12 December 2017

South Africa's 'Short-Term Pain' or 'Long-Term Gain' Future

analysis

South Africa is at a crossroads. The political choices to be made during the African National Congress's (ANC) leadership elections on 17 December will determine the country's economic and developmental future for years to come.

This is essentially a choice between short-term pain (a Nkosazana Dlamini Zuma or #NDZ win) and subsequent long-term gain (the introduction of competitive politics during the 2019 elections), versus short-term gain and long-term pain (a Cyril Ramaphosa or #CR17 win) and the probable continued dominance of the ANC in government. Single-party dominance is seldom a long-term asset, and by 2019 the ANC will have been in power for 25 years.

If #CR17 and his reformist faction win decisively in December, it will probably mean an ANC victory in 2019, as the party will be able to attract disillusioned ANC supporters currently not voting. In Fate of the Nation I estimate that the ANC could obtain a comfortable majority of around 59% of support in this scenario. South Africa would revert to its average historical growth rate of around 3.4% of GDP over time, although annual rates would fluctuate.

A Nkosazana Dlamini Zuma win is only possible through the manipulation or purchase of branch delegates

In his ANC election manifesto published in Business Day in November, #CR17 has committed to a 2018 growth target of 3%. This is only possible if South Africa can avoid the downgrade of our long-term local currency debt ratings by Moody's in February 2018. That downgrade is virtually assured if Jacob Zuma remains president into 2018 and Finance Minister Malusi Gigaba presents the 2018/19 budget. Once South Africa is downgraded, growth will remain constrained for years.

The only way to avoid a downgrade is for the newly elected ANC leadership to recall Zuma in early January, and for the National Assembly to elect a new South African president (#CR17 in this instance) who will appoint a new cabinet, including an experienced and trusted replacement finance minister.

The more likely muddling-along scenario - which I've named after the national soccer team Bafana Bafana - is of a compromise outcome, where #CR17 narrowly beats #NDZ to the top spot in the ANC's elections. We know the conference won't immediately proceed with the elections of the other members of the top six (or top nine if the ANC constitution is amended the previous day). This is a scenario where, after the announcement of #CR17 as president, #NDZ is nominated for election as deputy president of the ANC from the floor, and elected as such. The national executive committee (NEC) emerges as a mixed team of Reformers and Traditionalists, and #CR17 will take time to consolidate his grip on power.

The outcome is the bumbling-along, talk-left walk-right governing party and increasingly dysfunctional alliance with the Congress of South African Trade Unions (COSATU) and the South African Communist Party (SACP) we've seen for years.

Deputy President Cyril Ramaphosa has committed to a 2018 growth target of 3%

Even this divided party would be an improvement on the current chaos within the ANC and in government. Instead of a cabinet comprising people of questionable ethics, proven incompetence and friendship with the Guptas, the Bafana Bafana future is one of some improvements in the coherence of government policy and implementation. This outcome though would be constrained by the need to include prominent figures from the #NDZ camp in cabinet, many of whom are ethically compromised or corrupt.

South Africa would still be downgraded by Moody's due to its inability to rapidly agree and implement the obvious measures required to unlock growth. Zuma and his cabinet would probably be recalled in about mid- to late-2018, but too late to improve our short- to medium-term economic prospects. In this scenario, I expect the ANC to get around 53% at the polls in 2019 but to lose Gauteng to a DA-led alliance.

An unlikely, but not impossible, scenario is that of a Nation Divided - where #NDZ and her traditionalist faction within the ANC triumph in the December 2017 elections. Should that victory not be found to be tainted by substantial corruption and subsequently overturned in court, it would result in the elevation to national power of a socially conservative ANC faction, not unlike the current administration. This grouping includes a profoundly corrupt clique who have excelled at patronage and abuse of state resources for private gain.

Under #NDZ, government is likely to emphasise redistribution as the path to growth (unproven elsewhere), and will pursue fiscally expansive policies such as free tertiary education, a higher minimum wage, expansion of social grants, more efforts at land redistribution without compensation and possibly even an adjustment to the mandate of the Reserve Bank. South Africa grows slower in this scenario than any other, partly due to increased debt and because it takes longer for the country to emerge from its ratings agencies downgrade with these policies in play.

A ratings downgrade is virtually assured if Jacob Zuma remains president into 2018

The ANC is likely to split early in 2018 in the Nation Divided scenario. The first steps in this direction may already have started with the establishment of a new party, African Democratic Change, by Makhosi Khoza at the end of November - although it is more likely that she'd join a new party formed after a split than lead it. This new party would comprise the rump of the Gauteng ANC and other members of the reformist faction within the ANC defeated during the December 2017 elections.

Critical here is what #CR17 decides to do. It seems unlikely that he'd be prepared to serve under #NDZ. Would he retire to his farm(s), return to the private sector or lead the split in the ANC? The latter would split the ANC down the middle and open a new and exciting chapter in South Africa's future.

Even a smaller split, not led by #CR17 but by a smaller faction such as the ANC in Gauteng, would be different for two reasons. First, the new ANC splinter party could probably enter into a governing alliance with the DA in Gauteng after the 2019 elections. Once the ANC loses South Africa's economic heartland its future is dim. Second, given the damage done to the ANC under Zuma, even a relatively small split within the ANC would pull it below the 50% majority at national level in 2019 and it would require the support of other parties to create a governing coalition.

Looking at the state of votes just days ahead of the elective conference, it is clear that a #NDZ win is only possible through the manipulation or purchase of branch delegates. Even then a Nation Divided outcome could, ironically, be good for South Africa in the longer term if it leads to a realignment of national politics in 2019.

Change is in the air, and may come sooner than we expect - but only if we are prepared for the associated pain.

Jakkie Cilliers, Head, African Futures and Innovation, ISS Pretoria

South Africa

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