The big problem South Africa just can’t seem to shake – that’s not load shedding

 ·14 Feb 2023

Political instability and infighting remain major hindrances to South Africa’s economic growth.

Analysts and economists at large have noted that instability in a country dissuades foreign direct investment while making it more challenging for investors, in general, to trust that short-term periods of stability would last.

Momentum Investments, on 12 January, reported that the risk of slower economic reforms under unstable monetary policy outcomes rose while Ramaphosa’s fate was uncertain.

The Bureau of Economic Research (BER) also recently reported that the domestic political climate is a major obstacle to investment, with 83% of manufacturers noting that the political climate is a major concern.

Local business executives have further pointed to political issues as one of their biggest fears for the coming year, as reported in the World Economic Forum’s Global Risk Report.

Absa’s latest Quarterly Perspectives for Q1 found that despite near-term political risks dying down – such as those associated with president Cyril Ramaphosa’s Phala Phala scandal – they have not completely disappeared.

Reassuringly for markets, however, the ANC’s 55th elective conference in December comfortably re-elected Ramaphosa and a strong balance of his allies to the Top Six leadership of the party and the National Executive Committee (NEC), said Absa.

Despite this, Absa said that it seems risks and uncertainty remain from continual investigations into the farm-gate saga by the Public Protector, the South African Reserve Bank (SARB) and the Hawks without a set timeline.

Absa said that next on the political agenda in South Africa is the announcement of a cabinet reshuffle, given some vacancies and the failure of some ministers to be re-elected to the ANC’s National Executive Council (NEC).

When it comes to the reshuffle, Ramaphosa’s options are rather limited since he must choose all his ministers except two from the same body of parliamentarians, said the bank.

“Nonetheless, his specific appointments could suggest whether he feels empowered enough to potentially sideline political opponents and ministerial nonperformers that hopefully open the way for more effective and reform-focused governance,” Absa said.

According to the BER, the reshuffle can be expected to be announced sometime this week.

Political uncertainty is rife

A recent example of political uncertainty was the recent announcement of an electricity minister by Ramaphosa at the latest State of the Nation Address (SONA), on 9 February.

The announcement circumvented previously agreed-upon decisions of the ruling ANC and left many high-level officials perplexed by the move.

The new minister would be expected to deal with the energy crisis specifically; however, it seemingly adds to an already oversaturated management structure.

Speaking to DailyInvestor, energy analyst Chris Yelland said that with the new ministry, there would be five separate ministries dealing with electricity governance if a department of electricity is created for the new minister, namely:

  • The Department of Mineral Resources and Energy
  • The Department of Public Enterprises
  • The Department of Cooperative Governance and Traditional Affairs
  • National Treasury
  • The newly established Electricity Minister.

Yelland said that such a diverse conglomerate of departments would, for example, hold back effective and fast decision-making as many ministers have varied views on how to tackle the energy crisis in South Africa.

The ultimate control over the failing state-owned entity has, over the past few months, been fought over by the minister of public affairs, Pravin Gordhan and the minister of mineral resources and energy, Gwede Mantashe.

Cas Coovadia, a representative of big business in South Africa from Business Unity South Africa (BUSA), added that the new appointment would lead to “turf wars.”

These turf wars stoke political uncertainty, directly impacting the country’s overall economic outlook.

2024 election

Recent polls suggest that the ANC could lose its majority in the next national and provincial elections set for the second quarter of 2024, said Absa.

A poll conducted by the Brenthurst Foundation in late October and early November 2022 put the ANC at 47.6% support, the DA at 24.0%, and the EFF at 10.7%.

“Meanwhile, opposition parties, labour unions, and civil society groups are mounting increased protests and launching legal action against the government over the power supply/Eskom imbroglio. Dissatisfaction with the ANC and the government’s handling of the issue is mounting and could further weigh on its political support.”

“This unprecedented electoral pressure on the ANC would seem to raise the risk of populist policies, as evidenced by Ramaphosa’s recent statement that he had asked Eskom not to implement the regulator’s approved tariff increase for the utility, which he later had to walk back from when it was pointed out that such a step would be illegal,” said Absa.

The bank noted that compared to the run-up to the elective conference, near-term political risks have subsided for now.

Read: Ramaphosa is about to blow the budget

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