Post-election Social Unrest Looms Over Sa Economist

The nation faces a heightened risk of social unrest following this months election due to its status as one of the worlds most unequal societies, plagued by high unemployment, inequality, and crime.

The violent unrest in KwaZulu-Natal and Gauteng in 2021, sparked by political developments and desperate socio-economic conditions, was a stark reminder that a rapid deterioration in the security environment remains an ever-present risk, Louw Nel, senior political analyst at Oxford Economics Africa, writes in the first research briefing for the elections.

The first briefing, titled the ANC friends election scenario, sets out the first of four scenarios for South Africas general election. In this scenario, the ANC wins between 46% and 49% of the vote share at national level, losing its outright majority for the first time since 1994.

The once-unassailable liberation party is forced to work with small, constituency-based parties to form a national government. The small parties it pulls in at national level are the Inkatha Freedom Party (IFP), Patriotic Alliance (PA), African Independent Congress (AIC), Good and Al-Jamaah, Louw writes.

He emphasises that the lack of inclusive growth is the most significant risk factor, with weak economic growth, high inequality and unemployment straining the economic policy environment. Similarly, high inequality and social polarisation elevate the risk of protests and unrest, with political violence risks above the African median.

He says citizens must be cognisant of the fact that South Africa has 18.4 million welfare grant recipients that far outstrips the seven million income taxpayers, representing a risk to the fiscus and social cohesion.

According to the rest of his scenario, the ANC loses its majorities at the provincial level in Gauteng and KwaZulu-Natal and stays out of power in the Western Cape, where the DA retains its majority. In KwaZulu- Natal the ANC arrives at an agreement with the IFP, as at national level, which results in a stable coalition.

Former President Jacob Zumas uMkhonto we Sizwe Party (MK) is reduced to a small caucus in the provincial assembly and soon disappears from the national conversation. In Gauteng, the ANC cannot obtain a majority without the assent of the EFF, making for an unstable government in the countrys most populous province.

Due to its national-level coalition agreement, the ANC is obliged to give a handful of ministerial positions to the smaller parties but requires no drastic move away from the ANCs policy direction. There is slow progress towards fixing problematic state-owned enterprises (SOEs) and greening the energy mix, but power cuts remain a problem.

Louw does not foresee that this kind of election result will shock the Rand but says lofty international oil prices and El Nio will keep inflation high (forecast is 5.2% in 2024) and it will only decline slowly in the following years. The South African Reserve Bank (Sarb) is then also expected to hold the repo rate until the third quarter of the year, while supply-side constraints will limit real gross domestic product (GDP) growth to 0.7% in 2024 and 1.4% in 2025.

He indicates that other political-economic risks could be corruption and the quality of rule and law risks, but says these are muted compared to the rest of Africa but remain higher than its peers in Botswana, Mauritius and Morocco.

Still, South Africas business and operational environment compares favourably to the rest of the continent and should remain relatively similar should the ANC stay in power in a coalition government.

Louw says muted inflation, soft consumer demand, a diversified economy and orthodox monetary policies keep market risks relatively low compared to the rest of Africa, but persistent budget deficits, high grant spending and a relatively small tax base still remain concerning in terms of financial capacity risk.

The most significant change to the current baseline is the political regime risk, which has increased. The ANC could find it more difficult to pass legislation without an outright majority. It would need to compromise more often with its coalition partners and risks being removed from government should its coalition partners defect, Louw warns.

As part of the macro outcomes of this scenario, Louw expects that the economy will grow by 0.7% this year, while inflation should slow down to an average of 5.2% in 2024 although the risks to the inflation outlook are skewed to the upside owing to a weak rand, together with supply-side issues stemming from the logistics and electricity crisis, as well as the possible escalation of tensions in the Middle East.

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