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 54 54 ►Sovereign Default Risk:65 65 65 65 ►
Overall Risk Temperature: 56 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
Political leaders in South Africa are ambivalent toward the global rules-based order, leading to contradictory policies.
Because it lacks the traditional elements of diplomatic leverage, such as economic clout or military “hard power,” South Africa looks for multilateral sources of influence. As such, it strongly affirms the importance of rules-based order and participates in regional and global institutions. It has sent troops for peacekeeping in Africa and has twice been elected as a non-permanent member of the United Nations (U.N.) Security Council.
Simultaneously, it asserts that the existing regime of rules and institutions is an unjust and unequal historical anachronism. This “holdover” dates from an era of Western supremacy, facilitated by imperialism and racial dominance, from which black South Africans suffered more than most.
Self-identifying as a leader of the Global South, South Africa seeks revision of institutional power balances in the U.N., global financial institutions (IFIs), and all other sites of perceived Western dominance. Additionally, it aims to supplant Western-dominated IFIs through the BRICS grouping (an intergovernmental organization comprising Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran and the United Arab Emirates). It supports the BRICS New Development Bank, an alternative source of development to IFIs for the Global South, and BRICS’ broader aspiration to de-dollarize international reserve currencies.
TREND ►
The much-delayed Expropriation Bill, which was passed by the National Assembly in September 2022, remains before the National Council of Provinces (NCOP), South Africa’s second parliamentary chamber. The NCOP has not finished reviewing comments by the public and provincial parliaments. The bill’s origins are in a cabinet resolution of March 2004 to review the existing (1975) act. Since 2004, legal and constitutional issues have greatly delayed the progress of previous iterations of the legislation.
Among procedures of more general application, the bill sets out specific conditions under which nil compensation may be paid for expropriated land and conditions for equitable and fair compensation. The government claims that constitutional amendment to allow expropriation without compensation (which failed in December 2021) will no longer be necessary.
The bill emphasizes due process and safeguarding of rights under the constitution. The main opposition party and other critics, however, maintain that there are areas of ambiguity that could be used as leverage for a program of wholesale expropriation, not confined to land, under a future populist government.
More than 230 state entities may expropriate. Concerns are driven by exceptionally low trust in government in the aftermath of state capture revelations, widespread incompetence of state entities and political uncertainties. Constitutional challenge to the new legislation is likely. With the ANC having lost its overall majority in recent elections, a number of alternative scenarios are now possible some of them extreme. A coalition with leftist opposition parties would empower the ANC's own redistributionist elements, and could lead to a controversial focus on expropriation.
At the anniversary of the July 2021 wave of violence, looting and arson, numerous trucks were set alight on the main logistics arteries in three provinces, triggering the deployment of army units. No demands or claims of responsibility were made. Possible causes include truck drivers’ anger at the employment of foreign nationals in the industry and the prospect of former President Jacob Zuma being returned to jail to complete a 15-month sentence for contempt of court. This grievance was removed in August 2023 when the return to jail was cancelled as part of a program to ease overcrowding in jails.
The head of the government-backed South African Special Risks Insurance Association (Sasria), which covers businesses and individuals against political violence, warned on the anniversary of July 2021 that a repeat of the uprising was a risk. Continuing high levels of unemployment, especially among young people, were cited. Sasria was inundated by claims amounting to 30 billion South African rands (ZAR) (nearly $1.6 billion) in 2021. In the second quarter of 2023, the official and extended unemployment rates declined by one-third of a percentage point each, to 32.6% and 42.1%, respectively. The rate for 15- to 34-year-olds was 45.3%. There are 3.5 million people aged 15 to 24 not in employment, education or training.
Since the U.S. Embassy’s false alarm of a terrorist attack on Johannesburg’s financial center in October 2022, no new threats or instances of domestic terrorism have occurred, and overt threat levels remain low. Concerns remain over terrorist supporters in South Africa organizing and financing terrorism elsewhere in Africa.
This was highlighted by the murder of a Directorate of Priority Crimes Investigation (“the Hawks”) officer in August 2023. He was the lead investigator into the disappearance in December 2022 of an alleged Islamic State-affiliated organizer who had been sanctioned by the U.S. Treasury. His family claims that he was abducted by South African and U.S. special forces. The Hawks officer was working on the case when he was shot.
Deteriorating terms of trade reflected in lower commodity prices, concerns for the global economic growth outlook and high U.S. interest rates have continued to curtail risk appetite and are expected to remain in the medium term, maintaining pressure on South Africa’s currency.
Country-specific factors such as load shedding and logistic constraints add to the pressure, leaving the rand volatile and vulnerable to shocks in the medium term. The currency has lost over 10% against the U.S. dollar in 2023 and reached record lows of over ZAR19 to the U.S. dollar in May. Since then, despite a brief respite in June/July, the rand has traded in a range from over 18 to just over 19 to the U.S. dollar.
Weak currency feeds into inflation, as the SARB noted while leaving borrowing costs unchanged for the second consecutive meeting in September 2023, but without ruling out further hikes.
In May, South Africa’s perceived closeness to Russia raised the possibility of U.S. secondary sanctions. This followed claims by the U.S. ambassador in Pretoria that the purpose of a clandestine visit to a South African port by a Russian vessel was to load arms. This put severe pressure on the rand.
A South African judicial commission could find no grounds to support the allegations, and no U.S. agency has provided evidence. The prospect of sanctions has receded, though South Africa’s stance toward the continuing Russia-Ukraine war will be monitored by the United States.
Falling mineral prices contributed largely to lower-than-expected government revenue in the first and second quarters. Continuing power cuts and logistics bottlenecks caused by dysfunctional freight rail and port services are also factors in the expected revenue undershoot for the year. Neither is expected to see speedy resolution, despite temporary respite from outages at midyear.
Tax collections fell ZAR22 billion short of budget projections for the first five months of the year; however, economists’ estimates of the shortfall for the year vary from ZAR20 billion to ZAR80 billion. Extrapolating the figures for the first five months would lead to a shortfall of ZAR53 billion.
While clarity awaits full figures for the year and the MTBPS in November, economists are currently predicting a 2023 deficit of 4.5% to 6.5% of GDP, as against the February budget forecast of 4% and a borrowing requirement of up to ZAR600 billion as against the Treasury’s forecast of ZAR515 billion. The IMF sees the deficit rising to 6.3% and warns that, without drastic stabilization, debt will climb from the current 72% of GDP to 85% in 2028 to 2029.
Pre-election promises of a basic income grant to mitigate the effects of long-term high unemployment caused alarm among international investors. Pressure to make good on these promises could increase if the ANC relies on leftist parties in a governing coalition.
