The new year promises to be a volatile one politically in the lead-up to the election of the new African National Congress (ANC) leader in December 2007, and this uncertainty is expected to have repercussions in the economy during the course of the year, particularly as to how foreigners react.
Of particular importance will be whether any substantial change in policy direction will take place, say leading economists, as this will affect domestic and foreign sentiment.
The ANC’s national congress takes place in December 2007, when a successor to President Thabo Mbeki is expected to be chosen. This leader will then effectively also be leader of the country as Mbeki will step down after the next elections in 2009, as his second term of office comes to an end.
The key debate is whether former deputy president Jacob Zuma, stripped of his position after the Shabir Shaik fraud verdict and who himself then faced charges of corruption, will win the race. From the market’s perspective, question marks hang over his economic leanings.
“You can pin the economic leadership on Thabo Mbeki — he has selected Tito Mboweni and Trevor Manuel and things have been very stable under this triumvirate of the three ‘Ts'” says Absa’s treasury economist, Chris Hart.
“The question is what policy would look like if a more populist leader be chosen — that is, to what extent would direction be changed from the top.”
“The ‘three Ts’ have taken the economy in a specific direction, based on partially free market principles. You could suggest that these policies are more sustainable in that they have not been made in an orgy of populism,” says Hart.
“The decisions have been made in a very considered manner. You could suggest that the macro policies have been steered towards global best practice. There are, of course many nuances, but the substance is generally okay,” says Hart.
Hart highlights that the potential paths to “crony capitalism” and “tyranny by regulation” nevertheless needed to be reversed at this juncture, rather than allowed to get worse.
Brait economist Colen Garrow says that while Mbeki’s economic policies have generally been market friendly, Zuma’s may be the antithesis of these, left- leaning — and untested — on a range of key socio-economic issues, and this would be a concern for domestic and foreign investors.
“Foreign investor response to political events is important, as is the response of major credit rating agencies which assess not only economic risk, but also political risk. Any shift in either of these risks may prompt agencies to maintain their status quo rating of South Africa, until uncertainties are cleared. This may mean that chances stall of receiving a rating better than the one South Africa currently has,” he says.
“As can be expected, speculators thrive on volatile market conditions while more serious, long-term investors seek stable and more certain conditions,” he said.
Garrow says as strong as the tripartite-alliance support for Zuma may be, it is unlikely to be a one way bet for the former deputy president.
“Other candidates have emerged, subsequent to reports that President Mbeki would like a woman to succeed him as president,” adds Garrow.
“Amidst this sea of candidates, the only certainty is that the Mbeki-Zuma stand-off could be a challenging one. In the event of a stand-off between these camps, chances improve that some astute opportunism may emerge, a dark horse, compromise candidate who appeals to both camps,” he opines.
Efficient Group chief economist Dawie Roodt says the checks and balances in the system are critical as they keep the leadership in check.
He lists some of the key checks and balances as the Constitution, free press, independent judiciary, and also being part of the global financial system.
“But if a leader chips away at these then there will be an impact,” said Roodt. – I-Net Bridge