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Sanisha Packirisamy | SA's political shifts and economic challenges in 2024

 

Sanisha Packirisamy | SA's political shifts and economic challenges in 2024
17-04-24 / Sanisha Packrisamy

Sanisha Packirisamy | SA's political shifts and economic challenges in 2024

South Africa's upcoming general elections on 29 May hold the potential to be a watershed moment for the country. Polls currently paint a precarious picture for the ANC, the nation's dominant party since the end of Apartheid in 1994. The prospect of the ANC falling below 50% of the vote for the first time is a stark reflection of growing public disillusionment. Deteriorating service delivery, crippling infrastructure woes, and a perceived lack of progress in tackling corruption have all eroded trust in the ruling party.

This potential shift could usher in a multi-party governing landscape, a historic first for South Africa. While progress towards democratic pluralism is a positive development, concerns linger. Coalitions have a checkered past at a local level, with many major urban centres experiencing ineffective governance since 2016.

The opposition party landscape is experiencing a surge, with over 350 parties registering for the elections. Many are led by former political figures who have defected from established parties, aiming to capitalise on voter dissatisfaction. While this signifies a potentially vibrant democracy, it can also be interpreted as a symptom of deep-seated discontent with the existing political system, leading to voter apathy. Despite a record 27.8 million registered voters, a significant portion may not participate in the upcoming elections. Studies suggest youth disenfranchisement is largely owing to unemployment, corruption, and poor service delivery.

A shift away from emotional loyalty to established parties is also evident in "split voting" trends, where voters strategically choose different parties for national and provincial ballots. This suggests a more nuanced political landscape. The battle for urban areas will likely be fierce, with the ANC expected to retain dominance in rural areas. Gauteng and KwaZulu-Natal, however, stand out as potential battlegrounds where coalition governments at a provincial level seem likely.

The effectiveness of political parties will ultimately hinge on their ability to bridge historical racial and socioeconomic divides. They must also appeal to the "born frees," the generation born after 1994 who lack traditional allegiances. Thus, voter turnout patterns based on geography and age will be crucial determinants of this election outcome.

The uncertain political climate casts a long shadow on the economy. The Bureau for Economic Research's manufacturing survey consistently highlights this as a major constraint for fixed investment. Infrastructure inefficiencies threaten to become the new Achilles' heel for growth, replacing the previous burden of insufficient energy supply.

Economic forecasts predict modest growth of around 1% this year, driven by investment in energy and a slight recovery in household spending. While energy constraints will have a less severe impact on growth this year relative to last, logistical bottlenecks remain a concern. Consumers, on the other hand, can expect some relief as real wages recover alongside modest inflation and an easing of debt burdens.

Meanwhile, upside risks to inflation remain, driven by a potentially weaker exchange rate, administered price increases, and geopolitical factors pushing up global food and oil prices. However, demand-pull and wage inflation are expected to remain contained, keeping the expected downward trend in inflation intact. The South African Reserve Bank is expected to pivot towards lower interest rates later in the second half of this year, but the inflationary effects of any potential fiscal stimulus will limit the extent and pace of interest rate cuts. Compared to other emerging economies, South Africa’s relatively late and modest tightening cycle suggests a shallower and slower easing cycle compared to countries that have already cut rates more aggressively.

An evolving political spectrum and economic projections underscore a nation in flux, where the outcomes will not just determine governance but also shape the economic trajectory. South Africa’s future hinges on bridging divides, navigating logistical hurdles, and harnessing the power of a politically engaged and empowered society.

*Sanisha Packirisamy is Economist at Momentum Investments.

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