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PODCAST
Jun 22, 2024
24:11 MINS
The Decisive | Ep. 1 - Election impact: South Africa
Welcome to The Decisive podcast, where our experts provide insights and analysis to empower confident decision-making. The Decisive merges the Economics & Country Risk and Maritime & Trade Talk podcasts.
In this episode, we dive into the recent election in South Africa and its potential impact on the country's business landscape. Joining host Kristen Hallam for this insightful discussion is Lange Malimela, senior Africa analyst on the Country Risk team at S&P Global Market Intelligence.
We start with background on the African National Congress (ANC) and its dominance in South African politics over the past 30 years. Lange discusses the ANC's decline in electoral fortunes and the emergence of breakaway parties like the Economic Freedom Fighters.
The conversation then turns to the policy priorities of the new coalition government and how they may influence the business environment. They explore the government's efforts to include the private sector in addressing infrastructure issues.
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Transcript
- Transcript for this The Decisive Ep 1 - Election impact South Africa
-
Call participants
ATTENDEES
Kristen Hallam
Langelihle Malimela
Presentation
Kristen Hallam
Hello. I'm Kristen Hallam, Lead Content Strategist for Global Intelligence and Analytics at S&P Global Market Intelligence and host of the Decisive Podcast. In this episode, we focus on the recent election in South Africa and the potential impact on the country's business landscape.
Joining me for this discussion is Lange Malimela, Senior Africa analyst on the Country Risk team at S&P Global Market Intelligence. Welcome back to the show, Lange.
Langelihle Malimela
Thank you very much, Kristen. It's good to be with you.
Question and Answer
Kristen Hallam
Let's start by giving our listeners a little background on the African National Congress, the ANC and their dominance of South African politics over the last 30 years.
Langelihle Malimela
Yes. So the ANC, African National Congress, has been in power since 1994. So this is the party of the late Nelson Mandela and has really experienced a decline in the electoral fortunes of late, but really since 2004, it's been a steady decline in terms of voter share. And there are a variety of reasons why that has been the case. There's been a lot of breakaway parties from the ANC.
It came into power as this broad monolith that incorporates leftist ideologists and right ideologists or centrists, let's call it. And over a period of time, as the tide has changed in where the power is located within the party, it has shed a voter share of breakaway parties. In 2013, perhaps the most prominent was the breakaway and formation of the Economic Freedom Fighters, which was born out of the ANC's Youth League and led by Julius Malema.
And in this case, the most recent election and the big surprise package was the breakaway party that was formed by former President Jacob Zuma, which was called uMkhonto weSizwe or MK, which really surprised everybody, including ourselves I think it's fair to say, with how well they've done, particularly in KwaZulu-Natal, which is former President Zuma's home province.
Kristen Hallam
Thanks for that overview. That's really helpful context to have. Now the election took place on May 29, the results were announced on June 2, and the ANC did not achieve a parliamentary majority. So the ANC had to form a coalition government. How did that process unfold?
Langelihle Malimela
Yes, it was an interesting set of events, but it became quite clear quite early that a coalition would be necessary and that President Cyril Ramaphosa, the incumbent President and President of the ANC, himself preferred a sort of centrist coalition, in other words, going into partnership with the Democratic Alliance, which is the historical official opposition in South Africa.
That was something that was difficult for many within the African National Congress to accept. There was a lot of strong feeling that the ANC, in order to be able to reach the 50% mark in the formation of a coalition, should rather partner with these historical parties that were formerly within the ANC, in other words, the Economic Freedom Fighters and the MK, which really was formed in December 2023.
And so that was one of the main contention points. And the decision that the ANC and Ramaphosa came to was to offer them to form a Government of National Unity, which is something South Africa formed in 1994 after the end of apartheid in the first democratic elections, and essentially inviting all of the parties that have participated and achieved recognition, at least representation in the parliament, should be part of the executive.
And those more radical parties, those parties that used to be part of the ANC that have broken away from the ANC, that have a far more radical outlook were less inclined to be part of a Government of National Unity. So the Economic Freedom Fighters and the uMkhonto weSizwe or MK hastily said that they would not participate in a Government of National Unity.
And so, in the end, you've had a Government of National Unity formed through the ANC, the Democratic Alliance, the Inkatha Freedom Party, which is large, draws a lot of its support from KwaZulu-Natal and so without then having the perhaps more radical oriented parties to the left of them be a part of it. And in a way, that's really worked out in Cyril Ramaphosa's favor who himself came in 2018, initially very much on the reform ticket on a sort of institution rebuilding, investment attracting ticket after the Zuma years, which had been quite troublesome from a state capture and corruption point of view.
