South African politics and the economy: where do we stand and where are we headed?

Under the Zuma administration, political accountability was destroyed. Many critical state institutions faltered. Corruption undermined SA’s democracy, leading to the destruction of the economy, the mismanagement of state resources and higher levels of poverty and inequality.

The State Capacity Research Project, in a report titled Betrayal of the Promise: How South Africa Is being Stolen, highlighted how a powerful elite captured key state institutions and repurposed them for its own benefit in ways that subverted the legal and constitutional framework, rendering these institutions incapable of executing their societal responsibilities.

Nevertheless, the Centre for Development and Enterprise argues that SA remains one of a handful of countries in Africa that can be considered a true liberal democracy, boasting a “strong free press, an independent judiciary and a tradition of civil society activism to hold leaders to account”.

Since the market-favourable outcome of the national conference of the African National Congress (ANC) in December 2017, there has been a renewed focus on national issues instead of party politics. However, as much as the traditionalist faction within the ANC is associated with corruption and state capture, it still represents a strong ideological undercurrent that could cause the ruling party to splinter along factional fault lines and hurt its showing in the 2019 national elections.

The party that President Cyril Ramaphosa has inherited still reflects the legacy of the Zuma era, and certain segments may try to block his progress in broadening the policy debate beyond the myopic politics of the ruling party itself. A tightly contested race for party president resulted in a narrow victory for Ramaphosa and a mixed-slate leadership, forcing him to tread the path to economic renewal carefully.

Since December 2017, Ramaphosa has started to shift the narrative and ushered in an era of greater cooperation between the government, business, labour and civil society, to cultivate greater inclusivity in SA’s policymaking environment. A more market-friendly approach and a change in attitude regarding corruption and maladministration has comforted consumers, businesses and investors alike. In December 2017, Ramaphosa concluded that “a restoration of confidence is the quickest and cheapest form of stimulus available, especially in light of our fiscal constraints”.    

The rating agencies have noted “significant growth potential for the country”, but admit the new administration will require time to improve economic growth, accelerate employment and stabilise the fiscal position, given the country’s structural weaknesses.

Average growth in SA’s per capita gross domestic product (GDP) has ranked poorly against its emerging-market peers for the past decade. Nonetheless, healthy global demand should churn out higher export growth in SA, while a revival in consumer and business sentiment is likely to boost consumption and investment spend in the domestic economy, allowing for better employment prospects and a higher revenue stream. The latter, coupled with significant cuts to expenditure and better governance at SA’s ailing parastatals, should promote fiscal consolidation and debt sustainability in the medium term.

That said, restoring SA’s long-term trend growth rate of 3% still depends on whether Ramaphosa will be able to resolve the different views within the ANC on reigniting growth in the long run and fostering social cohesion through deep-seated reform and market-friendly policies.

As such, Momentum Investments still sees trend growth closer to 2% - considerably weaker than the 5.4% per year projected in the National Development Plan for the period 2011–30, intended to create 11-million jobs.