Politics taints SA prospects

Johannesburg - SA's commitment to infrastructure investment will support economic growth recovery in the long term, but political uncertainty poses an obstacle for foreign investors.

That's according to global risk consultancy Control Risks, which advises over 70% of the Fortune Global 500.

Anne Fruehauf, an Africa analyst at Control Risks, says the country should brace itself for an over-pricing of political risk.

Foreign markets have already largely accounted for ANC President Jacob Zuma's entry into office and Finance Minister Trevor Manuel's possible departure.

"Foreign investors will now be looking at how the new political order deals with the budget deficit, growth rates and economic policy at large," says Fruehauf.

Investors will have a clearer sense of the new direction at the time of the medium-term budget policy statement around October, she adds.

At this stage, a Zuma presidency poses a risk because the ANC leader's imminent corruption trial will distract him from his office duties. "There will be no honeymoon for Zuma," says Fruehauf.

According to Control Risks, the best-case scenario of a Zuma presidency is one where he assumes the role of a "consensus broker who is surrounded by competent and efficient policy makers".

In terms of macroeconomic policy, South Africa has the advantage of having accumulated funds and moving to a budget surplus during the boom years between 2002 and 2007.

This has now allowed the national treasury to adopt a more expansionary stance, as evidenced by the counter-cyclical national budget presented last week. Manuel said that infrastructure spending would increase to R787bn, including inflation adjustments, over the next three years.

Freuhauf says the new government could be "more pragmatic" than its leftist allies would like, with the economic crisis placing a constraint on populist policies.

Control Risks has also stressed the importance of getting the country's utility provision networks up to speed to take full advantage of the upswing of the economic cycle.

Freuhauf says that power utility Eskom's multibillion rand investment drive could suffer some delays due to financing difficulties: "Generation capacity will improve over time, also aided by independent power producers and increasing imports from neighbouring countries."

- Fin24.com