Kristen Hallam
Very interesting coalition building there. We're going to be talking about what potential impacts that might have. But first, I wanted to ask you about the key issues driving voters in the selection. What were some of those issues?
Langelihle Malimela
The ANC lost a significant amount of its vote somewhat unexpectedly due to just the fracture within it. We can't discount that. Zuma steps away from the ANC. He is seen as a persecuted figure with all these corruption trials and the Zondo Commission into state capture and corruption in government, which concluded a couple of years ago. That is a big issue precisely because the ANC lost essentially 17% between 2019 and 2024.
And this party that Zuma has formed didn't exist in 2019 and now has won 15% and is suddenly the third biggest party in the country. So bottom of all of this is really -- and maybe to a greater extent than has been indicated in the past, is factions within the ANC at war with each other over positions over who's in charge and who's benefiting at any one time.
But more generally, South Africa's energy problems are well known now within international circles and the quite sort of crippling effect on the economy that Eskom has had or Eskom's inability to provide steady electricity supply. And somewhat ironically, for about almost 3 months perhaps before the election, South Africa didn't experience any loadshedding as I just referred to here, which is something that is very difficult...
Kristen Hallam
Funny there.
Langelihle Malimela
Yes. It's difficult not to be cynical about how that came about. But that said, the metrics all point in a positive direction where the energy policy is concerned, especially since an electricity minister was appointed at the beginning of 2023. And South Africa has perhaps, to some extent, shelved its plans for this rapid transition to renewables and doubled down on hydrocarbons for the moment and extended the life of a lot of its coal-fired power plants, for example, in order to try to deal with the energy crisis in the short term.
And there's no question that the issue of electricity has been very important. It's not very nice when the electricity goes out in your house and you're in the middle of something, you can't cook dinner or whatever the case may be. But what it does is actually really undermine the economy as a whole. And more generally, other problems such as the extent of youth unemployment in South Africa, which is upwards of 60%, are exacerbated when companies can't function at their best level and expand and grow and create jobs, especially for young people.
Beyond that, and still within maybe the realm of state-owned enterprise, there's been the really quite catastrophic situation at Transnet, which is the state-owned road and rail company, which has been in a difficult position for some time. The port down in Durban has struggled a lot. The rail and port infrastructure has let a lot of the mining companies down, just as an example.
Their capacity to export their goods has been severely undermined in recent years. And that, again, has wider consequences because mining being probably South Africa's highest foreign exchange earner, for example. It's an inability in general to deal with the systemic issues for South Africa under the Ramaphosa administration to make strides in dealing with some of these major structural problems that would have been a major driver in how poorly the ANC performed and the way that people voted.
Kristen Hallam
Some significant issues there, as you noted, and lots to unpack. We're going to talk about Eskom and Transnet a little bit later in the episode. Given all that you've just said, how will these things influence the policy priorities for the new coalition government?
Langelihle Malimela
What we have started to see in the lead up to this election was a little bit more of an intent to include the private sector. The issue around the unbundling of Eskom has been around for some time. As of the 1st of July, there will be an independent national transmission company, which, at least in theory, let's say, will be able to source power from any source where it's available, not just from Eskom generating sources.
There is the effort to crowd in the private players in the functioning of Transnet. And there is a company that has been given the rights to manage and maintain the Terminal 2 down in Durban at the Durban Port for example. Durban Port is the biggest port by some distance in sub-Saharan Africa managing something like 3 million containers a year. A very important part of the economy, not just in South Africa, but of the region.
And with the now more centrist-oriented government, one is likely to see an acceleration in those things. Although the ANC won't abandon, in all likelihood, its core base in a sense that we are likely to see continued tightening of local content requirements, black economic empowerment requirement, quite strict regulation around where products are sourced, hiring and all of that, even though the private sector will still be encouraged to come in and participate in these areas.
And so it's going to be a balance of those. But certainly, that internal resistance to private participation in these crucial networking and infrastructure parts of the economy will probably ease and you're likely to see, as a result, a slight improvement in some of these areas.
Kristen Hallam
So what does a coalition government mean for policy continuity? Where might we see continuity? And where are we likely to see change?
