Previous Quarterly Editions
Expropriation Risk: 60 60 60 56 Political Violence Risk: 50 50 51 51 Terrorism Risk: 30 30 30 30 Exchange Transfer and Trade Sanction Risk: 45 45 55 55 Sovereign Default Risk: 75 75 75 75
TREND ▼
By early April 2021, South Africa’s COVID-19 caseload had reached 1.55 million, resulting in 52,987 deaths. The pandemic’s effects were felt in two peaks: mid-June 2020 and mid-January 2021. Excess deaths peaked corresponding with these times. Lockdowns and other public health measures reduced case figures between these peaks.
Despite this, a punishing third wave is widely expected. This is attributable to the circulation of virulent and to some extent vaccine-resistant mutations of the virus, lockdown fatigue and South Africa’s tardy vaccine rollout, which is expected to begin in the general population in mid-May and reach its target of 40 million people at best only in March 2022. Continuing tension between the public health imperatives of lockdown and its destructive economic effects can be expected.
Political developments will continue to be dominated by African National Congress (ANC) factionalism, undermining President Cyril Ramaphosa’s leadership of the government and his party. The ‘radical economic transformation’ populist faction is a loose-knit group based on residual loyalty to former President Jacob Zuma and rejection of the ‘state capture’ characterisation of his years in power. Opposition to Ramaphosa’s anti-corruption initiatives and to his policies for redeeming public finances and modernising state-owned enterprises is combined with adherence to specific policies such as radical expropriation of land without compensation and nationalisation of the South African Reserve Bank.
The figurehead for this grouping is Ace Magashule, ANC secretary-general, who faces corruption charges dating from his years as provincial premier of the Free State. At the end of March 2021, a bitterly divided ANC National Executive Committee (NEC) gave Magashule 30 days to step aside from his office pending court proceedings. He has defied this ruling, been suspended and will challenge the suspension first in the ANC and likely later in court. Like Zuma before him, he will game due process and present himself as a victim to mobilise against Ramaphosa.
The suspension suggests that Ramaphosa currently has the upper hand; it is unlikely that Magashule will ultimately prevail. However, the debilitating effects of attempting to discipline him will continue to dissipate reformist energy. Another point of factional tension includes the standoff between Zuma and the Zondo judicial commission into state capture. In the face of Zuma’s refusal to appear, the commission has asked the Constitutional Court for a contempt of court order relating to a previous ruling by the court, forcing him to appear or face a two-year jail term.
Ramaphosa also faces conflict with a key support group: organised labour. Public service unions have tabled high wage demands at the beginning of negotiations for a wage deal to replace the previous three-year agreement, which expired in April 2021. The demands, fuelled by resentment at the government’s unilateral repudiation of the third and last tranche of the previous deal, flatly defy the government’s hopes of repairing public finances through curbing the ballooning public service wage bill. The dispute over the legitimacy of the government’s repudiation of the last deal is before the Constitutional Court and will not be heard until August 2021.
An ad hoc parliamentary committee on amending section 25 of the constitution to provide for expropriation of land without compensation is to complete its work by the end of May 2021. However, expropriation without compensation requires a law of general application to give effect to the amendment, and the government is making a third attempt since 2008 to pass a constitutionally compliant expropriation bill to replace apartheid-era legislation.
In recent hearings on the constitutional amendment, the department of agriculture, land reform and rural development reiterated the ANC’s position opposing a role for the courts in deciding contentious cases of expropriation without compensation. Concerns were raised in hearings on the expropriation bill over definitions of property, public interest and public purpose in it. Fears were expressed that references to expropriation without compensation, which the bill now contains, could be extended to forms of property other than land, thanks to the vagueness of these definitions.
No target date has been set for passing the bill into law, but the constitutional amendment will not work without it. Concerns regarding forced allocation of pension fund assets to government infrastructure programmes (prescribed assets) have been allayed somewhat by a Treasury amendment to existing legislation, with the effect that funds can now voluntarily allocate a larger percentage of assets to such investments. However, the criticism of the expropriation bill’s language brought the matter of prescribed assets up again.
TREND ►
In early March 2021, student protests against exclusion from university on grounds of non-payment of fees were met by heavy-handed police action in which one man (not a protestor) was shot dead. This is a reminder of the volatility of protests and, coming after the draconian enforcement of lockdown restrictions seen in April and May 2020, the inadequacy of public order policing.
The government’s withholding of the public sector pay increase in April 2020, the final tranche of a three-year public sector wage deal, has made the current negotiations for a new deal particularly tense. The unions have threatened a complete shut-down of public services. Any prolonged industrial action could lead to strike-related violence (police and security services are barred from striking).
South Africa’s geographic distance from terrorist strongholds minimises the terrorist threat. However, the escalation of recent Islamic State-related operations in Cabo Delgado in northern Mozambique has caused the natural gas operations of French firm Total to be suspended twice. South Africans work in the gas industry in Mozambique (one of whom was killed in the recent fighting) and South African businesses are invested there.
South Africa is committed to regional security through the Southern African Development Community. With the failure of Russian and South African-based private security firms in Cabo Delgado to contain the insurgency, pressure for more active South African intervention than current training support will increase. Such involvement could raise the terrorist threat in South Africa itself, if radicalised South Africans are drawn in.
The consensus view in the first quarter on South African growth, inflation and interest rate prospects has been that inflation will remain suppressed by low growth and the prospects of a third COVID-19 wave, with ensuing societal lockdowns, leading to stability in the repo rate.
However, if the global economy is entering a commodity super cycle, the possibility of rising global inflation and interest rates could undermine South Africa’s carry-trade appeal, encourage capital outflows and drive rand weakness, as well as domestic rate hikes.
On the other hand, improvement in South Africa’s terms of trade would support the rand and improve growth prospects. Even if the current improvement in commodity prices is no more than a temporary cyclical recovery, it could lend short-term support to the wider South African economy and give some stability to the rand.
Higher than expected revenue and lower contraction in growth saw slightly lowered projections for debt to GDP in February 2021’s budget. The budget projected a revenue shortfall of R213.2bn (USD14.5bn), an improvement of about R100bn from the medium-term budget policy statement of October 2021. South African Revenue Service figures released shortly after the budget suggested that the shortfall could be even lower by as much as R30bn.
Corporate tax surprised on the upside, due mainly to increased mineral prices, as did value-added tax receipts. The government forecasts the debt-to-GDP ratio to peak at 89% in fiscal year 2025-26. Despite this better economic news, ratings agencies Fitch and Moody’s warned against complacency. Post-budget, Moody’s forecast a debt-to-GDP ratio of 100% by 2024.
No easy or quick resolution envisaged by either agency exists to risks, such as; the public service wage bill, state-owned enterprises which haemorrhage money, and ongoing power shortages. Moody’s has South Africa’s sovereign rating at two levels below investment grade and Fitch at three below. Both have South Africa on negative outlook. Standard and Poor’s downgraded South Africa to the third tier below investment in April 2020 with a stable outlook. All three are due to rate South Africa again before the end of May 2021 but may defer judgement pending the outcome of public sector and Eskom wage talks.
Return to contents Next Chapter
