South Africa: Ramaphosa's economic reforms, majority for the ANC expected to survive general elections
April 12, 2019
Cyril Ramaphosa’s presidency and his promised “new dawn”, which hinges on the further implementation of sorely-needed economic reforms, will be on the ballot when South Africans head to the polls on 8 May. Amid a stagnating economy, crippled public finances and rolling blackouts, voters will elect a new government for only the sixth time since the Apartheid era in what has been billed as a referendum on the incumbent African National Congress’ leader and his time in office thus far. Opinion polls show that the ruling party—the political behemoth once led by Nelson Mandela—could lose a handful of seats to the opposition but will likely retain a comfortable majority. Although most analysts expect Ramaphosa to hold onto the presidency and thereby guarantee follow-through of his reform-minded agenda, a routing at the polls could threaten his leadership of the party as well as his legislative priorities.
Next month’s most likely outcome has Ramaphosa and his ANC securing a majority but losing some seats—the extent to which will be key going forward. Having won over 62% of votes in 2014, narrow losses of only a few percentage points would still almost certainly cement Ramaphosa in the presidency and ensure that both his pro-growth economic platform and crackdown on graft stay on the rails. Most related scenarios would qualify as a mandate for Ramaphosa’s continued efforts to cut red tape, eliminate state capture—especially that of stated-owned utilities—and promote greater transparency within government. However, should the ANC take anywhere close to 54% of the vote, which would tie the party’s performance in the 2016 municipal elections for its worst showing at the polls since the end of Apartheid, Ramaphosa could become vulnerable to fragments of his party dissatisfied with his tenure. In such an event, policy uncertainty would spike and, some analysts argue, could undermine the already-anemic economic recovery. Any result worse than that, although unlikely given the ANC’s political clout and longtime incumbency, could leave the party on its backfoot and forced to cooperate with its rivals; that would almost certainly stall Ramaphosa’s ambitions.
South Africans, disaffected by years of corruption and sky-high unemployment, will cast their ballots amid a spate of crises. The government’s finances are in a mess. The fiscal deficit, for example, is expected to clock in at 4.4% of output this year. Moreover, they were made worse in recent months by the announcement of a ZAR 69 billion (USD 4.9 billion) bailout package for Eskom, the state-owned power utility which has been pillaged by cronyism. Load-shedding, or rolling blackouts, has become commonplace and is testament to the dire state of affairs after more than two decades of one-party rule. That said, Ramaphosa is by far the most popular politician in the country, upon whom voters and analysts have pinned their hopes of an economic turnaround. Moody’s said as much when it recently affirmed South Africa’s investment-grade credit rating, while Inan Demir, an economist at Nomura, added:
“We think a successful ANC showing in […] May will be crucial if Ramaphosa wants to assert his agenda […] and make progress on structural reforms. We think the ANC will need to exceed the 54% level that it scored in the 2016 municipal elections for Ramaphosa to be successful. […] A weak showing by the ANC […] may undermine [his] position in the party and raise the risk of a leadership challenge, which would reduce the likelihood of market-friendly reforms. Also, such a scenario may expose the ANC to a more forceful challenge from the opposition […] and this could increase the risk of a market-unfriendly resolution to land reform.”
South Africa GDP Forecast
As it stands, with another majority for the ANC priced into most of our analysts’ projections, growth is seen accelerating to 1.4% this year—down 0.2 percentage points from last month’s forecast. Next year, growth is seen ticking up to 1.8%.
Author: Christopher Thomas, Economist