Governing party failure to get a majority at the polls could result in a coalition that is unfriendly to investment, economist warns.
For investors the most unsettling scenario of all possible outcomes of the 2019 national elections would be a coalition between the ANC and the EFF.
This is according to Standard Bank chief economist Goolam Ballim.
He was speaking at a media event where he presented his views on the outlook for the economy ahead of the 2019 national elections on May 8.
“If the ANC falls below a 48% threshold, it would push it into the arms of the more sizable opposition in order to forge a majority government.
“It would be unlikely that the ANC could find easy bedfellows within the DA and, to the extent that a coalition would be necessary, it’s more likely to be with the EFF. That would shift South Africa’s political centre to the left,” he said.
“We think a coalition of that nature would not be smooth for investors or for risk taking. A coalition of that kind will leave investors unsettled and unsure of the policy trajectory. Some may say this would shackle President Cyril Ramaphosa’s hands, [preventing him] from being able to implement a more bold type of reform agenda,” Ballim said.
“These are the most significant elections since 1994 because there is a very strong possibility that we will see opposition party elevation, especially of the EFF,” he said.
The EFF was likely to increase its share of the vote beyond the 6.5% that it got in the 2014 national elections, Ballim said.
“The political environment is dominant when it comes to business calculations about whether to invest and grow franchises.
“Since 2012, the political climate has been the dominant theme shaping investor choices.”
Ballim’s presentation last week was made against the backdrop of the fact that the South African economy has been lagging the world economy as well as most emerging markets for years.
He said that in the first half of 2019, the South African economy was forecast to be in a stasis “wait-and-see” mode with very little new spending.
“We think the economy will grow less than 1% in the first half of this year,” he said.
In the second half of 2019, growth could be 1.5% and for the whole of 2019 Standard Bank is projecting growth of 1.3%.
“The more successful the DA is at a national level – and as a consequence suppressing the ANC – the more it can force the ANC into the arms of the EFF.
“If the ANC falls below 50%, that would render President Ramaphosa vulnerable. Any party leader who can’t deliver a majority outcome at a national level will certainly be vulnerable to the party considering a recall.”
However, Ballim said that there was a low probability of a national coalition.
On the other hand, he said, the upcoming national elections would be a critical matter resulting in seismic economic consequences. The outcome would set South Africa on a high road or lead to the country slipping into malaise or a low road.
“We struggle to see middle ground. We struggle to see a scenario where South Africa emerges with a political balance that delivers a middle ground of gentle appreciating economic growth.”
Ballim warned that if Ramaphosa achieved a “sizable majority” for the ANC but was unable to revive the economy, the appeal of populism – which appeals to ordinary people who feel that their concerns are disregarded by established elite groups – would grow in South Africa.
“We think that populism will be a further opportunity for parties like the EFF to grow in the forthcoming elections. Political success coupled with economic failure would continue to stoke the flames of populism,” Ballim said.
“If Cyril Ramaphosa succeeds in both those dual ambitions, delivering a majority outcome as well as creating a situation that engenders growth, inviting private-sector investment to unleash money and resuscitating the economy, we think that will have a greater likelihood of emboldening the centre.
“These elections will shape the prospective economic performance.
“There are a few swing factors that are going to materially shape the elections on May 8.
“For a start, we estimate that 3.3 million ANC voters abstained at the last local elections in protest. We haven’t seen evidence yet of them being drawn to the party under the leadership of Cyril Ramaphosa.
“If we judge the nearly 60 by-elections that have taken place over the last year, there hasn’t been an overwhelming shift towards the ANC under its new leadership just yet.”
Another driver of voting patterns in the elections will be the born-frees, or people born after 1994, when South Africa had its first democratic elections.
“We estimate that they will account for one fifth of the voter population – roughly a threefold rise in their numbers from the previous general election.
“It does appear that young people are enamoured of the EFF’s imagery: the charm of its leader, its anti-establishment credentials and its disruptive mould.”
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