Zuma Faces Confidence Challenge After Mediocre First TermRene Vollgraaff
As South African President Jacob Zuma heads for a second term in office after the May 7 election, he faces the challenge of restoring investor confidence to help strengthen a currency that’s slumped 15 percent against the dollar in the past year.
In his first term, Zuma, 72, oversaw an economy that’s struggled to gain traction from a recession, with government debt that’s worsened and a jobless rate that hasn’t budged from 24 percent.
Key to boosting confidence is implementing a 20-year economic plan that seeks to bolster growth, balancing fiscal pressures as the government expands social welfare grants and curbing labor tensions.
“If South Africa doesn’t address some of these concerns and starts to move the economic environment in a better direction, then the implication is that foreign investor confidence still languishes, you struggle to attract the investment you need and you put the currency potentially at risk,” Kevin Lings, an economist at Stanlib Asset Management in Johannesburg, said by phone on April 30.
Even with his mediocre track record, Zuma’s ruling African National Congress is set to win more than 60 percent of the votes in next week’s election, according to three recent opinion polls.
The 102-year-old ANC enjoys loyal support from black voters as the liberation party that ended white minority rule in 1994, benefits from a weak and fractious opposition and pays child, old-age and other welfare benefits to about a third of the population.
An ANC majority means “we’re going to have another five years of muddling through,” Jannie Rossouw, head of the school of economic and business science at the University of Witwatersrand in Johannesburg, said by phone. A stronger challenge from parties such as Economic Freedom Fighters, which is led by expelled ANC Youth League leader Julius Malema and pledges to nationalize mines and banks, may see the ANC abandon some of its investor-friendly policies, he said.
Gordhan said in an interview with Bloomberg TV Africa on April 29 that an ANC majority allows the government to provide policy certainty and stability, though more needs to be done to boost the participation of black people in the economy.
“In 20 years we have done phenomenal things as South Africans, probably in many instances in the quickest time ever in history, but there are still legacies of apartheid which we all wanted to deny,” he said.
The rand weakened 0.3 percent to 10.5163 per dollar as of 11:28 a.m. in Johannesburg.
Delays in implementing the National Development Plan, the government’s program to cut the jobless rate to 14 percent by 2020, and a lack of action in dealing with a deteriorating labor environment are among the state’s main failings in the past five years, economists said.
“The economic performance has been pretty dismal,” Johann Els, an economist at Cape Town-based Old Mutual Investment Group, said on April 15 in Johannesburg. “Certainly the implementation side in the Zuma years was not what it should have been.”
Labor turmoil reached its peak point in August 2012, when police opened fire on a crowd of striking workers at Lonmin Plc’s Marikana mine, killing 34 people. Almost two years later, no one has been held responsible for the deaths, with a commission of inquiry yet to complete its work.
The number of strikes increased to 99 in 2012 from 51 in 2009, according to data from the Department of Labor. Lonmin workers are among more than 70,000 at the world’s biggest platinum mines that have been on strike since Jan. 23 over pay.
“Not only are there more strikes, they are longer, they’re generally more disruptive and therefore they undermine productivity more acutely that they would have prior to that,” Nicky Weimar, an economist at Nedbank Ltd. in Johannesburg, said by phone on April 14.
While slower economic growth worsened by strikes led credit-rating companies to downgrade South Africa’s debt for the first time since the end of apartheid in 1994, the stock and bond markets have rallied in the past five years as looser monetary policy in the U.S. and Europe prompted investors to seek higher-yielding assets in emerging markets.
Investors have increased holdings in companies such as Shoprite Holdings Ltd., the nation’s largest grocer, to get exposure to faster-growing markets in the rest of Africa as demand in the local market stalled. The benchmark stock index surged 138 percent in the past five years, compared with a 55 percent gain in the MSCI Emerging Markets Index.
While the ANC-led government failed to meet its 2009 election promise to halve the jobless rate by 2014, employment in the civil service has soared, straining the budget. Jobs in the community and social services industries, which includes the government, increased 22.4 percent since 2009, according to data from the statistics agency.
The budget deficit is set to reach 4 percent of GDP in the year through March, compared with 1.2 percent in the 2009 fiscal year, increasing the state’s debt burden. The economy, which has dropped to second-biggest in Africa after Nigeria, is forecast by the central bank to expand 2.6 percent this year, up from 1.9 percent in 2013.
While the government boosted spending to help offset slower economic growth, “what we are less clear on, is the sustainability of this, given that South Africa still seems to be stuck in a place of incredibly weak growth and given the very rapid deterioration in its debt ratios,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said by phone on April 22.