In this story, Nedbank Chief Economist Nicky Weimar explains to the Dolphin Bay Brief why she hopes the ANC does not fare too badly in the elections, and the implications of various outcomes for the economy – which includes our timber treatment industry, of course.
Hoping the ANC slips – just a bit
The Independent Electoral Commission reported in March that more than 27.79 million South Africans – the highest number since the dawn of democracy in 1994 – are eligible to cast their votes in the May 29 elections.
This may imply a high voter turnout, which generally bodes well for the ANC, Nicky says. Ironically, this would be a good thing! While the ANC is widely expected to receive less than 50% of the vote, the ideal scenario is that it receives above 40% but less than 50% overall. Here’s why.
This margin would allow the ANC to form a coalition with smaller parties like the Good Party or the IFP, to retain majority control of government. “The ANC would remain dominant in such a coalition and wouldn’t have to fight policy opposites or a rowdy bunch like the EFF,” says Nicky. “The smaller parties would be elevated to a position they would not have held otherwise, holding the ANC more accountable than is currently the case, and we’re likely to see a benign outcome.”
Happily, this is the most likely election result if recent poll results are anything to go by.
“Ironically, we’re hoping the ANC won’t lose by too much!”
Prospects for unstable government
Another scenario is that the ANC could receive less than 40%, in which case it would have to form a coalition with one of the larger opposition parties − the Democratic Alliance (DA) or the Economic Freedom Fighters (EFF) − to form a government. Both of these parties’ policies are so different to those of the ANC, that “policy paralysis and implementation paralysis” would likely ensue.
The ANC looks unlikely to choose the DA as their policies are so different. “The markets would favour this coalition in the short term because they would see the DA as a guardrail for honesty and accountability,” observes Nicky. “The Rand could strengthen, bond yields ease, and equities strengthen. But could the two parties make it last, given their ideological and political differences?
“The government would be unstable.”
The other bigger parties are the EFF and probably MK, both of which would be “the worst choices … The MK is basically about (former president Jacob) Zuma, who brought us to the weak position we’re in now. They have radical policies and want to restart the gravy chain. The response from the markets would be very negative.”
The ANC would remain dominant in a coalition with either the EFF or MK, and we can’t assume it would suddenly begin a dramatic nationalisation drive in either case. However, both coalitions would be unstable and mean a shift to the political left. The parties would be caught up in debate, and the pace of the key structural reforms that South Africa badly needs to kickstart the economy would slow down dramatically.
“There would be a knee-jerk reaction in the financial markets, with the Rand likely under more pressure, and capital outflows affecting equity and government bond markets. Government bond yields would rise, equity markets fall, and we’d be set for an economy that could teeter to the brink.
“From what we’ve heard, there’s not much appetite in the ANC for a coalition with the EFF. They always insist on having the treasury. Also, there’s a recognition that you can never meet the EFF’s demands.
“There’s not the same extent of unease with the DA … but there’s a serious dislike there. Also, the DA has made their position on certain individuals in the ANC clear: that they should be in jail. This coalition seems the most unlikely, and no one in the ANC has openly embraced the idea. If it transpires, it would be an extraordinary situation.
“If the ANC gets less than 40%, everything is open. That is key.”
After the elections, the parties have 14 days to form a government. There will be more political competition, regardless of the outcome.
The main worry is that coalitions at national level are untested. “At local government level, they have generally been a failure, and South Africa can’t do with any failures now. We need to take the little successes we’ve had of late and build and strengthen them even further.
“If change can occur in a gradual and peaceful manner, it would be a positive thing.”
“Societies that prosper are those that maintain the middle ground. South Africa has not prospered, but even so, we have managed to maintain the middle ground.”
Social grants are buying stability
There’s no easy solution for creating greater socio-economic stability in South Africa, and the challenges are significant. “The factors holding us back are structural, not cyclical,” Nicky observes. “There’s no quick fix to structural problems.”
South Africa’s appalling unemployment rate of about 33% overall, and 45,5% among youth, according to most recent figures from Statistics SA, will not improve until the economy grows substantially. “It’s only growth that can absorb more people into the labour market. The economy is growing at less than 2% now: a problem that won’t be solved until we’ve solved our electricity crisis, our rail and port problems, and all the other infrastructural issues.
“Another challenge is the quality of our labour. We’d have this problem even if we were growing at 4% or 5%, as was the case in the 1990s when there was 20% unemployment − which is still a very high proportion by global standards. A proportion of the population doesn’t have the education and skills to be employable. Education, training, and retraining are necessary, which requires a capable and organised government, and this, again, is not going to occur overnight. Even if it was all in place, it takes time to train and reskill people.
“Consequently, we have a heinous situation regarding social stability, which is going to remain in place for some time to come.”
Meanwhile, a large proportion of the population have nothing to lose. “I suppose that’s why social grants are in place. They buy stability, in a way. I can see why it’s necessary to keep them in place, even though they’re very expensive.”
Maintaining the middle ground
The interview has left us feeling a little despondent. Is there any reason for hope, we ask?
“In a democracy, we have to trust our fellow citizens, and I think we have reason to do that,” Nicky says. “Societies that prosper are those that maintain the middle ground. South Africa has not prospered, but even so, we have managed to maintain the middle ground.
“It looks like that will happen again. Then, we must figure out how to move this economic machine a little faster.”
Regaining what we’ve lost
A stable government is crucial for the timber and timber treatment industries, Bertus points out. Plantation owners must plan for the long-term when investing in new forests, and the industries that use our treated timber – the building, farming, and telecommunications industries, for example – need investment to thrive.
“Any stable government is good for our industry, because it attracts investment.”
He is taking up the baton of Nicky’s positivity.
“We believe there are more good than bad people in South Africa, and most of us want a better country. We may have different views on how to get there, but there is a strong foundation. The 1994 elections are recent enough for most of us to remember what we’ve had and know what we’ve lost over the years.
“How wonderful it would be if we could get back our sense of ubuntu, and that we are a rainbow nation. People flooded here from across the world, just to be part of that. I believe it’s in our DNA, and it just needs to be brought out again.
“Hopefully this election will be a step in that direction, and we’ll find more to unite us in the future.”
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