Previous Quarterly Editions
Expropriation Risk: 53 52 52 55 ▲Political Violence Risk:51 49 49 50 ►Terrorism Risk:30 30 28 28 ▼Exchange Transfer and Trade Sanction Risk: 45 45 45 45 ►Sovereign Default Risk:83 47 75 65 ▼
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
South Africa’s foreign relations present a confusing and somewhat self-contradictory aspect to the observer. The rhetoric and some of the policy stances, including votes in various organs of the United Nations, often seem to be out of alignment with the structure of international trading, investment, and other economic relations in which the country is embedded. In addition, there sometimes seems to be a disjuncture between South Africa’s official commitment to its founding settlement of a legally grounded constitutional democracy.
Confusion over South Africa’s proclaimed non-aligned stance, reiterated to justify its failure to condemn, never mind sanction, Russia’s invasion of Ukraine in February 2022, is illustrated by the strategic policy framework of the Department of International Relations and Co-operation, the re-named foreign affairs department. This document states it is South Africa’s goal “to align itself with those striving to challenge the predominance of the Western powers and the liberal international order”. For South Africa, this goal is followed predominantly through its membership of the BRICS grouping of countries, Brazil, Russia, India, China, and South Africa.
With the notable exception of China, which is the largest single national source of imports and destination for exports, South African trade and investment is heavily weighted to Western countries. South Africa’s top nine favourable trade balances are exclusively with Western and African countries. Russia does not appear in the top 25 destinations for South Africa’s exports. Although South Africa’s defence forces are dangerously run down, neither the threat horizon nor available resources permit the country to be a market for arms, something Russia often exports.
What to Western critics appears to be a bogus stance of non-alignment is a balancing act in which Western trade and investment are courted by President Cyril Ramaphosa, while his party indulges in hostile anti-Western rhetoric (blaming NATO for Russia’s invasion of Ukraine), and South Africa’s diplomats frequently vote against Western interests in international forums.
This balancing act will continue as long as Ramaphosa is president. He is no more likely to make hard choices and firm commitments in foreign policy as he is in domestic politics. The balancing act will also survive as long as Western leaders continue to believe South Africa is a relatively weak player in global politics. If the 2024 South African general election ushers in a less predictable political scenario, radical populists could force a more emphatic turn to China and Russia, despite the latter’s having little to offer South Africa.
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The long-delayed expropriation bill has passed its public discussion and portfolio committee scrutiny stages and will likely pass into law soon. The main opposition party and other critics claim the legislation will allow expropriation of land without compensation ‘by the back door’, the constitutional amendment providing for this having failed to achieve the requisite majority in December 2021.
Constitutional challenge to the new legislation is likely. Firms in the construction and mining sectors have been increasingly subject to demands from ‘mafia’-like organisations. In 2019, at least 183 infrastructure and construction projects worth more than ZAR63 billion (USD3.6 billion) had been affected across the country.
Using violent disruption of projects, these ‘mafias’ justify their demands of up to 30% of contract value in terms of government policies requiring black empowerment and community participation in economic activity. Typically, police do not effectively intervene and the ‘mafias’ are believed to be linked to political players, including factions in the ruling party, the African National Congress (ANC).
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A general climate of lawlessness and ungovernability provides a worrying context for a potential repeat of the July 2021 unrest. Contributors to this include looting of railway infrastructure, mainly copper cable, by organised criminals, which has contributed to severe damage to commuter rail services, as well as large-scale gun battles between illegal gold mining syndicates, police, and mine security, plus sporadic assassinations of local-level ANC officials and aspirant candidates related to factional competition for patronage, and, as noted above, the activities of ‘mafia’-type extortion syndicates in mining and construction.
Despite reform efforts, the police remain burdened with the corruption and factional capture of the former-president Zuma years, and improvement will be slow and uncertain. Weak growth and continuing record levels of unemployment will provide fertile ground for the social media warfare, misinformation, and false news characterise ANC factional conflict and contributed to 2021’s unrest. The approach of the ANC’s five-yearly national elective conference in December heralds a period of uncertainty will last at least until the 2024 general election. The fragile condition of state resources will continue to contribute to instability.
There have been no new instances of domestic terrorism and threat levels remain low. However, South Africa has until October to comply with the requirements of the international agency Financial Action Task Force to remedy perceived laxity in dealing with transnational terrorist financing. Failing this, the country will be ‘grey-listed’ in February. Such a status would have serious implications for South Africa’s international economic relationships.
Deteriorating terms of trade reflected in lower commodity prices, concerns for the global economic growth outlook, and rising U.S. interest rates have curtailed risk appetite, strengthened the U.S. dollar, and put South Africa’s rand currency under pressure. From ZAR 14.47 in March, the unit has been as high as ZAR 17.52 to the dollar in September. As long as inflation fears in the U.S. and Europe persist in causing raised interest rates, the rand remain under pressure.
Ahead of his medium-term budget policy statement due on October 26, the finance minister has warned of the downside risks to the South African economy from slowing Chinese growth as well as the effects of the Russia/Ukraine crisis and resultant sanctions on Russia.
Domestic problems include continuing power cuts and logistic bottlenecks caused by dysfunctional freight rail and port services. Public service salary talks remain unresolved after months of bargaining. The finance minister has taken over responsibility for the talks because public service wages account for about one third of government expenditure. The government has made a final offer of an effective 3% overall, raising the bid from 2% during mediation in July. Unions have come down from a 10% demand to 6.5%. Unions are currently consulting members on the offer.
Government determination to curb expenditure on wages could lead to the first public service strike for twelve years. The government remains divided on the prospects for a basic income grant to mitigate the effects of long-term high unemployment. The February budget extended for a year the ZAR350 social relief grant introduced to alleviate COVID-19-related hardship. However, pressure for a permanent grant will continue as the ANC approaches its national conference in December and the 2024 election, in which it is at risk of falling below 50% of the vote for the first time.
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The government remains divided on the prospects for a basic income grant to mitigate the effects of long-term high unemployment. The budget extended for a year the social relief grant introduced to alleviate COVID-related hardship. However, pressure for a permanent grant will continue as the ANC approaches its national conference in December and the 2024 election, in which it may fall below 50% of the vote for the first time.
