South African political uncertainty hits economy
Businesses hold off investment as bitter divisions rack ANC.
Kutlo Marumo, the man who makes President Jacob Zuma’s trademark leather jackets, emblazoned with the black, green and gold insignia of the African National Congress, should be doing a roaring trade.
South Africa’s ruling party is gearing up for a five-yearly conference where thousands of delegates will elect a new leadership and the jackets are a favourite of ANC members. But even Mr Marumo is feeling the pinch as a string of political and corruption scandals have battered confidence in Africa’s most industrialised economy, plunging it into its second recession in a decade.
“If there is hype in the movement, business picks up,” he says at his shop in downtown Johannesburg, complaining that sales have fallen far short of his expectations. “But this year, things are slow. It’s the political unrest.”
He is referring to bitter divisions in the ANC that have erupted over a stream of corruption allegations surrounding Mr Zuma — who narrowly survived a no-confidence vote this week — and his allies, particularly the Gupta family who are accused of using their links to the president to influence political appointments and win state contracts.
The political ructions threaten the ANC’s 23-year grip on power and are hitting the economy as wary businesses hold back investment.
“Corruption has played out in technicolour . . . a lot of people in business are shell-shocked by what’s happening,” says Magda Wierzycka, chief executive of Sygnia, a fund manager based in Cape Town and Johannesburg. “No one is investing in South Africa as a long-term investment destination.”
The University of Johannesburg’s Centre for Competition, Regulation and Economic Development estimates that the top 50 companies listed on the Johannesburg stock market are sitting on 1.4tn rand ($105bn) of cash — nearly six times the amount in 2005, as the investment strike takes hold.
The economy has been struggling for several years as its important mining sector was hit by low commodity prices and labour unrest. The country has also been blighted by an electricity crisis and weakening consumer and investor confidence.
Growth “has been on a downward trend for the last five years — you’ve seen this gradual deceleration of the economy,” says David Faulkner, HSBC’s South Africa economist. “From last year into this year, you’ve had concerns about politics, political risk and policy uncertainty leading to very low confidence.”
The power shortage has ended, but last year, Eskom, the state utility, sold less electricity than it did over a decade ago as demand from industry has shrunk. The company has also been caught up in the allegations swirling around the Gupta family, as leaked emails have added to the sense of malaise. The Guptas, whose business empire stretches from mining to media, and Mr Zuma deny any wrong doing.
South Africa’s miners should have benefited from an uptick in metal prices but the sector has been plagued by uncertainty triggered by the government’s contentious plans to change mining regulations.
Even Mr Zuma, who often blames the country’s economic woes on global problems, acknowledges that the economy is “under duress” and will expand only half a percentage point in 2017. It shrank 0.7 per cent in the first three months — its second consecutive quarterly contraction.
Absa bank’s purchasing mangers’ index, a measure of the state of manufacturing, slipped to 42.9 last month — its worst level since a 2009 recession.
The problems are being felt across the economy, with job cuts accelerating in several sectors, driving unemployment to a 13-year high of more than 27 per cent, a figure that doubles for youth joblessness.
Pick n Pay, one of the country’s largest supermarket chains, is shedding a tenth of its 35,000 workforce. Thousands of mining jobs are also being lost, with Sibanye Gold and AngloGold Ashanti, recently announcing nearly 16,000 posts being cut between them.
“Private investment has contracted heavily and that has pulled down overall investment,” Mr Faulkner says. “You have also seen consumer spending contract at the start of 2017 . . . disposable incomes are getting squeezed.”
The economic woes, particularly the lack of job opportunities, risk exacerbating frustrations over the gaping inequalities and widespread poverty still blighting the country nearly a quarter of a century after the ANC took power at the first democratic election.
Neva Makgetla, an economist at the Pretoria-based Trade & Industrial Policy Strategies think-tank, says the problem of inequality — where the richest tenth of households, which are predominantly white, control about nine-tenths of the wealth — “means that policies are continually contested,” she says.
“Investors are uncertain because of the consistent threats to ownership and licence to operate,” Ms Makgetla says, while unions and other groups are wary of working with business to prioritise growth “since they feel they don’t get a fair share of the benefits”.
“The inequality gap, providing free quality education — these are debates we should be having,” says Ms Wierzycka. “But right now, political discourse is all about corruption.”