South African instability warning

An ANC-EFF coalition could heighten South Africa’s political-economic risk profile, raising the risk of corruption, unrest, and an unstable operational environment.

This is according to research from Oxford Economics, which \revealed the second of its four scenarios for South Africa’s general election on 29 May.

In this scenario, the ANC’s share of the vote drops to 40%, meaning an arrangement with smaller parties is not enough to give it a legislative majority. 

Therefore, the current ruling party must make a deal with one of the two main opposition parties – the EFF or the DA – and chooses the EFF. 

The ANC-EFF coalition has over 230 seats in the National Assembly and is free to appoint the president and government that the member parties agree on.

In the scenario, the ANC votes for the EFF’s choice of Parliament Speaker in return for the Fighters’ vote for President Cyril Ramaphosa to serve – or, at least, start – a second full term as president. 

The “radicals in the red berets” demand and obtain positions in the economic cluster to advance their agenda of using the state to drive development and create jobs.

The ANC-EFF coalition also rules in Gauteng and KZN, while in the Western Cape, the coalition and other smaller parties oust the DA.

The EFF would likely leave most governance to the ANC but prioritises a few policies in alignment with the more statist faction within the liberation movement. 

Oxford Economics senior political analyst Louw Nel said South Africa’s political-economic risk profile deteriorates in this scenario compared to the organisation’s baseline. 

The lack of inclusive growth remains the country’s most significant risk factor, with weak economic growth, high inequality, and unemployment straining the economic policy environment. 

The ANC-EFF coalition government struggles to rejuvenate the economy and sustainably create jobs. 

While public sector jobs might expand, the private sector will likely find it difficult to operate, and inclusive economic and job growth could remain elusive. 

Similarly, market risks would increase due to rising inflation, threats to the South African Reserve Bank’s independence, and sub-par economic growth. 

Financial capacity risks rise would also rise under this scenario. 

Widening budget deficits, short-term and consumption-driven government spending and more borrowing could worsen fiscal capacity concerns, which would mount in the medium term. 

However, political regime risk is the risk pillar that increases most significantly from Oxford Economics’ baseline. 

This deterioration is due to the muddied coalition history between the ANC and EFF in local government, characterised by infighting, policy gridlock, and instability. 

Should the national government mirror local governments where the ANC and EFF govern, frequent votes of no confidence, government collapses, and unprecedented policy uncertainty would grip the nation and hamstring the economy. 

While political violence, polarisation, and protests would rise under an ANC-EFF coalition, the difference is small compared to our baseline. 

Corruption and threats to the rule of law, however, would mount once the EFF joins the ANC in government.

Another significant change to the organisation’s baseline scenario is the marked deterioration in South Africa’s operational environment. 

Businesses would find it increasingly difficult to work with an ANC-EFF government, with land expropriation fears, anti-competitive practices, and state interferences in the private sector underscoring the high risks in this scenario. 

Capital flight and a worsening brain drain could further squeeze business and slow the job creation rate in South Africa.