2019 Elections: what it might mean for the South African economy

The pre-2019 election economy

Slow economic growth and a very high rate of unemployment in South Africa are some of the key economic challenges which will face the newly elected/re-elected government from the 2019 general elections scheduled for the 8^th of May 2019.

In February’s budget speech finance minister Tito Mboweni revised National Treasury’s estimates for real GDP growth to 1.5% in 2019, 1.7% in 2020 and 2.1% in 2021. This follows on from what was anemic growth of just 0.8% in 2018.

The unemployment rate, as reported by Statistics South Africa (Statssa), was recorded at 27.1% in the fourth quarter of 2018, with the number of unemployed persons amounting to 6.14 million.

Jobs and employment a key issue amongst voters

With this in mind, it comes as no surprise that according to a poll conducted by the Centre for Risk Analysis (CRA) in February 2019 the biggest issue for voters is that of jobs and employment. Jobs and unemployment were noted as the first priority for 39% of voters. Corruption was a first priority for only 14% of voters, while basic services (water and electricity) was noted as being a first priority for 9.2% of the voting public.

A view on the 2019 election manifestos regarding jobs and the economy

While all three major political parties (the EFF, ANC and DA) have emphasised the importance of jobs and the economy in their respective manifestos, the issue does appear to be more central to the agendas of the DA and ANC – and somewhat behind that of land reform for the EFF.

• The ANC

The ANC states that it will ‘create new and decent jobs’ while transforming the economy to serve all the people of the country. The ANC-led government has already seen President Cyril Ramaphosa driving a foreign investment drive with the aim of bringing R1.2trillion into the economy.

The election of the ANC’s Cyril Ramaphosa, as the new South African president in February 2018, equated to improved business confidence within the country which was reflected through an uptick in Foreign Direct Investment (FDI) in 2018. The level of positivity reflected in markets after the upcoming election may be directly correlated to the ANC’s margin of victory, and its ability to drive reforms which encourage more investment into the South African economy.

• The DA

The DA’s stance on the topic is to provide policy certainty and direction for economic growth to create jobs. The party believes that it needs to create a safe and stable economy to encourage investment. The plan is to address a ‘myriad of policy and legislation issues’ to jump-start job creation.

Investors may be encouraged by claims from the DA that 123,000 new jobs were created in the drought-stricken Western Cape (compared to a similar number of jobs that were lost in Gauteng), while the province’s unemployment rate of 19.3% is 14 percentage points lower than that of the national average. The DA, however, appears unlikely to have grown its vote enough to effect reforms alone at a national level, and the likelihood of forming a coalition with the EFF at a municipal or national level appears greatly diminished as well.

• The EFF

The EFF is looking to large scale, state-led industrial development to create ‘millions’ of jobs between 2019 and 2024. The party aims to protect young and existing industries, transfer ownership to black people (through subsidiaries), increase tariffs and support local products as well as concentrate on key progressive and beneficial trading partners.

The EFF, often referred to as the ‘Kingmaker’ could be the deciding factor in votes pertaining to economic reform. Its election manifesto highlights its intentions to nationalise the Reserve Bank as well as commercial banks, land and mines within the country. The party’s growing stature and Parliamentary influence has the potential to disrupt reforms, or force concessions from leading political parties, for it to drive its agenda.

A Moody view

In a recent note, Moody’s Investor Relations highlighted that some of the main challenges to the South African economy are:

• Deep-rooted social and political divisions that hamper the advancement of reforms and generate policy uncertainty
• Structural economic bottlenecks that limit the potential for growth and job creation
• Weak state-owned enterprises sector

According to Moody’s some of the core strengths of the South African economy include:

• Sustained strength of core institutions such as the judiciary and the Reserve Bank
• A well-capitalised banking sector and relatively deep financial markets
• Low share of foreign currency liabilities for the government and broader economy

In summary

South African’s will be hoping that the 2019 elections bring about a government which is ready to provide clarity on key policies and is committed to the fast-tracking of essential economic reforms. These measures are needed to help improve business confidence in the country and to attract investment to stimulate economic growth in a bid to reduce unemployment.

A disrupted coalition government provides the potential to inhibit reform and hamper economic growth. Business confidence could also be disrupted by threats to any of its core institutions.

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