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FACTBOX-Key political risks to watch in South Africa
September 1, 2010 / 12:08 PM / 7 years ago

FACTBOX-Key political risks to watch in South Africa

JOHANNESBURG, Sept 1 (Reuters) - With World Cup euphoria fading, old tensions are resurfacing in South Africa, including strike threats by trade unions, worries about corruption and rifts in the ruling African National Congress (ANC).

Other problems such as a strained power grid and anger among poor blacks at shoddy public services are also likely to bubble up again, especially as politicians prepare for council, or local government, elections in the first half of next year.

Many of the issues feed demand for more government spending, a route that risks stoking inflation and widening the budget deficit at a time of international concern about public debt.

The volatile rand ZAR=D3 and government bonds would be the most likely victims of any loss of confidence.

STRIKES

The mid-year “strike season” is in full swing, with more than one million public sector workers walking off the job for most of August seeking wage increases more than double the inflation rate, which stood at 3.7 percent in July.

Although the government has narrowed differences on wage demands, a resolution has proven difficult as the country’s largest labour federation COSATU, which is in a governing alliance with the ANC, has increasingly made the dispute a focal point of political friction with its long-standing partner.

COSATU said the alliance was on the verge of rupture and has threatened to withdraw support for the ANC in the local elections early next year. [ID:nLDE67S083]

The confrontational rhetoric and tactics pick at cracks in the relationship forged in the struggle to end apartheid among the ANC, COSATU and the small yet influential Communist Party.

They also suggest a lack of willingness among unions to accept the need for reform of the economy and labour market to tackle 25 percent unemployment, a factor behind the country’s alarmingly high crime rate and frequent protests in black townships over delivery of basic services.

What to watch:

- Intensity of strikes. Violence could intensify and raise investor worries about the economy.

- Generous wage deals for state workers. The budget deficit is at 6.7 percent of GDP and government promises to bring it down have bought some breathing space. Signs of those deficit reduction plans slipping could undermine the rand and bonds.

- A widening labour action. COSATU has threatened a prolonged strike by all of its member unions that represent nearly 2 million workers in vital industries including mining and manufacturing. If this materialises, the strike would deal a heavy blow to the economy, that may drag down local stocks and growth prospects.

CORRUPTION

Two questionable mining deals and two proposed measures to curb the media have posed a question mark about how Zuma’s government has been running the country. [ID:nLDE67F1CU]

The deals and proposed media curbs in and of themselves may not be hugely significant, but they have triggered a volley of criticism directed at Zuma’s government, suggesting it may suffer from a leadership vacuum where cronyism can thrive.

The risk for investors is that with few safeguards in place, a constrained media and a weak administration, sweetheart deals could increase in the remaining four years of Zuma’s term.

What to watch:

- An acceleration of the questionable deals if safeguards are not applied.

- Any changes coming to measures the ANC set up to help a broad section of the black majority win a greater stake in the economy, which COSATU and other critics say instead have served to enrich a narrow sliver of the political class.

- Changes to the ANC’s proposed media reforms that restrict press freedoms.

ANC POLICY MEETING

The ANC has a major mid-term policy setting meeting later in September where the one thing that may unite many of the factions in the splintered party is anger at Zuma’s leadership.

Julius Malema, leader of the ANC’s youth wing, has threatened that his group could withhold support for Zuma to seek a second term.

COSATU could turn up the heat if a deal is not reached soon to end the state workers’ strike and rivals will blame Zuma for letting the strike drag on for too long, no matter what the result.

Zuma, who risks emerging from the meeting in a far weaker position, may reach out to anti-union factions in the ANC for allies.

What to watch:

- Zuma’s precarious position with organised labour may weigh on how he approaches left-leaning policies they want to advance and how he responds to COSATU’s calls to weaken the rand.

- Malema wants to see a nationalisation of mines, a move analysts said could bury the sector while raising questions about the government’s economic priorities. The government has said nationalisation of mines is not state policy.

- Zuma may try to strike back at unions and advance policies they oppose that would add greater flexibility to the country’s rigid labour market. Economists would cheer such reforms, which they have argued are vital for helping ease the country’s massive unemployment problem.

ELECTRICITY

Electricity supply worries continue to haunt businesses and households, and Eskom is finding it tough to raise money to build new power stations. [ID:nLDE6461F5]

Fears of a repeat of a power crisis in early 2008 that brought the grid to the brink of collapse and forced mines and smelters to shut for days will deter investment.

Eskom has warned of another power crunch between 2011 and 2013 unless more stations are built. Parts of Johannesburg have suffered blackouts in recent weeks although these have been blamed on technical problems.

What to watch:

- More blackouts will hurt businesses and output. If caused by system overload, they are likely to deter foreign investment.

- Efforts to raise money to build new plants. If the government fails to get the cash, firms are unlikely to want to build smelters or other factories with big power demand.

- The 2008 blackouts hit the rand and stock market, with mining stocks such as Anglo Platinum (AMSJ.J), Impala Platinum (IMPJ.J), Gold Fields (GFIJ.J) and AngloGold Ashanti (ANGJ.J) taking a knock.

Additional reporting by Ed Cropley; Editing by Michael Roddy

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