Nedbank is the latest financial institution to raise concern about South Africa’s policy stability, with the 2024 national elections possibly resulting in the ANC losing its majority, ushering in a new era of politics in the country.
This was revealed in the bank’s Guide to the Economy for January 2024, where senior economist Johannes Khosa outlined Nedbank’s expectations for the local economy.
Khosa said the election’s main impact will be heightened levels of policy uncertainty, which will scare off foreign investors and result in high levels of market volatility.
South Africa’s economic growth experienced a setback in the third quarter, contracting by 0.2% on a quarter-on-quarter basis.
This follows moderate expansions of 0.4% and 0.5% in the preceding two quarters, highlighting the impact of subdued domestic demand and persistent structural issues.
Domestically, the slowdown became more widespread, with key producers significantly reducing output and utilising inventories to maintain exports in the face of ongoing power outages and logistical bottlenecks.
Consumer confidence and spending weakened considerably due to declining real disposable income, persistent inflation, and rising interest rates.
Household consumption expenditure, over 60% of GDP, contracted for the second consecutive quarter due to further reduced personal disposable income.
“Personal disposable income has contracted for three consecutive quarters, reflecting the detrimental effects of elevated inflation, notably high food prices,” said Khosa.
The deterioration in economic performance is expected to have dire consequences for the ANC as voters lose confidence in its ability to improve their standard of living.
“There are growing speculations that the ruling ANC could lose its outright majority and potentially be forced to form a coalition government with another party,” Khosa said.
“A coalition with a left-wing party could result in unfavourable changes in policy direction.”
“There are direct ties between living standards and the behaviour of ANC voters,” the head of the Social Research Foundation, Dr Frans Cronje, told a Foord Asset Management webinar.
“The ANC in its first decade in power does much better at restoring economic stability and raising living standards than it was ever given credit for,” he said.
“You will continue to read, including in the business press, that the ANC has presided over an era of service delivery failure, and that is plainly wrong on the facts of it.”
Cronje said there was a large and rapid increase in the basic living standards of many South Africans during the first decade of ANC rule.
The share of households without electricity declined sharply from 49% in 1996 to 19% in 2006, while the number of people employed nearly doubled from 7.48 million to 14.5 million.
Another improvement for many South Africans was the rapid growth of the state’s welfare system, as the number of people receiving social grants shot up from 2.4 million in 1996 to 14.9 million in 2010.
Over the same period, the ANC’s support in national elections grew from 62.7% to 69.7% in 2004, moderating to 65.9% in 2009.
This trend stagnated as President Zuma came to power in 2009, and by the end of his tenure in 2018, living standards had begun to decline.
For example, over the last decade, the number of employed South Africans has declined slightly while the population has continued to grow.
Furthermore, the share of households without electricity has also grown over the last decade.
“When those indicators began to stagnate and later, in some aspects, fall away, voters lost confidence in the ANC,” Cronje said.
“ANC voters are motivated by one thing only, and that is the material circumstances they live with, and that will remain the most dominant driver of voter support.”
However, this does not mean the ANC’s electoral support is going to collapse in 2024.
“At a national level, the ANC will cobble together a government that will see them remain in power for five more years. That might not be a bad thing,” Cronje said.
“But, once people start thinking beyond the ANC and what happens after the ANC, that is really the moment you start thinking of outright defeat.”