Forecast by Eurasia Group 2013

10 - South Africa
Sub-Saharan Africa, more than any other region, epitomizes the paradox of the shift in economic dynamism to the emerging markets and the significant increase in political risk. In aggregate growth terms, Africa looks to be on a trajectory to continue its recent positive performance. Middle classes are rising, and more countries are headed on higher growth trajectories. But investor beware, in Africa’s two largest and most sophisticated economies--South Africa and Nigeria--the outlook is much less rosy. For Nigeria, the outlook for 2013 is pretty steady, if negative; and it did not make the top risks list. But South Africa, which we included in our 2012’s top risks, again makes the grade, as the trends we correctly highlighted last year appear even more ominous for 2013.
The ruling ANC’s recent party conference saw the consolidation of power by President Jacob Zuma and the replacement of party vice president Kgalema Motlanthe with labor-leader-turned-capitalist Cyril Ramaphosa. While appearing to signal a more pro-business tilt, this will almost certainly not be the case. The ranks of reformist and “conciliationists” within the ANC leadership continue to thin, shrinking the party's "broad church" and deepening its reliance on patronage politics. Perhaps more significant than the Ramaphosa appointment was the fact that former finance minister Trevor Manuel, the ANC’s most internationally respected policymaker, chose not to remain on the party’s 80-member executive committee. As for Ramaphosa, he is one of the richest and most prominent of those politically connected black South Africans who have taken advantage of black economic empowerment deals and whose success has undermined the credibility of the ANC by highlighting the problems of corruption and inequality.
In fact, the political trends emerging in South Africa are all heading in the same direction--more populism as a strategy by the ANC to maintain its base among the urban and rural poor. While the policy platform that came out of the national conference is quite balanced, it is hard to see real movement on non-populist measures such as loosening the country’s strict labor regulations, modernizing the education system, and rationalizing state spending, especially at the local level. Rather, the ANC consensus around greater state intervention in ‘strategic industries’ (mining, mining-related manufacturing) will become policy. Look for higher mining taxes and the speeding up of already significant efforts to exert political influence over the entire sector.
The party will look to shore up support ahead of 2014 elections via social spending, public sector employment and more aggressive land reform policies. We expect social unrest to deepen in 2013. Coming retrenchments in mining will almost certainly spur another bout of labor unrest following 2012’s violent confrontations between miners and the police, and the mining sector has always been in a leading role in South Africa’s trade union politics. The demise of the once-dominant national union of miners because of its inability to defend miners’ interests will lead the national COSATU federation to become even more assertive, making other sectors more vulnerable to the mining precedent.
Social and political unrest could spread beyond the labor terrain. We expect continuing ‘service delivery protests’ in urban/peri-urban areas. More significant is the risk of political violence as losers in the ANC factional battles ponder next steps and opposition parties and the ANC begin to prepare for national elections in 2014. All this will add spending pressures on the ANC government and sap any reform momentum. South Africa still has many institutional strengths and we are not predicting a fundamental political crisis, but the country is headed along a path that gives little reason for optimism.