Index trend
Previous quarterly editions
Expropriation Risk: 57 57 57 57 ►Political Violence Risk:48 48 48 48 ►Terrorism Risk:26 26 26 26 ►Exchange Transfer and Trade Sanction Risk: 54 54 45 45 ►Sovereign Default Risk:65 65 65 65 ►
Overall Risk Temperature: 54 (Medium) TREND ►
Special topic: Gray zone aggression
Degree to which the country relies on outbound gray zone action to achieve its strategic objectives1 = Not at all5 = Gray zone action is a core tactic
1
Impact of inbound gray zone attacks on the country1 = Negligible impact5 = Significant impact on economic growth and/or political stability
South Africa does not engage in gray zone activities as we define them. The country’s foreign policy is explicitly formulated to avoid adversarial relations, and this effort has been largely successful, helped by several factors.
South Africa is bordered largely by ocean, except for a belt of weak states that have neither the incentive nor the means to damage South Africa by gray zone means. This combination of circumstances means that there is no immediate geopolitical threat.
On the economic side, South Africa has close trading and investment relations with Western countries, which it tries to balance by being embedded in the BRICS (Brazil, Russia, India, China and South Africa) grouping. As a result, none of the major powers has sufficient incentive to destabilize or pressure South Africa. Russia and China can get what they want from the relationships by conventional diplomacy. South Africa’s sometimes passive-aggressive attitude to the West is insufficiently important for Western countries to retaliate by unconventional means.
Unless South Africa reverses its cultivation of BRICS countries or embarks on a much more overtly aggressive anti-Western course, the situation outlined above will not change. Neither is a realistic prospect for the foreseeable future and South Africa’s balancing act seems set to continue.
However, South Africa is vulnerable to gray zone activities from other than adversary state sources, and if political conditions change, this vulnerability could be exploited by gray zone state actors. Since at least 2020, South Africa has been consistently among the top three victims of cybercrime globally. According to cybersecurity company Sophos in its 2024 ransomware report, 69% of South African respondents said they had been hit by attacks in the previous year. This was the second-highest in the world. Banks, retail and healthcare as well as government agencies and state-owned enterprises were among the most hit.
A cybercrimes act (2020) provides a legislative base for law enforcement, but cybersecurity standards are often low, and South Africa lacks skilled investigators and prosecutors. There is evidence of disinformation campaigns by Russian actors, aimed at influencing South African opinion in favor of Russia’s version of the Ukraine invasion narrative. The intention is not to damage South African interests, but should home-grown instability develop, external actors could exploit South African vulnerability with gray zone activities.
TREND ►
Foreign investments in South Africa are governed by general South African law. This means that foreign investors and their investments will be treated no less favorably than South African investors in like circumstances. Foreign investors are no more at risk than domestic ones, and they have the same protection from a robust constitutional and judicial system in the event of perceived arbitrary deprivations.
In some respects, foreign investment is more highly regarded than domestic business, and there have been no state-led anti-foreign-investment campaigns. The much-delayed Expropriation Bill passed its final legislative ratification in March but has yet to be signed into law by President Cyril Ramaphosa. The bill emphasizes due process and safeguarding of rights under the constitution. However, the Democratic Alliance (DA) and other critics argue that weaknesses in the legislation could be used as leverage for a program of wholesale expropriation under a future populist government.
This is contested by independent legal experts. The position is complicated by the DA’s participation in the African National Congress-dominated government of national unity (GNU). Indeed, DA leader John Steenhuisen is minister of agriculture, albeit with land reform removed to a separate ministry. The official opposition to the GNU is Jacob Zuma’s MK party, supported by the Economic Freedom Fighters (EFF). Both propose programs of extreme nationalization and expropriation but together command only about 25% of seats in the national assembly, and the next general election is not until 2029.
The future of expropriation and property rights depends greatly on the GNU’s ability to deliver economic growth, contain its internal differences and avoid collapse. Rising expropriation risk comes from criminal rather than political sources. The activities of extortion gangs, operating simple protection rackets, have become widespread across the country, affecting mainly infrastructure firms but spreading to other sectors, including logistics. The minister of police announced a “comprehensive strategy to combat extortion” in early September.
The Global Initiative Against Transnational Organized Crime recorded 10 political assassinations in the four months leading up to the May election. In 2023 there were 31 incidents, nearly 24% of 131 “targeted killings.” Political killings tend to reduce in the aftermath of elections. However, the outcomes of the election and coalition negotiations carry substantial potential for volatility.
The MK party won 14.58% nationally (third place) and 45.35% in KwaZulu-Natal (KZN), more than 27 percentage points ahead of the second-placed party. Nonetheless, the MK was excluded from coalition arrangements nationally and in KZN. Partially, this was down to MK self-exclusion via poor negotiation tactics, but agreement between more “moderate” parties also helped to bring this about. This exclusion feeds into the already potent sense of grievance and persecution in the party and could motivate violence in KZN or even a general upheaval, perhaps along the lines of the July 2021 riots and looting.
The terrorism risk level facing South Africa remains low; there are no current specific threats that have been identified from domestic or international sources. Even so, and as with any country, there is always the potential for individual terrorists or small groups to be inspired to take action, driven by whichever ideology they might identify with. Systemic vulnerabilities arising from weak security force capabilities in South Africa are therefore a source of risk in this context, although in the absence of specific threats, the degree of this weakness is naturally hard to quantify.
By early September, the rand had firmed 6% against the U.S. dollar since the formation of the GNU in June, to below 18 rand to the U.S. dollar. In the same period, the benchmark R2030 bond rallied 1.6 percentage points. Inflation declined to within the Reserve Bank’s target range of 3% to 6% in 2023, to be 5.1% in June 2024 and 4.6% in July. These movements supported hopes for a rate cut by the Reserve Bank’s monetary policy committee in September.
Downside risks remain an uncertain external environment, including uncertainties over the U.S. rate-cutting cycle and how durable confidence in the stability of the GNU will remain.
In a statement published in September, the International Monetary Fund (IMF) assessed South Africa’s ability to repay the fund as “adequate” under both baseline and downside scenarios. Positive developments noted in the report included improved energy supplies, lower inflation, and market confidence in the election result and coalition outcome. Falling bond yields, more short-term debt issuance and willingness to take on concessional external debt are other supportive developments.
Foreign sources still account for only 10% of South Africa’s ZAR 5.5 trillion public debt. Growth in the second quarter of 2024 was 0.4% after zero in the first quarter. Growth for the year is projected at 1% by the IMF and at 1.1% by South Africa’s largest bank, Standard Bank. In its February budget, the National Treasury projected 1.3% annual growth but will revise this in the October medium-term budget policy statement.
The Treasury projects debt stabilizing at 75% of GDP in 2025 – 2026 before declining. The IMF is skeptical of this forecast on grounds of rising debt service costs, supporting state-owned enterprises and expenditure on public service wages. The last of these will be a critical test for the GNU: Public service unions have tabled a demand for a 12% increase for 1.3 million workers in upcoming pay negotiations for 2025 – 2026. This will test the GNU’s resolve and be an indication of whether it is simply a continuity African National Congress government or represents a new direction politically.
