Social unrest threatens South African economy ahead of next year’s elections

It will become increasingly important to consider the impact of unrest on South Africa’s economy in the run-up to next year’s national elections.

This is according to RMB chief economist and head of research Isaah Mhlanga in the RMB/BER Business Confidence Index from last week.

“Looking ahead, it will become increasingly important to also consider the impact of unrest, such as recently seen in the Western Cape, on South Africa’s economic fortunes in the run-up to the national elections next year.”

Mhlanga was referring to the Minibus taxi driver strike in Cape Town in August. The drivers demonstrated against the authorities’ decision to impound taxis that weren’t roadworthy or whose owners hadn’t paid traffic fines.

The dispute swiftly turned violent, with protesters barricading roads, setting buses alight and stoning privately owned cars.

Five people died in strike-related violence, including a 40-year-old British doctor on holiday with family members in the country’s tourist hub.

At least 120 people were detained in connection with other protest-related crimes.

The strike, which took place over eight days, will cost the local economy billions of rands. However, more severe costs will be felt in the future due to the perception of the Western Cape being tarnished.

In the RMB/BER Business Confidence Index from last week, Mhlanga said the Western Cape taxi strike weighed on activity in the region in August, with many respondents citing the unrest in their responses.

“There is no doubt that this had a detrimental effect on the economy in the third
quarter of 2023,” he said.

“While some sectors were likely more affected than others, respondents lamented the lack of production due to staff shortages as well as the cost of having to repair damages.”

A rock and a hard place

The National Treasury recently announced it could face a massive budget deficit following lower-than-budgeted tax revenue and excessive government spending.

This could force the government to implement severe cost-cutting measures, including reneging on a public sector wage agreement and, in an extreme case, cutting social services like the R350 Social Relief of Distress Grant.

South Africa’s largest labour union federation, Cosatu, has already threatened to go on strike if the government backs such proposed austerity measures.

In the coming weeks, the National Treasury will present President Cyril Ramaphosa with a cost-saving plan to help tackle the country’s revenue shortfall and budget deficit.

Options include increasing taxes and slashing the number of government departments and state-owned enterprises. The alternative is issuing more debt – a prospect that’s hit South African bonds in recent days.

“We think the Treasury proposals on a freeze on vacancies, reducing the headcount, cutting departments, cutting programs, is going to collapse the capacity of the state,” said Cosatu spokesman Matthew Parks.

Centre For Risk Analysis Chris Hattingh recently said the government’s severe budget shortfall could force it to make drastic decisions.

“When your debt burden, as well as the interest on your debts, gets ever higher and higher, you then need to make some very pragmatic, difficult decisions in terms of your spending,” he said.

“And that, in turn, could mean a cut to services upon which so many South Africans depend.”

He warned that this could lead to increased social unrest and frustration with the current status quo.

Hattingh said the government is being pulled in two different directions, as it faces a massive budget shortfall on the one side and an upcoming election year on the other.

The government faces a lot of pressure to secure funding for the rest of the year, so they may have to resort to “radical moves”.

“You’ve got the tax base under a lot of pressure, but also you’ve got the context of an election and promises around things like National Health Insurance, a Basic Income Grant and other forms of spending,” he said.

“Where is the balance going to come from if there is going to be a balance?”