ANC poll losses could see economic reforms put on the back burner

Johannesburg – International market forces have started weighing in on the outcome of the recently concluded elections, with the Washington-based Institute of International Finance (IIF) warning that the heavy losses suffered by the ANC will delay the implementation of reforms.

IIF members include commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks, and development banks. Losses in recent local elections may lead to delays of critical fiscal adjustment steps.

Benjamin Hilgenstock, an economist at IIF, said the recent elections would have an impact on how the country governs going forward.

“The party suffered major losses in the November 1 local government elections, which will likely weaken President [Cyril] Ramaphosa’s standing within the ANC, raising questions about his ability to secure another term as ANC president at the party’s elective conference in December 2022,” Hilgenstock said.

“The disappointing outcome for the ANC makes it more likely that the government will delay unpopular decisions such as cuts to transfers and the wage bill, and may not reject further state-owned entities bailouts, which would have aimed to ease investors’ concerns over public debt sustainability.”

A number of the country’s economic centres, the City of Johannesburg, the automotive hub of Nelson Mandela Bay, and the capital city Tshwane still do not have new political leadership in place as political parties continue coalitions talks.

The South African Reserve Bank on Thursday gave a gloomy economic outlook going into 2022. While the central bank expects annual gross domestic product growth of 5.3% in 2021, it has sharply lowered its 2022 projection, from 2.3% to 1.7%, and 2023 from 2.4% to 1.8%.

A persistent problem in the economy has been the erratic power supply by Eskom. In an interview with Sunday World, Toby Iles, the director in Fitch Ratings’ sovereign team, said gradual economic normalisation following the worst of the Covid shock in 2020 and higher commodity prices were supporting growth in South Africa.

“However, electricity shortages remain a key constraint on growth, together with tight public finances. We expect medium-term growth to remain low at less than 2%, complicating fiscal consolidation.

“This assumes some easing of electricity supply constraints, given substantial progress on enlisting independent power producers to add to capacity at scale.”

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