Investors eyeing policy paralysis, Eskom, Transnet & debt sustainability ahead of SA elections – Langelihle Malimela

As South Africa gears up for its national and provincial elections, which are set to take place sometime between May and August, global and local investors are closely monitoring their impact on the country’s policies. In an interview with BizNews, Langelihle Malimela, Head of Country Risk: Sub-Saharan Africa at S&P Global Market Intelligence, highlighted concerns about policy paralysis, particularly in key areas such as addressing the electricity shortage and broader infrastructure problems. Malimela said there is tension between the ruling African National Congress (ANC)’s electoral threat and the imperative for fiscal prudence. There was a potential risk of election-related violence, but he expects that to be localised and limited to Northern KwaZulu-Natal. One of the other ANC challenges that Malemela pointed out is that younger voters, which the IEC indicated are registering to vote in the election, are more concerned about enormous electricity prices and the cost of living than the issue of the past.  Should the ANC drop below the 50% threshold in the coming elections, Malimela suggested it could potentially form a coalition with parties like the Good Party of Patricia de Lille, who is already serving in President Cyril Ramaphosa’s Cabinet. Despite these challenges, he said, the ANC  benefits from the lack of cohesion between opposition parties. According to Malimela, while these parties share a common goal of unseating the ANC, they have not articulated clear policy positions on key issues. Malimela warned that if the election results in the return of familiar faces and continued political involvement in key state-owned enterprises, resolving South Africa’s problems could take longer. – Linda van Tilburg

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Relevant timestamps from the interview

  • 00:11 – Introduction
  • 01:45 – Potential Impact of ANC Losing Majority
  • 05:02 – Influence of New Entrants on the Election
  • 08:56 – Cohesion Among Opposition Parties
  • 11:45 – Importance of Figurehead for Opposition Parties
  • 13:21 – Potential Coalition Partners for ANC
  • 16:39 – Investor Attitudes and Uncertainty
  • 18:43 – Factors Influencing Voter Decisions
  • 21:52 – Navigating Risks and Opportunities for Investors
  • 24:14 – Conclusions

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Edited excerpts from the interview


There is a realistic likelihood that the ANC will not be the outright winner 

Well, it’s obviously a pivotal election on a number of fronts. For the first time, probably in democratic South Africa, there is the realistic likelihood of there not being an outright majority winner for the first time. That has all sorts of implications from a governance perspective. We’ve already seen some of these play out at the local election level where we have seen a lot of tension, a lot of policy paralysis, high rates of churn in leadership and votes of no confidence. So, it’s going to be interesting to see if that is going to be the case and how the major parties will navigate it. 

Policy paralysis, tension between risk of losing the election vs need for fiscal prudence

I think to a certain extent, there will be policy paralysis, and that’s something that we probably would see in the major areas and in the key policy areas. This could include the ongoing electricity shortage in the country, which is quite severe, and the broader infrastructure problems. Also, with regard to the rail and transport operator Transnet and some of the difficulties that have been experienced there. The fate of these two state-owned enterprises and how that is resolved are hugely important to the economic fortunes of the country. These are key areas where there needs to be policy clarity.

There’s been a lot of churn in terms of leadership at both these institutions in recent times, obviously, famously last year with Andre de Ruyter leaving ESKOM. We’ve seen a significant or high number of resignations towards the latter part of 2023 within Transnet itself. These issues and the board compositions tend to be political decisions. When you have more cooks in the kitchen where it’s concerned from a political point of view, it’s only going to get more difficult. I think that there’s a lot of focus around that.

What kind of policy certainty can you get in terms of resolving the electricity issues and in terms of resolving the infrastructure issues, the problems at the port, the problems with roads and rail? But also more broadly, just in terms of debt sustainability. We heard from the Finance Minister at the medium-term budgetary policy statements in November, the intention to tighten and scale back and try to manage debt more prudently. The government has made some steps in that direction, but there’s the small factor of this election coming up.

Their capability and the policy decisions that we expect to come out, both within the state of the nation address (SONA) in February, and the budget later on in February as well, will be interesting to see. That tension between this threat of losing an outright majority from the African National Congress’ perspective versus the express need to be more prudent from a fiscal point of view. Those are the kinds of things I think that we’re looking at, and that will be very instructive from a policy statement’s point of view over the next month or so.

