Rise or fall: SA at a crossroads as ANC decides
Outcome of elective conference will make or break our fortunes
The world will be watching next weekend — hot on the heels of the exit of Zimbabwe’s Robert Mugabe and Angola’s José Eduardo dos Santos — for further dramatic regional developments as the ANC elects new leaders for the next five years.
The highly contested ANC leadership election may determine if South Africa’s democratic project, and economic prosperity on the continent, thrives or stutters, and its choice of leaders will be a leading indicator of whether Africa will be a force for progress or instability in the world in the decades ahead.
South Africans today shoulder the burden of three years of, on average, 1% economic growth. Half its 54 million people live in poverty and a third of its economically active population are unemployed.
South Africa’s “two-speed society” is characterised by a nonracial, affluent urban elite living side by side with marginalised communities that include a growing army of unemployed young people.
So what do the candidates offer to tackle these challenges in a different and effective way? A review of the two main ANC factions’ recent policy statements to the just under one million ANC members leads one to conclude that South Africans can anticipate one of two futures:
One in which the ANC elects President Jacob Zuma’s preferred successor, Nkosazana Dlamini-Zuma, which will help to consolidate the power base of Zuma and his allies, and result in what South Africans have come to know as “business as usual” in the ANC and the government; or
One in which the ANC “modernisers and constitutionalists” led by Cyril Ramaphosa win power, potentially resulting in the near-term exit of Zuma and his allies, the appointment of a new administration, the launch of an economic recovery plan and an attack on corruption.
What the candidates promise
Ramaphosa recently presented a “New Deal” based on the National Development Plan and ANC policy, with a promised focus on accelerating economic growth and transformation, targeting economic growth of 3% next year, rising to 5% within five years, alongside transformation, internships, a national minimum wage for the employed and permanent work opportunities for the unemployed.
Many business people, unionists, citizens and communists are united behind this vision and his brand of “radical economic transformation” to spur growth and address apartheid legacies.
Dlamini-Zuma — although she has of late moderated her rhetoric — launched her economic policies with an attack on the “policy independence” of the Reserve Bank and “white monopoly capital”, and issued a call for “land restitution without compensation”.
Her supporters argue she would deliver radical economic transformation to resolve historic legacies and stimulate growth. Market commentators, however, see her policies as populist, and a recipe for economic decline. Many in business fear that her party support base may escalate the “state capture” of the past decade of Zuma’s rule into “private sector capture”, with destabilising consequences for the economy.
Both candidates, if elected, would in reality have to face up to a looming “fiscal cliff” in which rising debt, slow growth, slowing tax revenues and broken parastatals threaten a fiscal meltdown. Eskom alone poses significant systemic domestic fiscal risk.
The victor will have to move swiftly to present a budget in February that staves off a credit rating downgrade by Moody’s and up to $10-billion (about R136-billion) of forced bond sales on the back of exclusion from the Citi World Government Bond Index.
What is certain, therefore, is that the ruling party’s conference will be a binary moment for South Africa’s political and economic future, and its prospects to resolve the enduring apartheid legacy and conflicts.
Three conference scenarios
Three scenarios may unfold at the conference. First, a clear victory for either Ramaphosa or Dlamini-Zuma. Given the outcry over “state capture”, either winner would likely quickly ask Zuma to step down as South Africa’s president to optimise the chances of the ANC retaining a majority in the 2019 national elections.
A split in the ANC would almost certainly result in the ANC losing a clear majority and
the country entering an era of coalition politics. The politics of coalitions, should that result, may ironically make it more difficult to undertake structural economic reforms required to stage a recovery.
To avoid a split, and should no one faction be able to force a solo victory, a second scenario may see the emergence of an “unprincipled compromise” in which factions share leadership positions under the guise of “unity”. This could even include the two main candidates facing off, and the loser deputising to the winning ANC president.
A third scenario, the “interdicting” or “collapsing” of the conference as a means to perpetuate the current power balance, could result in a dangerous vacuum that is likely to cause significant market indigestion.
This looks increasingly unlikely, although as a winner becomes apparent the losing faction may well resort to such tactics.
Ramaphosa’s promise to lead an economic recovery carries the market’s “thumbs up”, but markets will learn to live with whatever the political outcome.
A new era of inflows?
Other scenarios may well lead to messy and potentially compromised outcomes in which the economy will continue to struggle.
However, holding South Africa together in all scenarios will be the resilience of the powerful combined force of the business community, civil society and labour movement. Robust action by the judiciary and media has provided the last line of defence for democracy and good governance.
South Africa’s deep financial markets provide investors with liquidity to respond to the wide range of outcomes. For market participants, asset prices — whether equities, bonds or currency markets — will likely be both volatile and full of opportunity, particularly in the short term as prices adjust to the outcome. Investors will thus be fixated on leadership announcements.
An era of inflows, fixed capital investment and a broad rally in asset prices can be expected to follow a market-friendly outcome.
Like 23 years ago, when Nelson Mandela opened South Africa for business, leading to two decades of over 3% average economic growth rates, a positive outcome stands to once again make South Africa a favoured destination for global investors.
For South Africans this will be the test to see if their dreams of jobs and prosperity are realised or shattered.
Coleman is a partner MD at Goldman Sachs International