South Africa Politics August 2016

South Africa

ANC's decline at municipal elections heralds shifting political sentiment

On 3 August, South Africans delivered a strong message to the ruling African National Congress Party (ANC) by shifting their support away from the party in favor of the opposition Democratic Alliance Party (DA) and the Economic Freedom Fighters Party (EFF). The result of the municipal elections is illustrative of South Africans’ frustration with the lack of economic opportunities in the country and endemic corruption at high levels of government, and their growing discontent with the governing ANC, the party that has held power since the Apartheid. Although the election results have created uncertainty over the future political landscape, they could also prompt the ANC to shake off some of its complacency about economic reforms in order to bolster its image before the 2019 national elections.

Municipal elections in South Africa are held two years after national elections. They decide the local governing councils, which in turn elect municipal mayors. Since these elections occur halfway through the five-year national election cycles, to some extent they can serve as a barometer for the next national elections. At the latest municipal elections, the ANC remained the most popular party on a national basis, with 54.5% of the national vote, but its share fell from 62.9% at the last municipal elections. The DA benefitted from the ANC’s decline, seeing its share increase from 24.1% to 27.0%. So too did the EFF, which did not exist at the last municipal elections but gained 8.3% of the total vote this time round. As a result, 27 municipalities lost their ANC majority and will now experience either minority or coalition governments. The key metropolitan areas of Nelson Mandela Bay, Johannesburg and Tshwane all lost their ANC majority and are now being run by minority DA governments or DA-led coalitions that exclude the ANC. Coalition talks between the DA and the EFF are ongoing in Johannesburg, South Africa’s largest city. Although both parties are against the ANC, they will struggle to form an alliance as they both come from opposing sides of the political spectrum. The ANC’s decline may not seem very significant when looking at the figures alone, however it is important when considering that the ANC was by far the dominant party in the past two decades but has seen its popularity progressively whittled away since municipal elections started in 2006 and in the past three national elections. This has put its majority status in jeopardy.

Although these elections were largely about local rather than federal issues and voter turnout was less than 60%, they have implications for the national level. The ANC will likely feel the need to clean up its act, make real progress towards its policy goals and improve its standing with the public before 2019. However, the ANC has made it clear that it will not remove President Jacob Zuma from his leadership position despite the public’s growing disapproval of him. Without new leadership, change in the ANC could be slow. Peter Attard Montalto, Head of Emerging Europe, Middle East and Africa Economics at Nomura, points out that the ANC is reluctant to remove another President from office following its recall of former President Thabo Mbeki in 2008, and that this could drag on reforms and have implications for South Africa’s credit rating:

“We think Zuma still has sufficient support on the NEC [the ANC’s national executive committee] and in enough provinces to avoid an early elective conference that would be needed to remove him. Equally, we think all sides (for and against him) have already conceded they do not want to be recalling two sitting Presidents in a row. As such, we continue to see no Zumxit before January 2018.”

Montalto interprets the ANC’s loss of votes to both the DA and the EFF as a sign of voter sentiment splitting between the left and right of the political spectrum. The ANC may have to accommodate this sentiment, but it will be difficult to draw back voters from both sides. This could end up slowing reforms, keeping South Africa at risk of a credit downgrade by the end of the year:

“We think this kind of environment where Zuma is pulled in both directions means there will be no leadership on structural reform and therefore downgrades will still occur on 25 November for Moody’s and 2 December for S&P and Fitch. However, we must concede that ratings agencies may decide to give a usual dollop of ‘benefit of the doubt’ after these election results and look for optimism and change. Moody’s is particularly susceptible for that. However, broadly we think the growth outlook and a lack of action by year-end will still mean downgrades will occur as our baseline.”

Markets reacted positively to the elections and the rand strengthened modestly as the results came in. As any new policymaking following the elections is unlikely to improve South Africa’s macroeconomic environment in the near term, the country will still face high structural unemployment and weak demand for its key mineral exports. One positive takeaway from the elections was the lack of violence and fraud at the polls: South Africa may be enduring trying economic times, but this sends a positive sign to investors that its democratic institutions remain solid.

The municipal election will not likely have much of an impact on growth this year, however it could signal more pro-growth polices in the future which may impact long term growth. FocusEconomics Consensus Forecast panelists expect GDP to grow 0.3% in 2016. In 2016, the panel sees growth picking up to 1.3%.

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