By Jon Herskovitz
JOHANNESBURG - South Africa’s ruling ANC has mostly ignored alarm bells rung by the world’s major rating agencies, which say the continent’s largest economy is on the wrong track and the government is failing to fix it.
Instead, the African National Congress has focused on a bruising succession battle between front-runner President Jacob Zuma and his foes, scrambling for delegates ahead of a year-end elective conference.
The party will hold a policy meeting in June ahead of that conference, but its plans to tackle chronic unemployment, a broken education system and rigid labour laws have failed to impress investors.
Meanwhile, the country’s electric grid is nearing the edge of its capacity, raising fears of a repeat of blackouts that shut factories and mines in 2008, causing billions of dollars of damage.
INTERNAL FIGHTS
Zuma appears to have sidelined his main rival, ANC Youth League President Julius Malema, who risks permanent expulsion from the party for violating its rules. The party has temporarily kicked him out on a separate offence of calling Zuma a dictator.
Zuma’s path to re-election as ANC leader would have faced a serious obstacle if Malema, a populist calling for a take-over of mines and once considered a party kingmaker, had remained in the movement.
If Zuma wins the party leadership race, he is almost certain to be the party’s nominee for the 2014 presidential election, and the ANC's stranglehold on politics means its candidate is guaranteed to win the vote.
But the ANC has not yet enforced its decision to formally expel Malema, setting up a battle in which the most likely weapons will be allegations of corruption.
Zuma has been implicated but not convicted in a decade-old arms deal that saw many political heavyweights jailed for accepting bribes. Fresh dirt could undermine him ahead of the policy conference in June and the ANC election in December.
Malema is facing a police probe into his finances and a Treasury investigation into the books of his home province of Limpopo, where firms connected to the youth leader have been awarded several government contracts.
Zuma’s government has also put before parliament several pieces of legislation on secrecy. If passed, critics say, the measures would set up a small cabal around the president who could bury harmful information under the guise of it being state secrets and spy on its foes without seeking approval from the courts.
What to watch:
- Dithering by the ANC that allows Malema to stay on and undermines senior members who want him out.
LABOUR WORRIES
Leading labour federation COSATU, in a governing alliance with the ANC, has tried to flex its muscles with a mass protest in March against the use of temporary workers.
Zuma’s top financial advisers are trying to steer the government away from union-friendly policies backed by COSATU by pushing plans to make it easier for firms to hire and fire workers.
But the government has not taken the advice.
The ANC has sent to parliament four major measures aimed at appeasing COSATU. The bills place more burdens on employers, make it more difficult for them to hire seasonal labour and drive up the cost of staff.
Economists say the government, in order to cut chronic unemployment, must reduce the raft of regulations stifling employment in the private sector and ranked among the globe’s most restrictive by the World Economic Forum.
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.
What to watch:
- Delays in the labour bills, which would indicate the ANC is backing away from COSATU.
- Progress on what is known as a "youth wage subsidy", which COSATU deplores but economists see as helping young people get jobs.
DOWNGRADES
Fitch, Moody’s and S&P have in the past few months downgraded the outlook for South Africa, saying Zuma has not done enough to tackle structural problems or cut into the growing state debt.
The ANC wants to increase revenue by imposing a windfall tax on mining firms in the resource-rich state, according to discussion papers for its policy meeting.
The ANC has devised numerous high-minded plans to improve schools, create jobs and end poverty since it came to power at the end of apartheid in 1994 but most of them have been crippled by corruption and incompetence.
The country is on track for years of low growth, far below the 7 percent a year the Treasury says is needed to make a significant dent in unemployment.
One promising sign is that the central government has taken control of failed departments in a few provinces in an effort to restore health and education systems.
But there have also been hundreds of anti-government protests by people still waiting for basic services such as electricity, running water and schools. These have undercut ANC promises to provide "a better life for all".
What to watch:
- Growing protests about service delivery, which will be seen as a rebuke to Zuma’s administration.
ELECTRICITY
The near-collapse of the grid in a system overload in 2008 forced mines and smelters to shut for days and deterred new mining and manufacturing investment. Electricity supply shortages still worry businesses and households.
State utility Eskom said it has secured enough cash to build new power stations, and the first new unit will come on stream later this year. Eskom’s capacity margin will remain thin until a massive new power plant comes on stream. This is due next year but may be postponed because of construction delays.
Large tariff increases over the next three years are helping Eskom plug its funding gap, but industry leaders complain that the extra costs are likely to stifle growth.
What to watch:
- Additional tariff rises to pay for power stations that could fuel inflation.
- Blackouts caused by system overload may undermine Eskom’s assertions that there will be no repeat of 2008, deterring long-term direct investment.
(Editing by Alessandra Rizzo) - Reuters
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