More muddling along
The domestic financial markets have become tired of volatility, but don’t hope for much economic policy clarity in 2017 either.
the policy direction for South Africa’s economy hangs in the balance as opposing factions of the ANC line up for a brutal battle to choose a successor for President Jacob Zuma at the party’s elective conference in December 2017. His ability to withstand an attempt to oust him at a meeting of the ANC’s top brass at the end of November does not bode well for those who want to install a leader in favour of reforms that will encourage investment and end the gravy train of patronage for the country’s political elite.
If Zuma’s backers succeed, their preferred successor will be his ex-wife, Nkosazana Dlamini-Zuma, who would ensure continued dilution of the reforms needed to boost the country’s tepid growth rate and clamp-down on corruption and mismanagement, which has escalated alarmingly in the past few years.
The urgency of a change to the status quo has increased after official data in November showed that the economy expanded by just 0.2% in the third quarter of the year, while investment contracted for the fourth quarter in a row and unemployment jumped to 27.1% – the highest in twelve-and-a-half years.
Zuma’s camp scored two big victories late in 2016. The day after surviving the vitriolic ANC debate over his status, he sent back to Parliament an amendment to the Financial Intelligence Centre Act (Fica), which is required for the country to meet its international obligations to fight money laundering and terrorist financing.
Zuma claims that the bill, which will require banks to investigate “politically influential” clients more thoroughly, is unconstitutional because it would allow searches without a warrant. But the Banking Association South Africa disagrees. It is worrying that the president delayed his decision on it for five months, which means that SA will miss a February deadline for its introduction and risks being put on an international watch list.
Mining investors were also disappointed by changes to mineral resources regulations, which were passed by Parliament for the second time in December after years of wrangling. The bill gives the minister of mines sweeping power to declare certain minerals strategic – which will artificially affect their price – and paves the way for the state to take a 20% minority stake in new gas and oil production and exploration ventures.
Although the bill is likely to be challenged in court in 2017, this means that for now regulatory clarity still falls short of what analysts say is needed to revive a struggling sector which remains one of the country’s most important generators of employment and foreign exchange export earnings. The position of finance minister Pravin Gordhan, who led efforts in 2016 to keep the reform process on track, now looks assured after SA narrowly kept its investment grade credit rating in yearend assessments by Standard & Poor’s and Fitch. Nonetheless, the big danger is that Zuma could carry out a cabinet reshuffle early in the year to remove the ministers who have openly opposed him, and to put his loyalists in place. This would hit SA markets and frighten investors, who will be assessing emerging markets more closely this year as US growth accelerates. Nomura analyst Peter Attard Montalto, who tracks SA closely, points out that domestic financial markets have become tired of the volatility triggered by 2016’s political rollercoaster, and less sensitive to events which continuously fall short of resolving the impasse between ANC leaders. “This is not a good thing for the market, acting as a constraining factor against more extreme domestic events,” he wrote in a recent research note. Political economist Moeletsi Mbeki, the brother of former president Thabo Mbeki, is dismissive of the party’s efforts to revive the economy. “I’m not sure the ANC is divided – they disagree about one issue or another but it does not mean they are divided. They take surplus from the private sector and use it for consumption in the public sector and will continue in that direction,” he said. At the end of the ANC’s heated National Executive Committee (NEC) conference, secretary-general Gwede Mantashe said that the only way to unify the party was through “ideology”. Nobody is clear on what he actually meant, but his comments were a discordant note for those committed to pragmatic policy reform. He was also quoted as saying that the ANC was “a movement, not a contentious organisation of people who are pulled by their conscience, no. We are an ideological organisation.” There thus appears to be little hope that the ruling party will abandon its policy of consensus, which means that compromise and “muddling along” will remain the name of the game.
Gwede Mantashe Secretary-general of the ANC