Local Vote May Spur ANC Policy Turn on South African Economy

  • Investors underestimate policy risk: Nomura’s Attard Montalto
  • Smooth election will reassure markets, says Citadel’s Herman

South Africa’s most competitive elections since the end of white minority rule may force the ruling African National Congress to alter its economic course to address criticism that it’s not doing enough to tackle poverty or reduce a 27 percent unemployment rate.

Investors will probably welcome any slippage in the ANC’s dominance in Wednesday’s municipal elections because it could push the party to do more to attract investment and stoke an economy growing at the slowest rate since a 2009 recession, said Greg Katzenellenbogen, a director at Sanlam Private Investments.

“The rand could strengthen in the short term,” he said by phone from Johannesburg. “People may think that opposition gains will spur government to have a long hard look at themselves. It will appear that people are actually looking for some real change.”

The ANC’s main rival in the vote is the Democratic Alliance, which advocates overhauling labor laws to make it simpler to hire and fire workers and reducing red tape to make it easier to do business. The third-biggest party, the Economic Freedom Fighters, calls for the nationalization of land and banks.

An opinion poll released by research company Ipsos on Tuesday showed the ANC winning the total vote with 54 percent and losing its majorities in both Pretoria, the capital, and Johannesburg. The ANC has captured more than 60 percent of national support in all elections since the end of apartheid in 1994.

The poll of 3,142 eligible voters showed the ANC leading in Johannesburg by 46 percent to the DA’s 41 percent, by 47 percent to 43 percent for the DA in Pretoria and losing in the southern port city of Port Elizabeth by a 37 percent to 44 percent margin.

The ANC will probably try to halt defections to the EFF, rather than the DA, by increasing welfare benefits, introducing a wealth tax and setting a national minimum wage, said Peter Attard Montalto, an economist at Nomura Plc.

“The election doesn’t necessarily mean a new shift to the left per se, but instead an accelerated move down an existing path,” he said by phone from London. “Investors may be overlooking the risk that policy heads in the wrong direction and is ultimately destructive for jobs.”

Rand Rally

The rand has gained 11 percent against the dollar this year, the third-best performer of 24 emerging market currencies monitored by Bloomberg. The cost of insuring South Africa’s debt against non-payment for five years using credit-default swaps has fallen 90 basis points to 246. The currency, which has weakened about 40 percent against the dollar since Zuma took power in May 2009, was trading 0.4 percent weaker at 13.9773 per dollar as of 4:50 p.m. in Johannesburg.

The economy has struggled to gain traction since exiting a 2009 recession, as lackluster global growth eroded demand for exports and commodity prices fell. The economy shed 129,000 jobs in the second quarter. The central bank anticipates zero percent growth this year and the nation’s credit rating is at risk of being cut to junk by S&P Global Ratings in December.

The ANC says its surveys show it retaining control of the main centers, the Sunday Times reported, without saying where it go the information, while the DA says the race is neck-and-neck in Tshwane and Port Elizabeth. Broadcaster ANN7 said its surveys showed the ANC retaining control of Johannesburg, leading the race in Pretoria and trailing the DA in Port Elizabeth.

Change Needed

“Maybe if we vote for other parties, there’ll be some change that we’ll see,” said Nozizwe Ndlovu, a 35-year-old unemployed mother of three in the White City township in Soweto, southwest of Johannesburg.

The ANC has had a love-hate relationship with investors since taking power under Nelson Mandela 22 years ago. While the party says it wants to encourage private enterprise, the World Economic Forum ranks South Africa’s regulatory regime as the 117th most conducive to doing business out of 140 countries. Its recent policy proposals include the introduction of a minimum wage and forcing all new oil and gas ventures to cede a free stake to the state.

For a QuickTake explainer on the election and latest polls, click here

Some job seekers say the employment situation is so dire, they aren’t interested in the electoral process.

“I don’t want to vote, because you don’t see the benefits of voting,” said Lehlohonolo Makhanyi, a 23-year-old student on a law-enforcement course at George Tabor Technical College in Soweto. “I’m not even confident that I’ll be able to get a job when I finish my course because there are so many people who’ve spent more than four years looking for a job.”

Policy Impact

Wayne McCurrie, head of portfolio management at Momentum Wealth in Pretoria, is among those who doesn’t expect the elections to have a major bearing on policy.

“As far as overseas investments are concerned, or as far as the economy is concerned, it is only the national elections that carries real relevance,” he said by phone. “Even if the ANC does badly in this municipal election in comparison to how they’ve done before, I don’t think anyone is going to start speculating that they might be in the minority after the next national election.

Investors and ratings companies are more concerned about the country’s growth challenges than about the elections and its possible policy implications, according to George Herman, head of investment at Citadel Investment Services.

“The financial markets will reward South Africa for an effective democratic process,” he said by phone from Johannesburg. “Should we have major unrest or social turmoil, that would be very negative, but I think the chances of that are very small.”

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