3 Lessons from the South Africa’s Election Results

The final results for South Africa’s election were released yesterday (http://www.elections.org.za/resultsNPE2014/). What was expected to be a hotly contested battle and a rejection of President Jacob Zuma’s leadership instead turned out to be another sweeping victory for the ANC, the fifth since the first democratic election in 1994. We can take the following lessons from the results:

1) The ANC is Unbeatable 

In 2009, President Zuma declared that the ANC would rule “until Jesus comes back”; with the 2014 election results, there is no reason to doubt the veracity of his statement. The last 5 years have been a period of economic stagnation in South Africa, with the country’s economic performance lagging far behind its emerging-market peers. Corruption and governance issues within the ANC have consistently gnawed at the ANC’s reputation among middle- to upper-class voters. In Gauteng specifically, the e-tolling saga and dysfunctional City of Joburg municipality have led to suggestions that ANC supremacy would be challenged in this election. Despite the poor performance of the ANC over the past five years, predictions that the party would be fall below 60% nationally, or below 50% in Gauteng, have proven to be pipe dreams. While the DA has cemented its position as the national official opposition (increasing from 17% to 22% of the national vote) and the ruling party of the Western Cape (increasing from 49% to 59% of the provincial vote), the party still struggles to attract the black vote. A recent survey of black youth suggest that around 50% of them believe that the DA would bring back apartheid if elected.

The ANC has suffered only a mild decline in its popularity as its share of the national vote fell from 66% to 62%. The key to the ANC’s popularity is that it has implemented programs which have boosted the incomes of large swathes of the population. The ANC has driven the implementation of a broad grant (welfare) system in SA, with 21m registered recipients. With 44% of SA household’s dependent on the grant system to keep them out of abject poverty, they are unlikely to risk their livelihood by voting for any other party. Since 2009, the majority of jobs created have been in the public sector. The large increase public-sector jobs (which pay around 34% more than equivalent private sector jobs) driven by the ANC has also created a large middle class beholden to the state for their income. With these large numbers of voters dependent on the state for their livelihood it is very difficult for any party to make significant inroads into the ANC support base.

2) Change will come from working with the ANC

Because the ANC unbeatable, it does not make sense for the private sector to adopt an adversarial approach when dealing with them. The private sector needs to work more closely with the ANC in order to drive policies which grow the economy. With the level of state dependency, it is essential that economic growth (currently 2% yoy) recovers in order to generate the tax revenue required to fund the current welfare programs and to create the employment necessary to reduce the number of dependents. A continuation of the dysfunctional economic environment of the past 5 years is unsustainable as the country risks a debt crisis given the extent to which government spending has increased. South Africa needs an environment more conducive to high levels of economic growth, and the ANC needs to be more effective in providing it. 

3) The Economic Freedom Fighters (EFF) are a real threat to future of the country

Despite the progress made since 1994, and the grant system which helps reduce the worst levels of poverty, SA remains one of the most unequal societies in the world. Median white income is around 6 times median black income. The EFF has sought to capitalise on the high levels of dissatisfaction by advocating for more aggressive redistributive policies, loudly touting Venezuela and Zimbabwe as models for an economic rebalancing with South Africa. Despite the fact that the policies of Chavez and Mugabe have destroyed the economies of their respective countries, South Africa’s extreme imbalances means that this is still a message which resonates among the disaffected millions. The EFF was only formed 9 months ago by Julius Malema, but it received 6% of the national vote and 25 seats in parliament to make it the 3rd most popular political party in SA. The platform provided by its parliamentary position is dangerous in that it now has a base on which to build its following. I think that poor economic outlook and growing resentment among the poor will result in at least a doubling of the EFF’s vote in the next election. South Africa needs economic policy certainty and continued investment in order to deliver growth and employment, but the EFF loudly advocating the  nationalization of the banking and mining sector along with aggressive land distribution will put this at risk.

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