Prospects for South Africa in 2022
The November 1 municipal elections have added to uncertainty surrounding the ANC's future as South Africa's ruling party
The ANC’s November 1 municipal election losses have helped cap one of their most challenging years in the post-apartheid era. The party faces both extreme internal divisions -- which helped spark the July uprising -- and increasing voter disaffection, raising questions about its longevity as the ruling party. Meanwhile, critical structural economic questions remained unaddressed, notably relating to the embattled energy sector, failing state-owned enterprises and public sector pay.
What next
The ANC’s December 2022 elective conference will be a focal point of intra-party factional jostling. Nevertheless, despite recent election losses, President Cyril Ramaphosa continues to poll well among voters and is unlikely to be seriously challenged. Meanwhile, government economic policy will face the same obstacles as in 2021. Public service wage negotiations in the first quarter of 2022 will be difficult and no speedy end to power outages is likely.
Strategic summary
- The ANC’s increasing unpopularity and political dynamics among other parties raises the possibility for a future political realignment.
- Fiscal retrenchment plans may not be credible in the face of pressure both within the government and from public sector trade unions and civil society.
- Political risk is diversifying with the emergence in some economic sectors of new forms of violent extortion of companies.
- Economic prospects will depend not only on developments in South Africa but on the outlook for commodity prices and inflation in developed countries.
Analysis
Against a background of record unemployment, constrained growth prospects and pandemic-related disruptions, the ANC received 45.6% of the vote in the municipal elections, placing it under 50% of the national vote share for the first time in the democratic era. All these factors are set to continue into 2022 (see SOUTH AFRICA: Elections erode ANC's long-term position - November 16, 2021).
It is too early to say whether the ANC's decline will be terminal: the 2024 elections will provide clarity. However, it is very difficult to see the ruling party ever regaining the dominance it enjoyed from 1994 to 2016. There is no significant electoral test until 2024. Until then the main parties will be focused on leadership competition, strategic introspection and jockeying for position.
Added to electoral decline, the ruling party is beset by funding problems and organisational chaos, both of which compromised its election campaign. Factional conflict has led to numerous court cases over issues such as candidate selection and the legitimacy of provincial and local leadership elections. Some disputes are settled by murder.
Political realignment?
Broader political trends, which go beyond the recent election results but which are partly manifested in them, suggest the possibility of a future political realignment.
One possibility is that even a greatly weakened ANC can remain the centre of a constellation of opportunistic arrangements at the municipal level. Another is that different ANC factions will be attracted to either of the two main opposition parties, the centre-right Democratic Alliance or the left-populist Economic Freedom Fighters (EFF) party, presaging a more wholesale realignment.
However, this scenario is unlikely until municipal-level cooperation clarifies possibilities and until the results of the 2022 ANC conference and the 2024 general election.
During 2022, the success or failure of coalition arrangements, which will differ from metro (metropolitan municipality) to metro according to local power balances, will also help determine whether realignment has a more permanent future.
Economic policy credibility
In his maiden Medium-Term Budget Policy Statement on November 11, Finance Minister Enoch Godongwana stressed continuity with his predecessor's policies of retrenchment in public finance and reliance on microeconomic reform to stimulate growth.
The tone and direction of the framework he presented was broadly welcomed by markets. In particular, Godongwana resisted pressures to direct better-than-expected tax revenues, swelled by buoyant commodity prices, into increased social welfare expenditure to address record second quarter unemployment figures (34.4%, or 44.4% under an expanded definition including those discouraged or no longer looking for work).
However, Godongwana's intentions may face substantial obstacles (see SOUTH AFRICA: Finance ministry faces pressure - October 19, 2021).
Public sector wage negotiations will continue, probably for the first quarter of 2022. The government bought time with unbudgeted once-off gratuities in July 2021, costing ZAR20.5bn (USD1.3bn). Godongwana's fiscal framework includes a similar figure for 2022-23 in case agreement is not reached.
Fiscal retrenchment goals may not be credible
However, a pending Constitutional Court ruling on retroactive payment of the last tranche of the 2018-2020 public service pay deal -- which the government reneged on due to lack of funds and questions over constitutionality -- could throw out government plans for fiscal retrenchment. The Treasury has warned of revenue measures, including increased borrowing and reducing the size of the public service to cope with this eventuality.
Furthermore, South Africa's economic prospects will be affected by global trends, including the durability of favourable terms of trade for South Africa's heavily weighted commodity exports and the inflation trajectories, interest rates and tapering in developed countries' macroeconomic policies.
Domestically, prospects depend greatly on the outcome of the seemingly competing imperatives between short-term demands for an expanded welfare state and longer-term growth (and welfare sustainability).
Growth depends in turn on microeconomic reform and the streamlining and rehabilitation of state-owned enterprises (SOEs). Stumbling blocks from 2021 will carry into 2022, including uncertain energy supply and visible cabinet disagreements over major policy issues such as reform of SOEs and a transition away from fossil fuel energy in a context where coal supports 90,000 jobs directly and 300,000 indirectly.
Strained social fabric
The violent uprising following the temporary imprisonment of former President Jacob Zuma in July 2021 demonstrated the fragility of South Africa's political and social stability, as well as the incapacity of security forces to anticipate violent events or deal with them. Violence resulted in some 337 dead and ZAR14bn worth of damage (see SOUTH AFRICA: Weak security forces threaten stability - August 11, 2021).
No significant improvement in security force and criminal justice system capacities can be anticipated and the country remains vulnerable to similar disruptions in the future.
Political assassinations -- of which there were several in the run-up to municipal elections -- sporadic xenophobic violence and murderous fights between local transport associations ('taxi wars') remain endemic. However, threats to the social fabric and business operations are diversifying and intensifying, especially in selected industrial sectors such as mining, construction and logistics.
Extortion by armed criminal gangs is increasingly prevalent in these sectors. Typical demands include access to employment and tenders as well as simple rake-offs. Often such demands are made in terms of statutory requirements that companies provide for community participation and benefits. In June, mining company Rio Tinto declared force majeure on customer contracts in its KwaZulu-Natal operations in the face of violence-backed demands. Illegal mining operations are protected by what amount to armed militias who are often better armed than security forces.
Threats of violence and extortion in the private sector are likely to intensify
It is possible that with heightened policing of corruption in state bodies and SOEs following the end of Zuma's regime of state capture, criminals are increasingly targeting the operations of companies.
Similar tactics are used to further demands of rival 'procurement mafias' on local and provincial governments. The assassination in July of a senior Gauteng government official, apparently by hitmen, was likely linked to her intention to give evidence on corruption.
In the face of the criminal justice system's inability to deal quickly and decisively with well-documented corruption, it is likely that the interaction between political factions and criminal gangs will continue and possibly intensify in 2022.
