ANC's litmus test

Johannesburg - Trevor Ghavala has grown up in post-apartheid South Africa, and like nearly half his young adult contemporaries he is unemployed and has little chance of escaping a social underclass in which millions are trapped.

"I don't have a job... I've never had a job. I've been asking people, doing crime," said Ghavala, 24, chewing on a piece of bread as he squatted with his back to a wall in a central street in Soweto.

The ANC, the anti-apartheid liberation movement turned ruling party, came to power in 1994 promising to help people like Ghavala.

But after 17 years running Africa's biggest economy, critics say it has done more to enrich its leading members and allies than to help the poor masses.

At the weekend, it will hold a lavish birthday bash to celebrate its 100th anniversary with a golf tournament, banquets and concerts by the biggest stars in South African music while people like Ghavala struggle to eke out a living.

"I wish that Madiba was fresh back," Ghavala said, in a reference to former president and anti-apartheid icon Nelson Mandela who in a blaze of international goodwill led South Africa into a new era of multiracial democracy.

Mandela, elected president of the ANC after it was unbanned and he was freed from jail, led the country from 1994-1999. His departure from power was seen as an example to African leaders, although the movement sees itself ruling for years to come.

It beat its nearest rival by more than 40 percentage points in elections last year, but analysts warn the party faces a defining moment in the next three years or so.

They say that if the ANC government keeps up its current policies, South Africa risks slipping to new depths of unemployment, debt and corruption that could swell the ranks of the destitute like Ghavala and undermine long-term prospects.

Critics say President Jacob Zuma, an ANC veteran and political backstreet brawler both before and since taking office in 2009, has been a virtual bystander when it comes to tackling the country's deep social and economic problems.

"We are deeply concerned about the current trajectory. A rapid turnaround would be required in Zuma's next term," said Neren Rau, the chief executive of the South African Chamber of Commerce and Industry.

ANC put to the test

The ANC says it has made big strides in erasing the economic and social injustices caused by decades of oppression of the black majority by a white minority under apartheid.

The government says that when the ANC took over in 1994, 62% of households had access to clean water and about 50% had access to electricity. This has increased to nearly 95% and about 80%, it says.

Underpinning the economy is the most advanced infrastructure on the continent, the strongest banks and a well-developed rule of law and judicial system, making South Africa a stepping stone for investment in Africa's quickly emerging states.

One constant that has kept the ANC government on the fiscal straight and narrow and reassured investors has been the National Treasury, led since 1994 by just two finance ministers highly praised for their fiscal discipline.

The World Economic Forum's Global Competitiveness Survey ranks South Africa as top in the world for its regulation of its security exchanges, number two in the world behind Canada for the soundness of its banks. It is also one of the easiest places for a firm to raise money by issuing shares.

But the same survey also said South Africa has some of the world's most rigid labour laws, one of its least productive workforces and a broken school system that is staggeringly bad at educating its students, given the money spent on it.

At the end of 2012, Zuma faces a party leadership election. Despite a leadership style criticised as lacking vision and ineffectual, he is widely expected to garner enough support in the fractious party to win a second term as party chief and then stay on as national president until 2019.

Against this background, analysts do not expect him to rock the boat and upset left-leaning allies with pro-business reforms such as loosening the labour market and state economic controls.

"As it approaches almost two decades in power and demands for economic delivery grow more strident, the party's ability to hold together in the same way will increasingly be put to the test," Standard Chartered Africa analyst Razia Khan said in a research note.

Bowing to the unions

Unemployment has been a chronic problem for the ANC and has also contributed to an alarmingly high murder rate, among the highest in the world outside a war zone.

About 40% of the adult population is jobless - a percentage expected to rise substantially in the coming years - and this is seen driving crime and widening economic inequality.

"If the same pattern of job loss continues, we will reach very shortly, in three to five years, a situation where more people are unemployed than employed," said Andrew Levy, who heads a leading private labour research group.

"Economically, there will be a continually higher burden on those who are working because government will try to do more and more to ease the lot of the unemployed," Levy said.

ANC governments have poured billions of rands into job training programmes, only to see much of it lost to corruption or incompetence and the education system fails to provide basic skills.

The country has lost about a million jobs in the past two years, with the manufacturing sector the hardest hit. Many of these jobs will not come back because labour has priced itself out of the market.

The average factory worker in South Africa earns about six times as much as a factory worker in China and is less efficient. Industries in sectors which were once internationally competitive, such as footwear, have faded.

South Africa adopted rigid labour laws in large part because of the governing alliance between the ANC and the major union federation Cosatu, a pact which was formed in the anti-apartheid struggle and continued after the ANC formed a government.

Zuma and other ANC leaders have tried to keep Cosatu and its 2 million members close to them, not wanting to alienate a major source of votes by enacting labour reforms that would make it easier for firms to hire and fire workers.

There are four major measures before parliament aimed at appeasing Cosatu that will be at the heart of the legislative agenda this year. The bills place more burdens on employers, make it more difficult for them to hire seasonal labour and drive up personnel costs.

Budget under strain

While joblessness looks set to rise, so too does the country's growing debt as pressure mounts on the ANC to open the taps to still more welfare spending.

The squeeze on state finances will likely push South Africa's debt to gross domestic product (GDP) ratio above 50% in the next three years for the first time under ANC rule, economists said. This would put the country's credit rating under pressure and could make it more expensive to borrow money.

"Debt levels will continue to rise as a percentage of GDP until 2016 when they should plateau at around 55%," said Peter Attard Montalto, emerging market economist at Nomura.

The budget is already under strain to pay the wages of more than 1 million civil servants, many of whom belong to Cosatu-affiliated unions.

"South Africa's debt position will likely become more precarious, especially if economic growth continues to disappoint," said Anne Fruhauf, a specialist on Africa at political risk consultancy Eurasia Group.

If the global economic crisis leads to slower growth in South Africa, and lower tax revenue as a result, the government wage bill could well reach about 50% of tax revenue within three years, leaving even less money for other spending.

On top of this, the government plans to begin rolling out a national health insurance programme it said will cost R125bn this year, about 13% of the state budget.

"Predator elite"

There is also a growing clamour from ANC supporters to improve delivery of electricity, running water, schools and other basic services to the poor. Analysts say this is undermining the ANC's voter support.

Improvements the ANC has made so far have not satisfied the poor black majority, who see progress as too slow and complain of incompetent local officials. Scores of violent protests have added to the pressure for better services.

The country has also slid in Transparency International's highly regarded gauge of perceived corruption, from 38th in the world in 2001 to 64th in 2010, a trend that worries many citizens, long-time ANC supporters among them.

"The problem is the leaders. They must deliver, they are corrupt," said Soweto resident Mzwandile Sifile, expressing a widely-held view.

Corruption has also undermined investor confidence.

There is also growing anger with ANC economic empowerment policies that were nominally designed to reverse apartheid era curbs that had largely shut blacks out of the economy.

Many see the programmes as benefiting just a few people with ANC connections. Cosatu has said they have lined the pockets of a corrupt "predator elite".

"We are still waiting for the delivery," Soweto resident Sifile said. "We are still hoping for the best."