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Risk of violence, but limited to northern parts of KZN, MK threat

Some new entrants, particularly uMkhonto we Sizwe, are likely to be the source of political violence if it occurs, but it’s expected to be confined to specific areas of the country. The key party to watch is MK party, endorsed by, and some argue, created by the former president of the African National Congress, Jacob Zuma. This party is expected to impact the northern parts of Kwazulu Natal, affecting the fortunes of the ANC to some extent. Depending on voter share, it may even affect what happens at the provincial government level. If the MK party gets double figures of the vote in Kwazulu Natal, it will change the landscape significantly because then it’s probably taking voters away from the African National Congress, but probably from some of the others as well, including the Inkatha Freedom Party, but that probably works to the advantage of an IFP more than any other. So will it have an impact? I think so.

It remains to be seen, but it’s likely that violence will be localised and very regional, confined to Northern Kwazulu Natal. The undertone of the MK party, which was the name of the ANC’s former military wing is an almost militaristic kind of posture in its language and much of its policy perhaps which we wouldn’t know much about at this stage, it is unclear.  But, as the campaign gathers steam on both sides, you’re likely to hear  militaristic language, and that’s really where perhaps the threat of localised small incidents of violence are likely to occur.

I don’t think that it necessarily poses a big risk of major violent conflict in Kwazulu-Natal or elsewhere. But again, it’s this reference to a military struggle and playing on that language and that history, which is done to shake up and to scare the ANC, that adds a risk of minor, localised violence as the election gathers steam. 

ANC benefits from lack of cohesion between opposition parties 

Action SA, a relatively new party, has performed well. It has focused on the issue of migration and the influx of migrants from the sub-Saharan African region seeking economic opportunities in Johannesburg. This situation is perceived to put pressure on job availability for South Africans, playing on underlying xenophobic sentiments that may exist in the country. On the other hand, the Economic Freedom Fighters, with a more pan-Africanist outlook, vehemently opposes this kind of language, particularly when it comes to job creation and employment solutions.

These smaller players in the political space hold diametrically opposed views in key policy areas, which ironically works in favour of the ANC. Despite the ANC’s perceived issues with policy implementation, corruption, the cost of living crisis, and material difficulties, it benefits

from the opposition’s struggle to unite against it. This has been the recent trend, and it’s likely to continue. Even if the ANC’s electoral share declines, it doesn’t necessarily benefit one of the major opposition parties to the extent that it becomes a likely successor to the ANC. The ANC seems to benefit from a lack of cohesion and options for voters among the opposition.

Opposition parties lack policy on ‘granular issues’ 

The lack of a central leader or figurehead makes it more difficult for the opposition parties. The one thing they have in common is just that they want the ANC out of power, but it probably stops there. Once you start to get to the granular issues which matter to South Africans about how is it that you intend to create jobs for young people, for example, and how is it that you intend to 

to fix the electricity issue? Are you going to extend the life of coal-fired power stations? Are you going to double down? Are you going to reinvest and use South Africa’s almost strategic advantage in terms of the vast coal reserves that it has or are you going to go the way of renewables?

Are you going to implement these emergency programmes that have been rolled out over a period of time? How are you going to do that? How are you going to align the grid to any new sort of plan around electricity distribution? 

When it comes to any of the key issues, they almost inevitably fall apart, partly having a political figurehead, a lack thereof. That’s symbolic of the fact that on any of the major policy issues, those coalitions quite easily diverge and disintegrate.

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ANC will look to political parties like GOOD for alliances, won’t need a large coalition

I don’t believe they would need to look far for a partner. If we take a step back and examine the ANC’s electoral share over the past few elections, they’ve seen a decrease from approximately 63% of the vote in 2014 to about 57% in 2019. Given the persistent issues we’ve discussed, there’s a large influx of new voters. The IEC was quite pleased with the number of young people who registered during the previous registration weekend. There’s another registration weekend coming up soon, where they’ll be trying to engage new young voters who are somewhat agnostic to the historical issues that underpin voting patterns in South Africa.

If the ANC were to fail to achieve an outright majority, it’s unlikely to be by a significant margin. That is to say, they’re unlikely to need a partner that would significantly derail their policy path, like the Economic Freedom Fighters, which people often think of. It’s more likely they would opt for a smaller partner like the Good Party. Ever since Cyril Ramaphosa, the current president of the ANC, took office, he has included Patricia De Lille, the founder and leader of the Good Party, in his cabinet in various portfolios, including tourism and public works. In retrospect, this seems like a strategic move, because if the Good Party were needed to form a coalition with the ANC, it would be easy to do so. The ANC would gain the extra handful of seats it needs to form a government.

