/ 5 December 2007

ANC race stirs economic concerns

South Africa’s economic boom looks set to persist but concerns linger over the direction of policy after the crucial African National Congress (ANC) conference, which seems likely to choose populist Jacob Zuma as the ruling party’s new leader.

Economic growth jumped to 5,4% in 2006 — its fastest rate since 1981 — and wealth is spreading to a burgeoning black middle class.

But poverty is widespread and jobs are scarce, stoking resentment from an increasingly vocal working class opposed to the conservative economic stance of President Thabo Mbeki.

Some investors fear a shift in policy after the December 16 to 20 ANC conference should Mbeki lose to Zuma, who portrays himself as a champion of the poor.

Frontrunner Zuma, the ANC’s deputy president, has tried to convince foreign investors that an administration run by him would not overhaul policy. But doubts remain.

”The [Zuma’s] charm offensive will go a long way to calming people’s nerves. But Zuma is unlikely to focus on economic issues but rather on his political role,” said Russell Lamberti of independent market analysts ETM. ”A lot of people are taking a cautious stance, and are reassessing their investment positions.”

Even if there is no immediate change, a Zuma victory in the divisive race could boost the clout of his trade union and communist backers.

The Congress of South African Trade Unions (Cosatu) and the South African Communist Party — both in a formal alliance with the ANC — have steadfastly supported Zuma, despite him facing allegations of corruption and a rape trial in which he was acquitted.

Traditionally, the winner of the race would step up to be the country’s leader because of the ANC’s electoral stranglehold. Mbeki, in power since 1999, cannot serve as state president after 2009, but analysts say he wants to retain political power.

Businessmen Tokyo Sexwale and Cyril Ramaphosa are seem as possible compromise candidates.

While they all stress the ANC collective sets policy, there is little doubt about Mbeki’s influence in steering a strategy that has led to strong credit ratings upgrades over the past decade.

”South Africa distinguished itself pretty early on in its transition with the quality of its market-friendly policies,” said Razia Khan, regional head of research Africa at Standard Chartered in London.

Loyalty to change

South Africa’s longest-ever expansion — the economy has grown continuously for the past nine years — has entrenched the country as Africa’s economic powerhouse.

Growth is seen at about 5% a year for the next three years, although less conservative fiscal and monetary policy could scare investors fearing uncertainty and populist spending.

Inflation targets and budget surpluses — lauded by investors — have raised the ire of the left. They will want change from a new leader, or at least a voice that is heard.

Cosatu’s demands for action to weaken the rand, scrap inflation targets and loosen monetary policy have been dismissed by Mbeki. A war of words has escalated ahead of the conference — a rift that Zuma, if elected, may feel pressured to mend.

”We don’t want ‘Zuma the messiah’, we want space to be heard … not the paranoia [of Mbeki],” Zwelinzima Vavi, general secretary of the 1,1-million-strong Cosatu, told Reuters. ”We want him to implement the policies the party confirmed in June.”

An ANC policy meeting earlier this year endorsed the government’s broad direction and reinforced the importance of state intervention to slash poverty and create jobs.

Delegates at the June meeting espoused the need for a ”development state” but did not signal a paradigm shift on monetary or fiscal policy. Yet Vavi says it was a clear move to Cosatu’s pro-poor stance.

”The party’s resolutions confirm there was a shift to the left and we are happy with that … we want loyalty to that.”

Unlike Mbeki, Zuma could find himself in debt to the left.

”The fear [among investors], in reality, stems from the fact that Zuma is a populist. He might well be swayed by more leftist thinking,” Standard Chartered’s Khan said.

Personalities respected by investors and markets in key positions are likely to change. Trevor Manuel has already served as finance minister for 12 years, while Reserve Bank Governor Tito Mboweni’s current term ends in August 2009.

”The ancient regime [Mboweni, Mbeki and Manuel] might be gone, but the [policy] foundations are too strong [to dismantle],” said Mboweni. — Reuters