South Africa's business environment is facing dramatic changes after the election, unsettling investors as the ruling African National Congress finds itself at a crossroads. Its diminished majority has led to the emergence of centrist opponents or an alliance with left-wing populists, jeopardizing President Cyril Ramaphosa's reform plans. Business leaders fear the consequences of leaning towards radical policies and are clamoring for an alliance with the business-friendly Democratic Alliance to maintain stability. Amid an economic crisis and political instability, South Africa's fate hangs in the balance.
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Anthony Sgattsin, Roni Prinsloo, Janice Cue
South Africa's business community is reeling from the country's shock election results, which have threatened to erode cooperation with the government and allow a populist wave to sweep away overdue plans to fix everything from power shortages to congested ports.
The African National Congress' dismal showing in the May 29 vote upended investors' business-as-usual predictions, effectively forcing the ruling party to choose between aligning with populist parties and largely abandoning President Cyril Ramaphosa's economic reform plans, or seeking the support of the centrist Democratic Alliance, its biggest political rival for the past two decades.
Ramaphosa's allies are already pushing him to align with the pro-business DA, but the ANC, with many former members disillusioned, could be drawn to the left-wing Economic Freedom Fighters and Umkhonto we'Sizwe parties (led by former youth and national leaders respectively) that are capitalizing on the ANC's history.
Martin Kingston, chairman of Rothschild Bank Ltd. and steering committee chairman of the South African Business Association, said an alliance with either party “would create a hurricane, a tsunami in business sentiment” and that “you need someone with the same level of commitment as the current government.”
Business leaders and Ramaphosa's supporters say their collaboration is paying off, but little has been gained by it for ordinary South Africans, who suffer from some of the world's highest unemployment and crime rates. The economy has grown less than 1% a year on average over the past decade, and many are disillusioned with the ANC's failure to adequately address apartheid's legacy of racism, which both the MKP and EFF have exploited.
The ANC is expected to get just 40.5% of the vote, losing its majority for the first time since the end of apartheid in 1994. A survey by research group Krutham, conducted just days before the election, found that more than two-thirds of domestic and international fund managers expect the ANC to align with smaller parties that will give it little influence over decision-making.
That’s no longer an option, and investors fear Malaysia may turn to either the EFF or the MKP, led by former President Jacob Zuma, or both.The rand has fallen 2 percent against the dollar since May 29, the biggest drop among 16 major currencies tracked by Bloomberg.
The parties are calling for the nationalization of mines and banks (a policy that Nelson Mandela abandoned before the arrival of democracy in 1994) and a huge increase in welfare payments. The EFF is calling for its deputy leader, Floyd Shivambu, to become finance minister, and an alliance with either of them would likely mean the ouster of President Ramaphosa.
“From what I've heard directly from some of the big international and institutional investors, there are three veils they don't want to pierce,” said Colin Coleman, a former Goldman Sachs partner in South Africa and adjunct professor at Columbia Business School. “First, the president needs to stay in office; second, the integrity of the national treasury and financial authorities needs to be maintained; and third, the constitutional institutions need to remain intact.”
Since coming to power in 2018, Ramaphosa has forged close alliances with the leaders of the country's largest companies, resulting in a surge in investment in power generation to help alleviate severe power outages, a blueprint to encourage private participation in South Africa's crumbling freight rail and port networks, and immigration reforms that could ease chronic skills shortages.
“Ramaphosa has played a key role in overseeing this process of structural reform and is a leader and a driving force in partnership,” Kingston said. “To replace him with someone who does not have the trust and confidence of the market would be very dangerous.”
Many initiatives are yet to be implemented and have yet to bring about any meaningful change in the country's economic trajectory, which could easily be reversed.
Chief executives of South African companies including Sibanye-Stillwater, Sanlam and Sasol have worked within the partnership, as have local executives from Anglo American and Toyota Motor Corp.
“We are in the situation we are in, in terms of crumbling infrastructure and failing state-owned enterprises, because of an approach that demonizes business and does not see it as a partner,” said Klekani Mathe, incoming chief executive of Business Unity South Africa. “We need a government that recognises the role of the private sector and supports policies that are not anti-business. We hope to see a policy stance established that the ANC will not easily back down from.”
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