The EFF may demand that its candidates take “key economic cluster” ministries and the post of speaker of the National Assembly. It may also push for a halt or reversal of the liberalisation of the energy sector, and the rand could hit R21.50 to the dollar if the ANC were forced to enter a coalition with the “red berets’’, says Oxford Economics Africa.
The research firm has published the second of its four post-election scenarios, modelling the economic impact of an outcome in which the ANC’s share of the vote falls to 40% and it opts to form a coalition with the EFF. This is widely regarded in the market as a worst-case scenario for the economy.
But while investors, particularly those from abroad, are concerned about worst-case election outcomes, a new political risk barometer from Goldman Sachs suggests their level of worry is not as high as it was in the wake of the Zuma administration’s “Nenegate” machinations in 2015-16. Nhlanhla Nene was removed as finance minister in December 2015.
In a new report last week, Goldman Sachs economist Andrew Matheny said markets were pricing in close to the highest level of SA political risk in 18 months — similar to the level of risk at the time of “farmgate” (Phala Phala) in December 2022 and the “Lady R” allegations in May 2023.
However, political risk was still well below the levels in the aftermath of Nenegate in 2016.
“Political risk is moderately elevated relative to its 10-year history,” he said.
Market participants remain divided over how much of a decline in support the ANC is likely to suffer. “Local observers appear to be more sanguine on the ANC’s prospects than their offshore counterparts and generally expect the ANC to outperform the latest polling considerably,” said Matheny.
Local expectations appeared to assume an effective get-out-the-vote campaign from the ANC, as has happened in the past, as well as some decline in support for the MK party, he said, noting that the ANC had outperformed the pre-2019 election polls by several percentage points.
Market participants also tended to think the ANC was more likely to form a coalition with the DA or a government of national unity that included the IFP if the governing party’s share of the vote fell sharply to 40%, Matheny said.
The economists’ reports come after the recent Ipsos poll put the ANC at 40% and the EFF, led by Julius Malema, sliding to 11.5% — not far above its share of the vote in 2019 — from its 19.6% showing in an Ipsos poll in February. MK came in with 8.4%. It is unclear what turnout Ipsos assumed.
Oxford’s ANC-EFF scenario assumes the ANC gets 40% of the vote and chooses the EFF, which gets 18%, over the DA to form a national coalition. In this scenario the DA loses the Western Cape, which also goes to an ANC-EFF coalition, as do KwaZulu-Natal and Gauteng.
Similar to Ekurhuleni, where the two parties co-govern, in this scenario the ANC gets the top job of president, but the EFF gets the speaker and other key posts. The ministries of mineral resources & energy, transport, and land reform & rural development could be key vehicles for driving the kind of reforms the EFF demands, Oxford Economics Africa senior political analyst Louw Nel says in the report.
In energy, liberalisation could be reversed, as could moves to unbundle Eskom, while independent power producer deals would be subjected to fresh scrutiny. Government departments would be leveraged to create more jobs, and the creation of a state bank prioritised.
“Hostility towards the private sector increases, with some industries being targeted and scapegoated,” says Nel.
Economic impact
Oxford’s ANC-EFF scenario seems to have a surprisingly moderate impact on the economic growth rate, which it sees at 1.2% this year instead of its 1.4% baseline, and 1.3% next year instead of 1.6%. But it has a dramatic effect on the currency, which could hit R21.50/$ in the third quarter. It would trade at R20.10 by end-2024 — compared with the firm’s baseline of R19 — and stay at that level.
This would drive up fuel prices and inflation, which would settle at about 6%, with interest rates settling higher. Government debt would breach 80% of GDP by 2027.
“Further credit rating downgrades start to come through over the medium term,” says Nel, who also points to rising political regime risk given the ANC and EFF’s muddled history and infighting in local government.
Goldman Sachs’ estimated range for the exchange is R17.92/$ to R20.31/$, but this could be worse in a “negative tail risk scenario”.
Matheny’s report notes that political risk in SA had historically been low and stable relative to emerging-market peers — reflecting strong institutions, including central bank independence, credible fiscal policy and the rule of law.
Coalition politics could inject a new form of political risk into the political equation in the event of the ANC falling below 50%.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.