Heightened risk of social unrest in South Africa

South Africa’s high inequality and social polarisation elevate the country’s risk of protests and unrest, and the upcoming elections have heightened South Africa’s political regime risk.

This is according to Oxford Economics’ senior political analyst, Louw Nel, who published the organisation’s first of four scenarios for South Africa’s general election on 29 May this year.

In the first scenario outcome – the so-called “ANC & friends” scenario – the ANC loses power but is close enough to the 50% threshold to have the upper hand in coalition negotiations. 

The ANC aligns with the IFP, the Patriotic Alliance, Al-Jama’ah, and some minor parties that are leftist and Africanist.

In this scenario, Nel said the government will not deviate from the ANC’s own policy stance.

In addition, should the ANC form a coalition with minor political parties, South Africa’s political-economic risk profile will remain relatively unchanged from the current or pre-election baseline.

“South Africa is one of the most unequal societies in the world, suffering from high unemployment, inequality, and crime,” he said.

Nel explained that the country’s welfare grant recipients, of which it has 18.4 million, far outstrip income taxpayers, of which there are 7 million. This represents a risk to the country’s fiscus and social cohesion. 

This was seen in the violent unrest in KwaZulu-Natal and Gauteng in 2021, sparked by political developments and desperate socio-economic conditions.

This unrest was a stark reminder that a rapid deterioration in the country’s security environment remains an ever-present risk.

Similarly, high inequality and social polarisation elevate the risk of protests and unrest, with South Africa’s political violence risks being above the median in Africa. 

However, Nel said corruption and the quality of rule and law risks are muted compared to the rest of Africa but remain higher than Botswana, Mauritius, and Morocco. 

Still, South Africa’s business and operational environment compares favourably to the rest of the continent and should remain relatively similar should the ANC stay in power in a coalition government.

Nel said muted inflation, soft consumer demand, a diversified economy, and orthodox monetary policies keep market risks relatively low compared to the rest of Africa. 

“Still, persistent budget deficits, high grant spending, and a relatively small tax base remain concerning in terms of financial capacity risk,” he said.

In addition, the most significant change to Oxford Economics’ current baseline is South Africa’s political regime risk, which has risen. 

“The ANC could find it more difficult to pass legislation without an outright majority,” Nel said. 

“It would need to compromise more often with its coalition partners and risks being removed from government should its coalition partners defect.”