South Africa — Elite Infighting

Today, we turn to risk #9 in our series of posts on Eurasia Group’s Top Risks for 2012 and answer the most common questions we’ve gotten about it.

Here’s a summary:

South Africa-ANC discord. In South Africa, a bitter struggle for leadership and the policy direction of the ruling African National Congress (ANC) will undermine governance this year in a country trying to prove it belongs among the top tier of emerging markets. Populist pressures and elite infighting have intensified to a level not seen since the end of apartheid in 1994, President Jacob Zuma will likely win reelection as ANC leader and another term as South Africa’s president, but disillusion among former allies will fuel political discord, preventing the country from making much-needed economic strides. 

Q- What is driving the strife within the ANC?

A- During his tenure as South Africa’s president (1999-2008), Thabo Mbeki held to a conservative macroeconomic approach that pleased investors but disappointed many within the ANC who hoped for a more aggressive spending approach to the country’s social and economic problems. When Zuma succeeded him as ANC leader in December 2007, supporters hailed him as a unifying force who would offer a more inclusive leadership style than his predecessor. Zuma then became South Africa’s president in 2009. But after less than three years in office, Zuma has maintained Mbeki’s spending discipline, feeding a perception that he is at best indecisive and at worst more interested in enriching his friends than in addressing the country’s needs. Opposition to Zuma is personified by firebrand ANC Youth League leader Julius Malema, who has called for the nationalization of mines, among other populist policies. Malema has been suspended by the party for indiscipline, but opposition to Zuma extends far beyond the Youth League.

Q- To see where the country is going, what are the events to watch this year?

A- The release of the national budget on February 22, the ANC’s policy conference in June, and the December party elective conference. The Treasury faces a difficult balancing act: There is pressure to spend on social programs and improvements to South Africa’s poor infrastructure, while foreign investors hope to see continued fiscal discipline. Complicating matters is South Africa’s exposure to the volatility in the eurozone, which has placed pressure on the rand and threatens trade flows to South Africa’s largest trade partner. At the June policy conference, the ANC will emphasize economic transformation and a statist approach to the economy, and the proposal to nationalize mines will be debated. The conference is unlikely to endorse outright nationalization, but clear consensus exists on the need for broader redistribution of the wealth that the country’s natural resources generate. That’s why we’ll probably see more state involvement in the mining sector and tighter regulation. Finally, the December elective conference, the ANC’s highest decision-making organ, will endorse the party’s June policy resolutions and will essentially determine whether Zuma will preside over South Africa for the next several years, or whether a challenger — most likely Vice President Kgalema Motlanthe — will get the nod.

Q- What will be the impact of the ANC discord?

A- Generally speaking, there will be policy paralysis. The ANC is increasingly unable to conclusively reject radical policy proposals such as nationalization, and it will fail to endorse necessary microeconomic reforms, such as a liberalization of labor markets. Opposition to Zuma will encourage the government to use the intelligence apparatus and corruption charges against rivals to bolster his authority. This could help Zuma eliminate potential rivals, but we could also see corruption charges against the president himself. Conspiratorial politics will be pervasive, undermining the government’s ability to concentrate time and resources on efforts to reduce high unemployment and improve competitiveness. Poor governance will damage South Africa’s appeal as an investment destination.

Despite the country’s much vaunted inclusion among the BRICS group of emerging market powerhouses, and at a time when politics in many developing states is maturing, South Africa’s political system is in danger of becoming a hindrance to the growth needed to lift so many South Africans from poverty.  

Next up, a lose-lose election in Venezuela.