted in favour of a ‘triumvirate’ consisting of president Cyril Ramaphosa, finance minister Tito Mboweni, and South African Reserve Bank governor Lesetja Kganyago,” said Robert Besseling, executive director of political risk advisory firm EXX Africa.
“The government will respond to the double shock of the coronavirus outbreak and the Moody’s downgrade by making long-overdue structural reforms.”
The house of ANC
According to Intellidex analyst Peter Attard Montalto, factions within the governing ANC are still at play, with some ministers moving a lot slower than others in implementing the necessary reforms needed to stimulate the economy.
Notable voices within the party who have actively moved against president Ramphosa’s reform agenda have fallen silent.
ANC secretary-general Ace Magashule, his deputy, Jessie Duarte, and Paul Mashatile have struggled during the crisis, and have failed to gain relevance. “Godongwana has not raised his head. Mabuza is AWOL,” Attard Montalto said.
“We also watch Dr Zweli Mkhize in particular who is having an excellent crisis as health minister but has gone rogue somewhat – is spending an awful lot of time in KZN, is running his own completely independent media operation and we think is vying for upside in a more senior government role (maybe even deputy president) after 2022. He should be watched,” Attard Montalto said.
And echoing media reports at the weekend, the analyst also noted the use of food parcels being used as political campaign tools, bearing in mind that municipal elections are coming in 2021.
In terms of social unrest, while there have been pockets of unrest in townships around the country, there have been no centralised voices of discontent to lead riots or widespread protest.
Criminality has emerged in cases of vandalism and looting, but Attard Montalto said as long as social grants are being paid, it’s difficult to forecast any eruption of unrest – however, the risk remains.
South Africa will need to wrestle its enormous budget deficit down, and implement a raft of growth-boosting structural reforms to avoid further deterioration, and it will have to do so from a much weaker starting point, Absa said.
It noted that the current pandemic is a big distraction from the reform agenda, but there are signs that the government intends to ‘not let a good crisis go to waste’, essentially using the urgency of the crisis to implement policies that were previously impossible.
“For example, the government has declined to provide any further bailout funding for loss-making South African Airways and SA Express, which essentially means that they will be liquidated, in our view,” Absa said.
It pointed to four reforms it sees as particularly critical over the next year to lifting business confidence, boosting growth and avoiding further credit rating downgrades.
The first is securing electricity supply in a liberalised market. “The government is now awaiting concurrence from the regulator on its plans,” Absa said.
The second is securing regulatory certainty in the key mining sector, in part via an agreement on the ‘once empowered, always empowered’ standoff that is preventing agreement on the Mining Charter.
The third is opening up the visa regime for skilled foreigners once the travel ban is lifted. The fourth is the auction of the broadband spectrum, Absa said.
The Covid-19 pandemic could also profoundly shift the thinking of both the government and the private sector in a number of important policy areas, including especially National Health
Insurance, it said.
“Still, it remains exceptionally difficult to see how this scheme, despite its moral and social merits, can be financed. So far, the crisis has not sparked any evolution in the governing alliance’s thinking about labour market shibboleths, but reformers in the ANC must understand that increased labour market flexibility is key to job creation.
“Perhaps, moves towards this could be offset by a fresh look at basic universal income approach to social welfare, especially if firms lay off lots of workers and growth is slow to recover.
“The proposal to top up social grants for the duration of the crisis could mark a step in this direction,” Absa said.