South Africa’s Critical Year Ahead

By Daniel Silke

South Africa confronts yet another crucial political year. But there really is a double-whammy at play. Not only is this an election year in which a new President will test his support, but it is also a make-or-break period for the ailing South African economy which has underperformed its global peers and also its own citizens.

Politics and economics are now joined at the hip. The South African economy requires courageous political intervention. For the ANC this means making decisions that might be in conflict with their historical philosophies. A decade of policy paralysis has resulted in rising unemployment and poverty not to mention low growth rates and diminished wealth creation.

Policy therefore is at the heart of South Africa’s economic conundrum. But it also at the heart of the ANC’s own problems. The ‘broad church’ has been deeply divided and has, in recent years, suffered from creeping corruption and graft. Overcoming these challenges will be a steep hill to climb for President Ramaphosa, assuming he receives a solid mandate in the May elections.

And elections will be the very focus for the next 4 months. Ramaphosa has to deliver a unifying message to smooth over the many ruffled-feathers in his own party and also appeal to an electorate that have become somewhat jaded and mistrustful of politicians.

Ramaphosa needs a solid mandate to exert influence over his party and the tough policy decisions to come. To this end, he will need to beat off challenges from the DA and EFF – both suffering from different levels of internal disarray. The critical issue will not be whether the ANC wins a majority but just how big that majority is. Remember, Ramaphosa has yet to be elected and a narrow win at the polls will not bolster his strength within the ANC.

Underlying all of this is the deep difficulties in the economy. State-owned-enterprises like Eskom, SAA, the SABC and Transnet are ailing. In the case of Eskom, a government bail-out is likely to put immense strain on the fiscus and could, potentially lead to a ratings-agency downgrade. Clearly, new policy directives are required to eliminate the drain on the South African taxpayer, and this will take political courage. Additional measures will be needed to combat creeping poverty and consumer weakness that in-turn affects growth.

Finally, a solution to the land expropriation issue is still not clear. In order to encourage foreign direct investment – as well as unlock domestic funding from the private sector, this remains a critical issue seeking clarification. Global and local investors will be watching closely how the ANC deal with this issue over the next few months.

Given the extreme economic and political strains running concurrently, South Africa faces a series of tough choices. Its politicians and institutions will be tested this year. An initial period of election-induced insecurity can lead to a better second half of the year – but cool heads, best practice policy and an unwavering commitment to restoring trust and ethics in government will be essential.

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