As one of Africa’s most vibrant and noisy democracies, South Africa will be on full show in 2024 as the rainbow nation goes to the polls in its seventh national election since the fall of apartheid. The African National Congress has enjoyed majority support for these last 30 years. This doesn’t reflect a lack of political contestation though, as some 48 parties contested the last national election and 13 parties currently sit in parliament in the opposition.
For 2024 the electorate will face an even wider selection as the number of registered parties has spiked. For the first time, independent candidates will also be on the ballot.
For the ruling ANC, the ability to campaign on a track record of economic and social progress is fading. Real economic growth has averaged just 0.4% in the last five years, and over the last 15 the country’s growth is barely a third of that enjoyed during the first 15 years of democracy. Per capita income per head is lower now than it was in 2010.
This long period of anaemic economic growth has contributed to crushing levels of unemployment, while failing infrastructure, a sluggish battle against corruption and the devastating effect of crime have seen business confidence and investment wither.
Threats to ANC coming from all sides
The ruling party is under pressure from former members, perhaps most notably former President Jacob Zuma who recently announced that he would campaign for a new party.
Among the opposition, the formation of the Multi-Party Charter, a pre-election coalition of a number of opposition parties, is likely to be the most consequential development. Led by the largest opposition party, the Democratic Alliance, the parties of the MPC are aligned largely around a ‘Stop the ANC’ goal and, albeit loosely, a greater focus on governance, competence within the civil service and more engagement between government and the private sector to tackle the country’s challenges.
The third force to watch is the Economic Freedom Fighters, the third-largest party in the country. Its message is more firebrand in nature, with nationalisation, land redistribution and other attention-grabbing policies at the core of its governing vision.
Polls, though infrequent, currently point to the ANC’s share of the national vote falling below 50%. That implies coalition discussions post-election, particularly in the case of a large slip. Any inclusion of the EFF would most likely come with significant headline risk on land reform, state-owned company reform and public finance. Should a coalition discussion look to include the DA or smaller parties from the MPC instead, expect governance and accountability to come to the fore.
South Africa has some early experience in coalition politics, albeit only at the provincial and the municipal level. Against the hope that coalitions could help improve governance and oversight and promote consensus building, the reality has more often been one of administrative deadlock, near endless political jockeying and a regular call for the courts to adjudicate on matters of governance.
That’s worrying, given the very real challenges that South Africa faces.
Energy crisis, high unemployment and sluggish growth
The economy has been stuck in a negative cycle of poor growth, weak confidence and underinvestment for more than a decade. Gross domestic product is barely 1% higher now than it was pre-Covid-19, and the unemployment rate, currently in the low 30s, is among the highest in the world.
At the core of this growth problem lies infrastructure failures. The most notable and long-lasting has been in electricity. Since early 2008 Eskom, the state-owned electricity monopoly, has been unable to provide enough power to meet the needs of the country. Loadshedding, the local term for rotational power-rationing, has hit output not only in electricity-intensive sectors like mining and manufacturing, but it has also had a devastating impact on small-scale entrepreneurial activity.
2023 saw more loadshedding than in 2008-21 combined. But there are promising signs that Eskom has been better able to stabilise important parts of electricity supply for 2024. This power crisis has also led to reforms that are seeing huge private sector contracting for new renewables capacity.
The same crisis/reform cycle is evident in parts of the transport sector as well, where chronic under-investment and poor governance has crippled the performance of the continent’s busiest ports and most important rail corridors. Reforms now look to bring in private sector expertise and investment.
On the cyclical side, policy rates that rose by 475 basis points to 8.25% between late 2021 and mid-2023 have helped bring inflation back towards the mid-point of the central bank’s 3% to 6% target range. But this has been at the cost of significant further strain on the finances of households and businesses with debt. Financial markets are pricing in relief from about mid-year, albeit in fairly small doses. Still, even small reductions in interest rates will help ease some pressure on spending.
Where there won’t be much boost, cyclical or otherwise, is fiscal policy. Calls for further social spending, the launch of universal health insurance and further investment and bailouts for state-owned companies are being weighed against an economic reality in which tax revenues are under pressure and where spending on debt service is now a larger expenditure item than policing, public healthcare or even basic education.
Perhaps more than any other factor in South Africa’s economic environment, it’s this lack of fiscal space that will constrain the government that is set to emerge from this year’s polls.
Jeff Gable is Head of Macro and Fixed Income Research, Absa.
This article was published in the Q1 2024 edition of the Bulletin. Read more about South Africa in the Absa Africa Financial Markets Index 2023.
