ANC Win Keeps Market Pressing for Progress: South Africa

A fifth election victory for the African National Congress in South Africa is failing to assuage investor concern over what progress the government will make in tackling labor unrest and joblessness.

The rand weakened and bond yields were little changed on May 9, a pause in a two-week rally, as results showed the ruling ANC won 62.2 percent of last week’s vote. Yields on bonds due in December 2026 tumbled 33 basis points this month, the second-biggest drop among 23 major emerging markets monitored by Bloomberg.

The ANC’s ability to maintain its support above 60 percent and fend off challenges from parties seeking more radical change, such as the nationalization of mines, was a temporary boost to investor sentiment. Less clear is whether the government can implement plans to reduce a 25 percent jobless rate and end the nation’s longest mining strike, said Viktor Szabo, a money manager at London-based Aberdeen Asset Management.

“This leadership is not able to do all these fundamental reforms, especially on the labor market, which will be necessary for South Africa to improve its potential growth rate,” Szabo, said by phone on May 9. “It’s unfortunate, but on the other hand we avoided any negative surprises.”

The largest opposition party, the Democratic Alliance led by Helen Zille, increased its support to 22.2 percent from 17 percent five years ago. The Economic Freedom Fighters, created seven months ago by expelled ANC youth leader Julius Malema, who campaigned to nationalize mines and banks, got 6.4 percent.

Platinum Strike

A strike at the world’s largest platinum mining companies that began in January has cost the industry 17.1 billion rand ($1.6 billion) in lost revenue and 7.6 billion rand in earnings for mineworkers. That threatens to undermine economic growth and boost unemployment. The central bank is forecasting expansion of 2.6 percent this year, up from 1.9 percent in 2013.

The three main credit-rating companies downgraded South Africa’s debt between September 2012 and January 2013, concerned that labor unrest and widening budget and current-account deficits made the economy more vulnerable to portfolio outflows. A better outlook rests on implementation of the government’s National Development Plan, a program that aims to boost growth to 5.4 percent and reduce unemployment to 14 percent by 2020, they said.

Reform Push

“After the election they’ll have some more opportunity to push through reforms and the National Development Plan, but generally I am not sure they will necessarily cure the issues which are longstanding, like the strikes and the problems in the mining sector,” Ravi Bhatia, director of sovereign ratings at Standard & Poor’s, said by phone from London on May 8.

The ANC’s decisive election win will give investors policy certainty, Bhatia said. Citigroup Inc. said in a report in January that a slump in support for the ruling party below 60 percent may trigger a “populist push” within the ANC.

The rand strengthened 0.1 percent to 10.3395 per dollar by 1:05 p.m. in Johannesburg after reaching a five-month high of 10.3128 on May 8. The yield on South African government bonds due December 2026 rose two basis points to 8.14 percent.

Foreigners bought 3.77 billion rand of local bonds on May 8, the most for a day in 10 months, data from the bond market operator showed.

Investors will now focus on President Jacob Zuma’s next cabinet to give an indication of policy direction, said Vivienne Taberer, who helps manage the equivalent of more than $14 billion in fixed-income assets at Investec Asset Management in Cape Town.

“It’s only once we start seeing which minister they’ve placed in which key portfolio that you’ll actually have a clearer idea of how committed the government is to actually implementing the National Development Plan and clamping down on things like corruption,” she said by phone on May 9. “So far there have been a few tentative signs in the right direction.”

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