Langelihle Malimela
The debate and the engagement between the main protagonists in this coalition scenario for the Government of National Unity, the ANC and the DA, it's gone through various stages. I suppose with the initial talks, it does look as though the cabinet, which will be announced in the coming days, will be very much a mixed cabinet, will involve members of the Democratic Alliance as well as the Inkatha Freedom Party, National Freedom Party and others that are participating in the Government of National Unity.
But there's no doubt that the main protagonists remain the ANC and the DA who probably are going to see key cabinet posts be kept by the ANC. I'm talking about defense, I'm talking about finance, I'm talking about state security or intelligence and some other areas. But perhaps in terms of the formation of cabinet in the prior question as to how big the cabinet ought to be because Ramaphosa has always been a proponent of cutting the cabinet.
And so the need to accommodate everybody within a Government of National Unity now puts a spanner in that works because there are so many participants in this Government of National Unity and you need to take care of everyone in terms of a ministerial post or deputy ministerial post of some sort. So it will be interesting how it's configured. I think that it goes beyond the cabinet itself.
I think the Boards of SOEs and influence over those kinds of roles will be a feature in how the power-sharing is configured because the SOEs are so prominent, so central to functioning of South Africa's economy, I think that is where a party like the DA will want to have more influence, including perhaps in areas such as policing, and obviously, the management of crime. South Africa has very high crime levels. But certainly, what we'll be watching is what happens with state-owned enterprises.
Kristen Hallam
Lange, we've talked a little bit about Eskom, the electricity utility, and the ports and rail operator, Transnet, and how the government was pursuing a gradual privatization of these state-owned enterprises. How do you see that evolving under the new coalition government, that process?
Langelihle Malimela
Yes. So I think -- as I alluded, I think it's something that's likely to accelerate and get more support. And again, I think the market in recent times has been quite positive to the views of the DA and the ANC finding each other on some of these bigger issues. And so I think that you're likely to see more of that. But the ANC, having lost so much support at the elections, will look for ways to counterbalance a perception that it is privatizing, it is leaning right.
So I think the efforts to include the private sector more, which was difficult for Ramaphosa to achieve, whether it is reform agenda just because of how much internal opposition there is to the word privatization within the ANC and within the left, if you like. I think that those kinds of initiatives, which had started to gain ground, what's happening with Eskom, what's happening with Transnet, those are likely to gain more support and start to happen.
But one of the things, I think, in terms of policy direction, policy implementation at this crucial moment in South Africa's policy now that the ANC has been forced to co-government that needs to be understood, I think, is that there's a way that the ANC has always done things. And there's a way that its leadership, especially the upper crest, if you like, of the bureaucracy within the state has always done things. And that's going to take time to change and to adjust to new ways of doing things.
Certainly, in theory, new and higher levels of accountability, stronger oversight will ultimately come to bear on the bureaucracy, but it will take time for it to catch up to new ways of doing things and really start to create more efficiency. So there is a switch, there is a change coming, but it will take time to actually manifest. In my opinion, it won't happen overnight.
Kristen Hallam
Change rarely does. So, Lange, are there any other industries that could be impacted under the new coalition government, any policies that are particularly at risk that businesses might want to know about?
Langelihle Malimela
There's, in general, now that the dispensation is what it is, less of a risk of obviously the more radical policies that are within the ANC's orbit, if you like, actually coming into bear. Things like the expert creation of land without compensation and with the role that the Economic Freedom Fighters would play, et cetera, et cetera. Those kinds of things here we put to bear.
I think that there are very far-reaching and deliberate projects aimed at achieving transformative land reform in South Africa. But it's likely to be done in a far more responsible way than perhaps it was once feared, certainly from the outside where people that were close to the situation because of how loud that at one stage the drums were being beaten around expropriation of land and the property rights in general. And then that goes for things like the nationalization of the Reserve Bank as well, just something that some time ago, I spent a lot of time talking to clients about.
Those kinds of more radical policies can now -- I think are unlikely to feature very strongly, or whatever adjustments are made, they're likely to be done in a sort of a very gradual and responsible fashion, which is a good thing. But I think the agricultural policies are likely to be given a great focus within the context of a transformative land reform program.
It's very likely that the ANC will look to continue to try to strengthen local content requirements in general. And the -- and so that -- especially in the mining sector as well as in the agricultural and manufacturing sector and the industry more generally. I think that we would likely see the ANC despite everything else and despite almost having now taken the opportunity to, to define itself as being more centrist than anything else.
