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Expropriation Risk: 64 65 66 66 Political Violence Risk: 47 47 48 46 Terrorism Risk: 26 28 30 30 Exchange Transfer and Trade Sanction Risk: 47 48 48 50 Sovereign Default Risk: 43 45 46 46
TREND ► OUTLOOK ►
Led into the general election on May 8 by President Cyril Ramaphosa, the ruling ANC managed 58% of the national vote on a turnout of 66%. This was an improvement on its historic low of 54% in the 2016 local elections but still below the 62% it won at the previous general election in 2014. Meanwhile, the main opposition Democratic Alliance saw its share of the vote fall slightly to 21% from 22% in 2014, while Julius Malema’s populist Economic Freedom Fighters (EFF) almost doubled its previous showing to reach 11% and increase its parliamentary seats from 25 to 44. However, the ANC’s apparently sizeable victory comes with major caveats. One is that the long-term decline in its support is continuing amid increasing voter apathy, with less than 28% of the voting-age population voting for the ANC. Another is the continuing uncertainty that Ramaphosa has enough of a mandate within the party or the country to push forward the major reforms that many both inside and outside South Africa regard as crucial for the economy, such as tackling the crisis at the debt-laden state-owned power utility Eskom. In addition, tensions between rival ANC factions have not dissipated and continue to threaten the stability of the party. Malema is believed to want the EFF ultimately to re-join the ANC, but in its current position free of governance responsibilities, it will continue to capitalise on any perceived failure of the ANC to improve conditions for black Africans while goading the ANC toward more extreme policies. However, the president should now be able to remove more allies of former president Jacob Zuma from the government, if not the ANC. Market reaction to the result was generally positive, with the rand gaining and bond yields dropping, but Ramaphosa is clearly expected to produce results soon. Improvements at Eskom will be high on his list of priorities after the country experienced 26 days of power cuts between November and March. The Treasury made an emergency transfer of 350 million dollars to Eskom in April to prevent an imminent default on its debts, having promised that more funding would be available in the second half of the year as a three-year bailout plan kicks in. Having forecast growth of 1.3% for 2019, the central bank has warned that this could effectively be wiped out if load-shedding on the current scale persists unchecked for the rest of the year. Growth in South Africa has not exceeded 2% since 2013.
TREND ► OUTLOOK ▲
One of the urgent post-election tasks facing President Ramaphosa will be to address the land reform issue, as the ANC has mandated the government to introduce a bill that would provide for the expropriation of land without compensation. He said before the election that land reform will be accelerated in ways that stimulate rather than reduce growth while respecting due process and avoiding land grabs. However, there is widespread concern about the government’s ability to manage land redistribution on any significant scale, or to cope with the resulting damage to a banking sector in which many loans are secured by land title. Meanwhile, instances of land invasions and illegal occupation are rising across the country. April brought some good news with Nissan’s investment of 200 million dollars in its car plant near Pretoria, and Rio Tinto investing 500 million dollars in its mining operations. However, issues associated with the ease of doing business remain a constraint on investment.
TREND ▼ OUTLOOK ▲
Despite some clashes with police in urban centres of Johannesburg and Cape Town over economic conditions, the final weeks of campaigning and the election itself were relatively peaceful. However, protests continue over jobs, pay, and public service provision. According to the mineral resources ministry, nine people have been killed and 60 houses burned in the course of the five-month-long strike led by the Association of Mineworkers and Construction Union (AMCU) against Sibanye-Stillwater gold mines. Murder of municipal and provincial politicians continues to be a security problem but was at a lower level in 2018 than in previous years as a concerted effort by police and criminal justice agencies in KwaZulu-Natal appears to have contained the problem there.
The Ramaphosa government’s ongoing reorientation of the security services from domestic spying on political factions to a focus on anti-terrorism work should strengthen the capacity to identify and track any attempt to use South African territory for planning attacks on other countries. South Africa itself remains an unlikely target for terrorist attacks.
TREND ▲ OUTLOOK ►
The ANC election manifesto pledged to change the mandate of the central bank so that it must supplement inflation targeting with objectives such as growth and employment. While President Ramaphosa has expressed confidence that this can be achieved without infringing on the bank’s independence, the external impression of a central bank under threat is not helping investment. A decision to re-appoint Governor Lesetja Kganyago, a staunch defender of independence and the primacy of inflation targeting, when his term expires in November would be a welcome sign. In the run-up to polling, the rand again became the most volatile currency among its emerging market peers. By contrast, inflation has been stable in a range between 4.5% and 6.3% over the last four years, with the central bank expecting 4.8% this year and 5.3% in 2020.
Despite a generally downbeat budget in February, Moody’s, the only agency to retain an investment grade rating for South Africa, altered neither its rating nor its outlook in April. This enabled Ramaphosa to take the ANC into the election in May with a ‘stable’ outlook for South Africa’s public debt. However, with contingent liabilities included, the country’s debt to GDP ratio is already above 70%, and indices of business and consumer confidence have consistently fallen this year. Revenue collection for the fiscal year 2018-19 appears to have undershot its target for a fifth year in a row, this time by four billion dollars. The start of an overhaul of the tax authority has been widely welcomed but will take time to have any appreciable effect.
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