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Cape Town - Although intra-African National Congress (ANC), election-related, factional violence is being currently ignored by markets trading on external factors, it remains worrying, said emerging markets economist Peter Attard Montalto of Nomura.
He said at the moment, nothing is relevant to the market except the imminent Brexit referendum, and a shift to a yet more dovish view by the market on the Federal Reserve's monetary committee is not helping the focus on domestic idiosyncratics.
"Nevertheless, we are increasingly concerned about the politically-motivated violent unrest occurring in the Metro of Tshwane (Pretoria)," he said.
According to Montalto, investors have never really focused on intra-ANC violence in the recent past "because it has generally happened far away and has been under-reported in the financial press and on wires".
"Tshwane is different," he said, "both for its drivers and for the signals it sends us about how the ANC will slowly lose power over time. It is also relevant that Pretoria is somewhere any investor who has visited South Africa will have been."
Montalto said flash points for the market will be if the army is sent in and if there are more fatalities (either as a result of the army being sent in, from police, or between factions).
On Wednesday, police officers and lawmen from across Gauteng were bracing for another day of civil unrest in Tshwane after reports of widespread violence overnight.
This follows days of protests in Atteridgeville, Soshanguve, Mamelodi, Hammanskraal and Mabopane after the announcement of Thoko Didiza as the ANC’s mayoral candidate for the sprawling metro.
On Tuesday buses were torched and police were stretched thin to quell mass looting of malls and shops owned by foreign nationals in the townships, reports News24.
"The market may well wake up post a vote to (a) Bremain wash-out if this is continuing," said Montalto.
Adam Phillips of Umkhulu Consluting said in his morning report the problems in the Pretoria metropole have hardly been looked at from an international perspective.
The focus is clearly on the Brexit vote, with traders who still needed to balance their positions before the vote on Thursday going long USD versus the ZAR, he said.
"We saw a low of 14.62 yesterday before the EUR and GBP started moving weaker. Several banks warned yesterday that orders might not be able to be executed on their electronic platforms and (ECB president Mario) Draghi spoke that the ECB was there to act should currencies become volatile."
He said a few more polls came out on Tuesday showing the vote was too close to call and this, coupled with Draghi's speech, saw both GBP and EUR come off along with commodity prices.
"The ranges are still wild, however, both currencies are still trading near their lows of yesterday and that should be a pointer as to where all currencies may move for the rest of the day.
"For the rand, the move back up from below 14.65 to nearer 14.80 was swift and although a trifle overdone points to the ZAR staying within 14.70 to 14.80 for the rest of the day with some moves outside on both sides possible."
At 07:21 on Wednesday the rand was trading at R14.75/$, R21.65/£ and R16.61/€.
Making sense of what's going on
Montalto said this type of violence is hard to characterise. "It is not fully organised or orchestrated but, equally, is not fully mindless or random. It is crucially intra-ANC, however.
"It is based not on ideology but power struggles and, ultimately, the access to power that comes with being mayor of a major metro. Ultimately, it is about access to rent extraction and patronage networks.
"In this sense, we would say (tentatively, given the complexity of politics at this level) that this is a battle occurring within the ‘tenderpreneur sphere, not between the tenderpreneur camp' and the rest of the ANC.
"Saying this is pro-Zuma vs anti-Zuma, however, is not clear and is probably the wrong way of looking at this – especially considering that the provincially Gauteng ANC is in the anti-Zuma camp."
He said the link between the tenderpreneur camp and Zuma is of course relevant, and it is believed that both Mayor Kgosientso "Sputla" Ramokgopa and Deputy Mayor Mapiti Matsena have been more in the Zuma camp than the rest of the provincial leadership of the ANC.
"Put simply, this type of local politics is complicated. What this does highlight, however, are some of the risks of the transition of power from the ANC to more contested politics with other parties and the contestation for power within the ANC in such an environment.
"It shows the importance that ‘cadre deployment’ – choosing who will be in charge, have access to patronage networks and tender decisions – (has) within the ANC and how conflict can develop over this, spilling over into violence. This is what ultimately concerns us."
