Event

The ANC of President Zuma secured its fifth consecutive victory in the general elections of 7 May. The ruling party’s majority came down to 62% of the votes, the smallest majority since 1994, while the main opposition party DA (Democratic alliance) trailed with 22%. Despite the harsh circumstances of large unemployment, corruption scandals, economic underperformance and labour strife, the ANC managed to retain a solid score. President Zuma’s second term will prioritise fiscal consolidation and pro-business market reforms. Henceforth, it is likely that the politically motivated legislation that was rushed through prior to the elections – addressing black economic empowerment, mining land reform, expropriations and indigenisation of the security sector – will be tuned down.

Impact on country risk

Market reaction to the ANC’s decisive win has been carefully optimistic. Retaining optimism will depend on the ability to enact reforms and therefore the NDP (National Development Plan) is very likely to be prioritised by the new cabinet. The NDP aims at reversing the economic slide by regaining foreign investors’ confidence through cutting red tape and taxes for businesses, large investments in infrastructure, liberalisation of the labour market and the encouragement of public private partnerships. These reforms will put the party at odds with its trade-union allies and therefore a breakaway of the ANC’s left wing will be increasingly likely. Hence, forceful government intervention in the 4-month ongoing labour strike at the world’s largest platinum mines is likely to symbolise this evolution in the near term. South Africa’s macroeconomic challenges are large and might thwart the NDP’s ambitions. The country’s twin deficit (current account and fiscal deficit) and growth outlook are likely to deteriorate partially due to the mining strike that is said to be the longest and most costly in the country’s history; and it is pulling down the manufacturing sector with it. South Africa’s structural challenges (unemployment, education, labour market misfit, weak energy supply) are moreover undermining export revenues, while imports are becoming increasingly burdensome with expensive energy imports due to a constrained generating capacity together with large NDP-related investment imports. In addition, the financing requirements posed by the current account deficit remain daunting due to South Africa’s strong dependence on volatile international capital inflows. In general, the risks for investments and for political destabilisation have decreased since the elections, yet the risk for civil unrest due to violent strikes and protest actions, is likely to increase.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com