At S&P Global Market Intelligence, we don’t predict election outcomes. It could go any way. However, our forecast suggests that the ANC is likely to experience some loss of voter share. We don’t believe a large coalition would be necessary to form a government.

Election results would determine executives ability to implement policies 

Investors are likely to be hesitant due to policy uncertainty. The upcoming election could have significant policy implications depending on the outcome. However, there are key policy issues that require a certain level of certainty. This includes the latest iteration of the integrated resource plan, the outlook,and the plan for energy policy. It also includes the plan for improving and fixing infrastructure, and dealing with the enormous backlogs that are occurring.

Whether there’s an election or not, these underlying questions remain. I believe investors would have been waiting with bated breath in any case to see exactly what the plan is. The election will reveal a lot about the executive’s capacity to drive these policies home and make them effective, especially where State-Owned Enterprises (SOEs) are concerned. These SOEs are still at the centre of the economy and are crucial. If there’s no electricity, or if importing and exporting are hindered due to dilapidated infrastructure, these issues will hamper the ability to do business effectively in South Africa. These problems persist with or without the election, but certainly, in terms of the executive’s capacity to implement, the election is crucial

Rising cost of living, electricity could prompt young voters to challenge ANC

Voter turnout has been in significant decline, moving towards a global average, something that’s more normal. The euphoria of 1994 and thereafter, which the ANC was able to ride, saw people turn out in enormous numbers to vote, probably peaking in 2004 with massive voter turnout. It’s gradually moving towards the mean and from a global perspective, this has its advantages and disadvantages.

To a certain extent, what you tend to see from an ANC voter perspective is, they are less likely, in the main, to move from the ANC to another party because of the underperformance of the ANC than they are to not vote at all, to withhold their vote altogether because of disappointment with the ANC. That speaks again to the fragmented nature of the opposition, how the opposition in South Africa has struggled to articulate a clear position on the big issues.

The Democratic Alliance obviously has been the official opposition all this time since 1994, but there are some of the big issues that matter to the bulk of the electorate around which it has not effectively articulated itself and has not clearly taken a strong stance. Things like transformation of the economy, issues around land and so on, where the ANC is very bold and very clear in terms of economic transformation, black economic empowerment, uplifting historically disadvantaged people and giving them opportunities to excel in the economy. Whereas parties like the Democratic Alliance have been somewhere between all this time and not taking a firm position, and that tends to deter voters.

In the main, you’re likely to see something similar where perhaps voter turnout would not be as high as it’s historically been. But I think where the ANC perhaps faces challenges is in the fact that you’ve got a lot, according to the IEC, a lot of new young voters that are coming in and that vote more along the issues like the fact that we pay enormous prices for electricity and hardly have electricity half the time and the fact that the cost of living is so high. 

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More of the same faces, political involvement in at key SOEs means problems will take longer to resolve

I would be hesitant to give investor advice. I’m not someone who’s qualified to do that. But I think that the electricity issues and the issues around infrastructure are really where the key debates are. The appointment of an electricity minister at the beginning of last year did make a difference in our assessment in terms of having some coherence within the government. All these different advisory bodies and the sort of inertia that came out of having so many different centres of power, decision-making places, and trying to resolve this one problem. Having the electricity minister was key and I think that what happens with that role, the powers that are given to it and the support that  it is given if it is a role that is to continue in a new administration, is key.

More than anyone, the Minister of Electricity, Kgosientsho Ramokhoapa, has demonstrated an ability to start to actually materially solve these problems. That’s an important indicator for me: what happens with this role? Is it given more powers? What is the fate of the position itself and then the powers that are assigned to it? We’ve seen gradually some more powers being given to the role, taken away from the Minister of Minerals and Energy. I’d see that as a positive. So, the appointment of new leadership within Transnet to look at the extent to which these are qualified people, that you have a board there that is qualified and supportive of the executive, is going to be absolutely crucial to resolving the problems.

If we see more of the usual faces, more of a high level of political involvement and disruption in terms of board and executive appointments at those key state-owned enterprises, it’s likely that the problems we’ve experienced will take longer to resolve than might otherwise be the case.

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