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Vol 64 No 1

Published 5th January 2023

South Africa

ANC faces the ultimate 'power outage'

A weakened President and the deepening electricity crisis will slow reform and increase the prospects of coalition government in 2024

Copyright © Africa Confidential 2023

The coming year is likely to see further loosening of President Cyril Ramaphosa's grip on his divided ruling party and reduce his ability to progress economic reforms.

Damaged by the Phala Phala blow to his personal reputation, and wounded by perceptions of his inability to grasp the Eskom nettle, Ramaphosa is less able than at any time in his presidency to restore the party's fortunes and put critical reforms on track. 

Ongoing political turmoil is the likeliest outlook for the next 12 months, at least, with unstable and shifting coalitions at municipal and provincial level. These presage a coalition, or power-sharing deal, if, as many expect, the African National Congress cannot clear the 50% hurdle at the 2024 general election. 

The trend towards more independent candidates standing at local level is set to continue while a bill to allow independents to stand at national level is at an advanced stage in parliament.

The Phala Phala controversy will rumble on, despite the vote in Parliament to reject the tribunal finding that the President should be impeached. 

Both the State Capture commission headed by Chief Justice Raymond Zondo and the special tribunal on impeachment – rejected by parliament and submitted for review by the Constitutional Court by Ramaphosa – are likely to recede in political significance as the action moves to the courts for a series of corruption trials involving former ANC officials. 

The forces constraining Ramaphosa will come less from the faction loyal to discredited former President Jacob Zuma and the so-called Radical Economic Transformation (RET) faction – the peak of their power has passed. The biggest obstacle to Ramaphosa's programme now is ANC chair and Mining Minister Gwede Mantashe, who is representative of ANC stalwarts and black business owners who are determined to slow the phasing out of coal and want quick-fix and patronage-rich solutions to the energy crisis, analysts say.

We expect to hear much less in 2023 from the now marginalised RET leaders, such as Nkosazana Dlamini-Zuma, former Deputy President David Mabuza and Tourism Minister Lindiwe Sisulu (Dispatches 23/12/22, Ramaphosa's win in ANC elections opens a door to policy shifts and reshuffles). 

Ramaphosa will instead face challenges from opponents embedded in an otherwise more sympathetic 110-strong National Executive Committee and ANC 'top six' officials. Some officials facing allegations of corruption – but who have not been charged in court – made it into these key decision-making bodies. 

He has also made headway with institutional reforms in state institutions such as the National Prosecuting Authority and the tax collector, the South African Revenue Services (SARS). This trend will continue.

The President could also sign off on an as yet uncosted National Health Insurance Act, which analysts regard with equanimity only if it is neutered by being subject to an affordability test, while the monthly Covid-19 grant of 350 rand a month ($20) to 10 million people is set to become a permanent basic income grant.

In 2021, the economy was partially rescued by a mineral resource windfall which would have been greater had it not been for the ailing rail transport system and constraints imposed on industry by crippling power blackouts. Increased tax revenue also played a key role.

Last year, bumper agricultural crops and exports gave the economy a surprise lift in  the third quarter to 1.6% GDP growth from -0.7% in the second quarter, averting a descent into recession. It is forecast that the economy will grow by 1.1% this year.

Ramaphosa has also given leadership in South Africa's commitment to phase out coal in favour of renewable energy and liquefied natural gas (LNG) as a bridge to net zero by 2050. But that commitment is in question after the resignation in December of key technocrat Andre De Ruyter, whom Ramaphosa appointed three years ago to rescue Eskom. De Ruyter went in frustration at being blocked by champions of coal and corruption. 

Analysts say that the planned debt swap, whereby the state will take over a third of Eskom's R400bn debt and the break-up of the utility into separate generation, transmission and distribution entities will proceed as planned (AC Vol 63 No 16, Some light at last). But the appointment of a new Eskom CEO will take several months and do nothing to ease the passage of urgently needed reforms to Eskom (AC Vol 63 No 22, Prosecutor Batohi swings into action).

Meanwhile, the debilitating power cuts, the worst in the country's history and which are heavily constraining industrial output, are set to continue for at least two to three years while renewable energy is added to the national grid and ageing coal-fired power stations are overhauled.

Polls suggest that the power cuts could cost the ANC heavily in the 2024 elections. 

The international partnership group led by the United Kingdom and including the United States, European Union, France and Germany have committed $8.5bn (R150bn) to the energy transition. But there is western scepticism that the massive investment needed to transition to electric vehicles and green hydrogen will be forthcoming.

Investor fears
In the meantime, a series of shocks to South Africa's political economy over the past 18 months have sent already skittish investors into retreat, and this trend is likely to continue. The adverse economic effects of the Covid-19 pandemic followed by spiralling food and fuel prices caused by Russia's invasion of Ukraine will also continue to hamper reforms. 

Uncertainty over Ramaphosa's leadership and ability to deliver on economic and anti-corruption reforms in his second term has seen western partners suspending investment and moving to other locations, analysts say.

A further blow to South Africa's desirability as an investment destination could come in late February if the Financial Action Task Force (FATF) decides to 'grey-list' South Africa for having inadequate measures to prevent terrorism and money-laundering.

Last year, the FATF sent the government a long list of shortcomings following which ministers rushed several bills through Parliament in a bid to comply. 'Grey-listing' would have a similar but more severe effect than being downgraded to junk investment status by the international rating agencies.

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