It will make efforts to try to recoup the general sort of mass voter sentiment. So extension of the social grant, for example, black economic empowerment, those more populous policies and efforts to try to claw back voter share from largely poor black masses who feel alienated by the ANC government up to this point, which is why they've voted the way they have, and will make efforts to try to claw back those votes whilst at the same time trying to accelerate these reforms, which they feel that can really get the economy on a much higher growth track. And ultimately, they will have a wider impact to create jobs to the young people, improving the state's revenues around as we go.
Kristen Hallam
Let's talk foreign policy for a moment. Do you see any impact from the election on South Africa's relations with the BRICS Alliance, in particular, or any other foreign policy relationships you want to highlight, Lange?
Langelihle Malimela
I don't think that there is much of a shift coming in terms of foreign policy. That's one of those areas where the ANC will continue to maintain a tight grip. We've already heard assurances to that effect that's coming out from the government, Cyril Ramaphosa, during his inauguration speech on the 19th of June.
And we're likely to see a continued effort to engage with the BRICS countries, to try to grow BRICS. We saw with the Ukraine peace effort during the G7 meeting, just not that long ago, that South Africa again took the opportunity to straddle both sides or to be noncommittal. So the tone and the language has not changed one bit from South Africa. It's still very much intended to not upset Russia. However, it participates in the geopolitics.
And so that suggests to me that you're not going to see any change in terms of its BRICS participation and its effort to try to leverage BRICS to grow its influence around the world and to see itself almost as an entry point into the African continent for BRICS and its partners, both old and new.
Kristen Hallam
So, Langa, what indicators will you be keeping an eye on in the early days of the new government?
Langelihle Malimela
We are all waiting with bated breath to see what the cabinet appointments are going to be, now that we know that the Democratic Alliance will be in cabinet, because that is going to have a massive effect on policy implementation. That is an important one.
How the newly formed MK party participates within Parliament is going to be important and how it participates even within the provincial parliament of KwaZulu-Natal is going to be important. Let's not forget that in KwaZulu-Natal, which is Zuma's home province, you've got the Durban Port down there, which we spoke about earlier when we're talking about Transnet.
This is very important node in terms of facilitating the movement of goods and services into South Africa and the subregion. Zuma's party by far won the most votes down in that province yet, because of the Government of National Unity, is being excluded from participating even in the provincial government. And so you had Zuma in the days following the election calling for a revote, not even a recount saying the vote should be run again and all of this. And so they've taken quite a disruptive posture.
And I think it will be important to see what role they play within Parliament. They refused to attend the voting within Parliament for speaker and for President and generally have been quite disruptive in terms of the process since May 29. I think that there is an elevated risk of violence down in KwaZulu-Natal, the more the MK sort of is excluded from the leadership in the mainstream politics of that province.
I don't see them just sitting quietly by and acting as an opposition given that in the first place, they disagree with the electoral outcome, one of their main -- perhaps their only significant policy position in campaigning for the elections -- was that the South African Constitution should be torn up and a new one should be rewritten.
And to a certain extent, I don't think that they even know what they want to do. So they're an important party to watch in terms of KwaZulu-Natal's politics and the potential really for quite large-scale disruption in terms of the functioning of the port, in terms of the functioning of infrastructure, the roads down there and the ability of that area to function as this is important node for the economy of the region.
Kristen Hallam
Lange, I know you've been super busy over the past month, and it sounds like you'll continue to be very busy watching all these indicators.
Langelihle Malimela
Yes. So the rand has reacted very well to the formation of a Government of National Unity in South Africa. There's a lot of positive sentiment around the outcome and the feeling that South Africa can finally get a lot of things right in terms of reform, in terms of institutional rebuilding and getting the economy back on track. But it cuts both ways in the sense that internal opposition within the ANC has now become external opposition.
And it's very difficult to foresee, like I'm saying in relation to MK, how that's likely to play out. And for the time being, we're watching very carefully to see how those outside the Government of National Unity with more radical intentions, how are they going to participate in the political system in a way that makes their voices heard, and will that have social unrest implications, and how does that then perhaps undermine all the good sentiment around the positive signs we're getting from the economy.
Kristen Hallam
All right. Well, all that's left for me to do is to thank you, Lange, for sharing your insights with us on South Africa's election.
Please check out our episodes on the Elections in India and Mexico, if you haven't yet.
Thank you for listening to the Decisive Podcast from S&P Global. Please subscribe and join us for next week's episode. Until then, stay curious and stay informed.
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