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Johannesburg - Economic watchers have broadly given their thumbs up to South Africa’s local government elections outcome this week.
Fierce competition characterised this year’s elections as the ruling ANC suffered its worst elections result since the dawn of democracy in 1994.
Voters’ support for the ANC across South Africa fell from 61.9%% in 2011 to 53.91% this year, according to IEC data.
Major cities proved to be the ANC’s biggest headache in this year’s vote as the DA won the lion’s share of votes in Nelson Mandela Bay (46.71%) and Tshwane (43.11%).
Meanwhile, the ANC led Johannesburg with 44.55% of the vote but it needs a coalition to govern the country’s economic powerhouse. In 2011, the ANC led Gauteng's Johannesburg comfortably with 58.56% of the vote.
And in South Africa’s other major urban province - the Western Cape - the DA stretched its lead from 57.7% in 2011 to 63.33% in 2016, according to IEC data. In Cape Town, the DA secured just over 66% of this year’s vote while the ANC limped to 24.36% in the city.
Amid the ANC’s poorer performance, economic indicators such as the rand started to trend upwards, hitting R13.70 to the US dollar.
This strengthening could be attributed to the election results, according to Momentum Investments' head of investment research and asset allocation, Herman van Papendorp, and economist Sanisha Packirisamy.
“The market has viewed the election outcome as broadly positive, with the rand strengthening by around 2.3% since the election,” said van Papendorp and Packirisamy in a research note.
“With the ANC receiving marginally less than 55% of the national vote (around a 7.5% drop relative to the 2014 national/provincial elections and the 2011 local government elections) and losing power in key metros (including Nelson Mandela Bay, the City of Tshwane and the City of Johannesburg) in addition to the City of Cape Town, market expectations are for the incumbent president’s decision power to be limited.
“Though expectations of a cabinet reshuffle are emerging, political analysts have suggested that the election results will unlikely afford the president an opportunity to change key ministerial positions, including the finance ministry,” said van Papendorp and Packirisamy.
The researchers, though, said that the ANC may offer Cabinet positions to senior members of smaller parties in a bid to build coalitions.
Looming junk status
But while the political landscape in South Africa changed this week to a more competitive scenario, the likes of credit ratings downgrades to junk still loom large amid growth constraints.
Last month, the South African Reserve Bank (Sarb) Monetary Policy Committee (MPC) left interests rate unchanged at 7% but it cut the country’s 2016 growth forecast to 0%.
Subsequently, Credit ratings agencies such as Moody’s, Standard & Poor’s and Fitch could downgrade the country to non-investment grade at the end of this year.
National government reforms then are needed, said Momentum Investments' analysts.
“The sovereign rating outlook for SA remains heavily reliant on government’s ability to fast-track key structural reforms to resolve SA’s structural growth issues,” said van Papendorp and Packirisamy..
“These include providing more clarity on the mineral and petroleum resources development amendment (MPRDA) bill and the mining charter, while the implementation of a secret strike ballot, the prevention of violent/protracted strikes and the setting of a national minimum wage still hangs in the balance,” said the pair.The analysts further said that the June 2017 ANC policy conference and the December 2017 ANC National Elective Conference are set to “provide clues” on the ruling party's direction of political power.Mixed reaction from credit ratings agencies
Meanwhile, global credit ratings agencies proffered mixed views on South Africa’s 2016 local government elections.
Moody’s - which earlier this year affirmed South Africa’s ratings at Baa2/P-2 and assigned a negative outlook - is upbeat about the country’s local vote and its possible economic impact.
“Increased political competition, as indicated by South Africa’s local election results so far, has the potential to boost reform momentum in the run-up to the 2019 national elections, but spending pressures are also likely to rise,” said Moody’s on Friday.
“Over the medium to longer term, this would indicate a shift from redistributive policies towards more growth oriented economic management and effective service delivery,” said Moody’s.
However, Fitch had a more sombre view as it rang a warning bell over possible populist policies.
“The pronounced drop in support for South Africa's ruling African National Congress (ANC) in the nationwide municipal elections on 3 August increases the risk of more populist government policies,” Fitch Ratings said.
“However, our base case remains broad policy continuity,” said Fitch.
