Friday 1 March 2024

Will South African politics shift to the left, or right?

Investors wait in anticipation as parties negotiate coalitions after the 2021 local government elections. As the curtain came down on South Africa's (SA) sixth municipal elections since the end of apartheid in 1994, uncertainty gripped investors as 66 councils remained without an outright winner. Centre right smaller parties such as ActionSA, IFP, DA and Freedom Front, have refused to work with the ANC and EFF, further isolating the centre and extreme left parties into one corner. If for this reason the ANC finds common ground with the EFF, SA politics will likely shift more leftwards. Some market analysts believe that this scenario will result in investors voting with their feet.

By David Dludla

The Local Government Elections held on 1 November 2021 accelerated the ruling ANC's electoral woes as the number of hung councils more than doubled from the 2016 election. The ruling party shed significant electoral support in key metros including Johannesburg, Tshwane, Ekurhuleni, eThekwini, and Nelson Mandela Bay. These are economic and trade hubs in SA, accounting for more than 70 percent of economic activity and investment. Nationally, the ANC's support fell from 53.91% in the 2016 elections to 46.04% in this year's polls. On the upside the ANC managed to retain 161 municipalities across the country.

Some believe that ANC's loss of support can be attributed to low voter turnout. According to the Independent Electoral Commission (IEC) only 38% of the 36 million eligible voters registered to vote. Of the 26 million registered just over 50% cast their votes. With the country facing growth and fiscal challenges, the emphasis placed on the government initiatives to work more effectively with business and labour remains crucial to accelerating economic growth. "SA's medium term sovereign rating outlook remains heavily reliant on the government's ability to fast-track key structural reforms to resolve low trend growth," said Momentum Investment economist, Sanisha Packirisamy. "In our view, this will become more challenging against a more fragmented political landscape."

The ANC will have to partner with other political parties or independent candidates to form coalition governments in the 66 hung councils. This could mean that the incumbent's policies which has had the support of investors will have to be altered to rich coalition agreements. The Democratic Alliance (DA), second largest party nationally, has ruled out partnering with the ANC to form a coalition government. Its performance was equally not stellar, with its support declining support from 26.9% in 2016 to 21.84% in 2021. Julius Malema's Economic Freedom Fighters (EFF), on the other hand, had reason to celebrate considering its growing national footprint. For the first time since inception, it has managed to capture 8% of the Eastern Cape votes. Nationally its support grew from 8% in 2016 to 10% in 2021. Unlike the DA, the EFF stipulated various condition before agreeing to a coalition with the ruling party, amongst them, agreement on the expropriation land without compensation, the creation of a state bank, debt cancellation for students and ?nationalisation' of the reserve bank.

Meanwhile, smaller parties like the IFP, Freedom Front Plus and rookies ActionSA, have also ruled out the possibility of cooperating with the ANC. These political moves can push the centre left ANC towards the extreme left EFF. At the time of going to print the two parties had had meetings that appeared to be successful. Left policies are typically anti-business. In a mild form there is high government intervention in the economy and high degree of private sector regulation. In its extreme form there is no room for private sector and the state takes control of the entire economic system. While at a theoretical level such policies can bring about economic and social equality, they have proven to be destructive at a practical level.

Analysts are already warning the ANC to take note of the voter swing away from left-wing, old style heavily socialist dogma, with most preferring social democracy. Investec's chief economist, Annabel Bishop, warned that placing all private sector land under state ownership without any compensation was "contrary to ANC agreed policies" and risked investors voting with their feet. "The ANC adoption of EFF policies would not be quickly undone, nor would the market impact be fully undone either and it would plunge SA into the severe down case as political uncertainty would immediately soar sky high and investors retreat," Bishop said.

Whether the centre right parties such as the DA and ActionSA live up to their promise to isolate the ANC remains to be seen. What is clear though is that their choices could have an impact on the economic future of SA.


Previous Editions

subscribe to our magazine