June 10 Tensions are rising between South
Africa's new government and its leftist allies, and may increase
further should the government shift back to more conservative
economic policies as the global crisis eases.
Following are major issues for investors:
WILL LONG-TERM ECONOMIC POLICY CHANGE?
While counter-cyclical measures have seen fiscal and
monetary policy loosen to deal with the global crisis, President
Jacob Zuma and other African National Congress leaders stress
his new government will not abandon investor-friendly policies.
These include tight control over public spending, which
helped ensure a long stretch of growth after the end of
apartheid in 1994.
But Zuma has also made clear that the plight of the poor
must be addressed.
The ANC's trade union and South African Communist Party
allies are pushing for a move away from market-friendly
policies, which they say have kept millions of people in
Markets will watch for signs that the government is giving
in to increasing pressure from the left. The strikes that labour
federation COSATU and its member unions have threatened could
further damage the economy and delay a recovery.
COSATU has membership of almost 2 million people and could
bring the civil service to a standstill if government employees
agree to mass action.
WHEN WILL THE ECONOMY RECOVER?
Africa's biggest economy sunk into its first recession in 17
years in the first quarter of this year, with its biggest
quarterly contraction -- 6.4 percent -- since 1984.
The Treasury expects growth to turn positive again in the
second half of this year, and the central bank has pointed to
tentative signs of a global recovery.
The state's 787 billion rand ($98 billion) infrastructure
spending programme is likely to set the economy up for a fast
recovery when the upturn in global trade finally comes.
Interest rates have fallen 450 basis points since December,
but at 7.5 percent and 11 percent respectively the repo rate and
commercial banks' prime lending rate remain relatively high.
With inflation a concern, rates are not expected to fall much
Private analysts and the Treasury expect economic growth to
be positive in 2010, aided partly by the country hosting the
Soccer World Cup.
WILL THERE BE POLITICAL PRESSURE ON THE CENTRAL BANK?
The unions are demanding action from the central bank, with
a metal workers group protesting outside the Reserve Bank
building during the last policy meeting to demand a big interest
rate cut and for inflation targets to be scrapped. The demands
are supported by COSATU.
The pressure is not expected to abate and will more than
likely increase at the next meeting later in June, after central
bank Governor Tito Mboweni hinted that the rate-cutting cycle
may be at an end.
Mboweni himself is in the spotlight; a union official said
last week that the federation would not support his contract
being extended for another five-year term. The governor's second
five-year term ends in August.
Although it will never say so publicly, Zuma's government
may also want to see lower interest rates to help lift growth.
So inflation targets could be sacrificed in the power
struggle with the unions -- but even in the absence of formal
targets, the central bank would aim for low inflation anyway,
Mboweni said last week.
COULD OTHER INSTITUTIONS BE COMPROMISED?
The dropping of a graft case against Zuma on a technicality
drew accusations from some of his opponents that South Africa's
institutions were being compromised.
Police, prosecutors and the judiciary all came in for
criticism during the trial, which Zuma's supporters always said
was politically motivated.
Investors may be worried by any sign that a new
administration is putting in danger the independence of
institutions important for investment protection, as well as for
WHAT ABOUT CORRUPTION?
Despite the fact that the charges against Zuma were dropped,
his administration will be under particular scrutiny because of
the background to his victory.
While investors expect higher levels of corruption in
emerging markets, any signs of the problem getting further out
of hand could deter investment on a continent where graft has
often been a major constraint on growth.
For a story on the outlook for South African politics and
economic policy, click [ID:nLA1020962])
(Reporting by Gordon Bell and Marius Bosch; editing by Janet
McBride and Andrew Torchia)