SA’s hard yards to post-2024 potential growth

Politics makes for strange bedfellows. The best we can hope for is to emulate an Indian-style of coalition politics, which ended that country’s balance of payments crisis with 6.5% economic growth in five short years. It all depends on whether the now coalition-dependent ANC snuggles up with the EFF – ideologically far more comfortable than an exciting multitude of bed partners – which would enable economic growth. Seasoned financial journalist Jonathan Katzenellenbogen takes a look at this in the Daily Friend just hours before today’s (Thursday), Medium Term Budget Policy Statement that will give us the strongest indication yet as to whether the ANC will go the populist route to buy votes. Don’t hold your breath. If you thought this election was a watershed, then get the sandbags ready downstream for 2024 when ANC support may well drop further, making it essential for them to shun the radical EFF in order to get more than the 10% they require to hold onto power. – Chris Bateman

What the ANC below 50 percent and coalition politics mean for reform

By Jonathan Katzenellenbogen

For the first time ever, the ANC’s share of the vote has sunk below 50 percent. With this last week’s local government election is the long-awaited game changer in South African politics.

Jonathan Katzenellenbogen. Image published courtesy of The Daily Friend.

The ANC’s plummet at the polls has to raise at least a chance that after the next general election in 2024, a national coalition government will emerge. After all, our system of proportional representation, in which parties get seats reflecting their share of the vote, inherently favours small parties and hence is likely to result in coalition governments.

What does the prospect of further erosion of ANC support and a coalition government in 2024 mean, for chances of structural reform and growth?

Chances of reform

An ANC-EFF coalition would probably result in a doubling down on radical economic transformation policies, but that is not the only scenario for a government after the 2024 election.

Despite declarations of intent, reform has stalled under President Cyril Rampahosa. Structural reforms are the big changes required to boost growth, like dealing with the massive budget deficit and growing debt, changing the labour laws to make them more jobs-friendly, and turning around or selling off the public enterprises.

The experience of post-1994 coalitions, all at municipal level, has been poor. They have often been unstable, and the coalitions were often a route to sharing the spoils of office and remaining in power. With the number of hung municipalities rising from 26 in 2016 to 66 in 2021, coalition politics could be a path to further municipal decay, rather than renewal, in many cases. The attractions of power and contracts might prove too much for many of the parties that lead councils. But where coalition partners are ideologically aligned in wanting to improve services, they will prove their worth.

The ANC must be in deep thought about how to play the new game in the run-up to 2024. Dealing with load shedding should be top of their agenda to restore support. But more likely, the party will be thinking about how to avoid reforms and push through a populist agenda.

The Medium-Term Budget Policy Statement (MTBPS) to be delivered by Finance Minister Enoch Godongwana tomorrow will give one sign whether the ANC will go the populist route to buy votes. But there is no scope for this. Above all this government has to try and prevent a further drop in its credit rating to ensure its cost of borrowing does not further rise. The Treasury is unlikely to bow to populist pressures within government, but these are bound to increase in the lead-up to 2024.

Even with the upward revision of GDP and the windfall in tax revenue from higher commodity prices, the government has no space for a basic income grant or much more temporary relief. Any lean toward populism in the budget will be heavily punished by the markets.

A natural coalition

So with an empty cupboard, there is not much the ANC can do to raise its chances in 2024 and it may resort to expropriation without compensation and prescribed assets to access private savings. But these will not help it to get votes. As a precondition for entering into coalitions with the ANC, the EFF has demanded a change in the Constitution to allow EWC.

Without fast growth and rise in jobs, the ANC will face a tough time at the polls in 2024. If the ANC and EFF are part of a national coalition in 2024, deep reforms can be ruled out. Given that the ANC achieved 46 percent of the vote and the EFF over 10 percent, and the two have a very similar ideology, this could be a natural and likely coalition after the 2024 election.

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But there are other scenarios, particularly if the ANC needs more than the ten percent provided by the EFF, for it to form a government. That raises multiple permutations for coalitions, some of them positive for reform. A coalition made up of the ANC, DA, plus smaller parties, could help the reform cause. Best of all would be a greater than six percentage point swing away from the ANC and EFF toward a united coalition of the DA plus small independents.

In his book, Coalition Country, South Africa after the ANC published three years ago, DA MP Leon Schreiber describes three coalition scenarios that may be in SA’s future. The book was published in 2018 so the specifics might be dated, but they do get across the idea that there are multiple coalition scenarios. The first “Prime for take off” sees a DA coalition with the EFF ending cadre deployment. The DA has said it will not form a coalition with the EFF, so the scenario in this form is ruled out for the moment, but it gets across the idea that even far-fetched visions are possible. The second scenario “A toxic homecoming” has the worst possible outcome and is marked by continual cadre deployment, lack of reform, and deterioration in service delivery. Under a third scenario “Going Nowhere Slowly” a DA-led coalition manages to reduce corruption and introduce reforms. However, it is crippled by “pork barrel” politics which sees favours being exchanged for support – a key danger of coalitions.

If anything, coalitions show politics as the art of the possible. That is why they can open the door to reform.

Lessons from India

Coalitions are often unstable and don’t last long. And reform can be hampered by endless negotiations within coalitions, but the case of India shows what is possible. In India a coalition led by Prime Minister PV Narasimha Rao of the Indian Congress Party, which was put together after the 1991 elections, resulted in a hung parliament. It was this government that enacted the most far-reaching reforms since independence by dismantling India’s “licence Raj” of extensive economic controls and a planned economy that had tied down growth.

This encouraged Indian growth, from one percent in 1991 to over 7.5 percent in 1996. Indian economic growth in the 25 years since the reforms began has averaged nearly 7 percent, way above the 4.4 percent in the 25 years prior to the 1991 reforms. These reforms were enacted under the pressure of a balance of payments crisis, but nevertheless clearly demonstrate what can be achieved by coalitions.

One advantage of the coalition that set about reform in India was its ideological alignment. Irfan Nooruddin, an Indian academic who wrote Coalition Politics and Economic Development, says coalitions of convenience are solely motivated by the desire for power, tend to be corrupt and are often heavy spenders because there are many hands in the pot. In an interview with The Hindu he says the evidence is that coalitions are associated with periods of greater economic growth, less economic volatility, and more investment. And he makes the point that, “there is more credibility to the (coalition) government’s policies, because it has a harder time making radical change.”

We can but hope for an Indian-type solution to our reform problems.

  • The views of the writer are not necessarily the views of the Daily Friend or the IRR. If you like what you have just read, support the Daily Friend. 
  • Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist. His articles have appeared on DefenceWeb, Politicsweb, as well as in a number of overseas publications. Jonathan has also worked on Business Day and as a TV and radio reporter and newsreader.
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