A reckoning in South Africa

South Africa's ruling ANC faces a reckoning in May elections [View in browser]( [Bloomberg]( Welcome to the [Year of the Elections](, Bloomberg’s newsletter on the votes that matter to markets, business and policy amid the most fragmented geo-economic landscape in decades.  South African President Cyril Ramaphosa has claimed notable achievements on the global stage since he took office six years ago, but on the domestic front stagnation is hurting his ruling party’s appeal to voters ahead of elections next month. He spearheaded a partially successful drive to secure vaccines for Africa during the global pandemic, led a continental effort to try and broker an end to Russia’s war in Ukraine, helped drive an expansion of the BRICS bloc of developing nations and secured a withering [judgment against Israel]( at the International Criminal Court over its Gaza campaign. To the chagrin of the West, Pretoria has also grown ever closer to China, which last year eclipsed the European Union as South Africa’s biggest trading partner, and Russia, refusing to condemn its expansionism. Ramaphosa, who held the microphone for Nelson Mandela when he delivered his first speech after being released from prison, has spent his time in office trying to reclaim the moral high ground the country attained when apartheid ended peacefully three decades ago. With elections scheduled for May 29, the ruling African National Congress has hailed South Africa’s independent foreign policy and ability to punch above its weight as major accomplishments. It doesn’t have much else to boast about — the economy has flatlined over the past decade as rolling power outages curbed output, unemployment is endemic and crime and corruption are rampant. Most opinion polls show the ANC will lose the parliamentary majority it has held since it swept to power under Mandela in 1994 and may have to enlist the support of one or more rivals to continue governing. Foreign policy has historically played a negligible role in swaying voters, although the government’s vocal support for the Palestinian cause may win it some support among Muslim voters in the Western Cape, currently the only province controlled by the opposition. Ramaphosa, 71, insists his party will win the election outright, given the great strides it has made in dismantling racial discrimination and extending access to education, health care and housing since it came to power. The ANC’s task has been made considerably more difficult by its former leader, Jacob Zuma, who is backing a new party that looks set to make inroads in his home province of KwaZulu-Natal. Zuma served as the nation’s president for nine scandal-marred years before the ANC forced him to step down. If Ramaphosa does secure another term — and the odds are that he will, even if the ANC has to enter a coalition — he’ll likely look to cement South Africa’s role as a leader of the Global South and forge closer ties with more key emerging economies, including oil giants Saudi Arabia and the United Arab Emirates, which joined BRICS this year. He’ll also need to [smooth over relations]( with the US, with the House of Representatives considering a bipartisan bill that calls for greater scrutiny of America’s relations with South Africa for siding with what it described as “malign actors.” While the legislation could potentially cost South Africa its preferential access to US markets, [relations remain mutually beneficial]( given the hundreds of American companies already operating in Africa’s most industrialized country. Ramaphosa honed his skills when he founded the nation’s main mineworkers labor union, helped negotiate the end of white-minority rule and South Africa’s first democratic constitution, and succeeded Zuma as president. In the days and weeks ahead, he’ll need all the acumen he has acquired. — [S’thembile Cele]( The ANC party manifesto launch in Durban on Feb. 24. Photographer: Leon Sadiki/Bloomberg South African Economy Q&A We spoke with [Yvonne Mhango](bbg://people/profile/15020820), Africa Economist at Bloomberg Economics, for her perspective. What are the key economic headwinds that South Africa is facing? South Africa is heading into an election [grappling with an electricity crisis](, a high unemployment rate, and elevated borrowing costs. Lackluster growth is the source of most of the economy’s woes; it’s below the long-term average and will likely remain so over the next couple of years. Weak revenue performance — due to slow growth — is undermining the government’s efforts to stabilize debt (at 75% of gross domestic product). Failing infrastructure and weak demand are discouraging investment, hindering job creation. Taming inflation is taking the South African Reserve Bank longer than anticipated, implying interest rates will likely remain higher for longer. This tough economic environment is expected to hurt the ANC’s performance in the May polls. What are the policy implications of the ANC losing its national majority? We do not expect a meaningful change in economic policy if the ruling party’s vote were to fall below 50% for the following reasons: - The main opposition parties’ policies are broadly aligned with that of the ruling party - The political party considered to be the most radical, the Economic Freedom Fighters, mainly differs with the ANC when it comes to implementation of policy - Parties that differ materially with the ANC on policy will likely fail to mobilize support in parliament to push through their agendas And if the ANC defies all the poll predictions and retains its majority? An outright majority for the ruling party could be an upside surprise for South Africa. The evasion of a coalition government would eliminate uncertainty and boost investor confidence. Nascent signs that the ANC’s ongoing reforms are beginning to bear fruit suggest that the current policy trajectory is working. Production in the energy-intensive mining sector surged in February, when power outages dropped and logistics constraints eased. Interest-rate cuts — expected in the second half of 2024 — will help stimulate demand from 2025. The Markets Take [Colleen Goko-Petzer](, Bloomberg’s emerging-markets reporter, writes about how investors are watching the election. Since South Africa’s last election in 2019, local assets have lagged their emerging peers. The rand has tumbled 25%, ranking alongside the Chilean peso, Russian ruble, Turkish lira and Argentine peso in a race for the wooden spoon of emerging currencies. The stock market reflects this slump, dealing investors a 4.4% loss in dollar terms. General sentiment has soured, evident in the plunge of foreign holdings in South African bonds from 40% to under 25%, and a $40 billion exodus from the nation’s stocks by non-residents. This decline aligns with broader emerging-market trends, but its depth is uniquely South African. Investors are fed up, a sentiment fueled by years of damaging infighting within the ANC, [corruption scandals]( and mismanagement of the energy sector — all of which has contributed to the stalling of economic growth and logistical crises that are choking export potential. While many investors have already voted with their feet when it comes to the ANC, those who remain are watching the election closely. In the short term, outcomes matter. Markets crave certainty, and the ANC being forced to govern with rival parties would unleash the very opposite, potentially triggering a selloff of South African assets. Conversely, a status quo outcome may spark a market rally. In the longer term, regardless of who takes power, optimism looms. As energy, logistics and other infrastructure challenges are tackled, South African economic growth may accelerate, offering businesses an opportunity to thrive. Forecasts point to the rand strengthening to 18.75 per dollar by year’s end, a glimmer of hope on the horizon. Corporate Stakes [Monique Vanek](, an editor on Bloomberg’s economy & government team in sub-Saharan Africa, looks at the impact on companies. South African corporates have been cautious in recent years about investing in an economy that’s misfiring. The cost of doing business is soaring because of almost daily power cuts, crime, failing ports and collapsing rail and water infrastructure. On top of all that are the constraints on consumer spending caused by widening inequality, one of the world’s worst unemployment rates, and high living costs. Companies’ cash holdings have risen by twice the rate of inflation since 2020. But the [government’s efforts to address]( the electricity and logistics crises have brought the economy to an inflection point that could result in a revival in investment. That will depend on the speed of reforms and the election outcome. “South Africa growing at 3% or 4% is a very different economy to South Africa growing at 1% to 1.5%,” Mike Brown, the outgoing head of Nedbank Group, one of South Africa’s biggest lenders, said in an interview. The biggest risk to corporates would be any dramatic policy changes that result from the election. If the ANC fails to obtain a national majority and goes into a coalition with the leftist EFF or Zuma’s uMkhonto weSizwe Party, that [may spook investors](. A leftist coalition would represent a missed opportunity for South Africa, said Kevin Lings, chief economist at Stanlib Asset Management, an investment manager with more than 650 billion rand ($33.9 billion) in assets under management. The degree of uncertainty it would create “can last for a chunk of time” as investors work out what it would mean for the economy, he said. More from Bloomberg - Listen to our [X space discussion]( at 9am ET on how South Africa is ripe for change ahead of elections next month - Check out our [Bloomberg Investigates]( film series about untold stories and unraveled mysteries - [Next Africa](, a twice-weekly newsletter on where the continent stands now — and where it’s headed - [Balance of Power]( for the latest political news and analysis from around the globe - [Washington Edition]( for exclusive coverage on how the worlds of money and politics intersect in the US capital - Explore all Bloomberg newsletters at [Bloomberg.com](. Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Want to sponsor this newsletter? [Get in touch here](. 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