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Posted on Friday, 27 November 2015 11:00

South Africa Country Profile 2015: Problems rumble below the surface calm

By The Africa Report

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The governing African National Congress (ANC) remains comfortably entrenched in power, although opposition from the political left is strengthening.

Political life during 2015 will remain heavily influenced by the party's internal dynamics. In 2017, the ANC will elect a new party president to replace Jacob Zuma and lead it into the general election in 2019.

Zuma is ever more deeply mired in embarrassing legal wrangles and is fighting what seems a losing battle – at least in terms of public opinion – against the country's feisty public protector, Thuli Madonsela, over the public money spent on his private residence at Nkandla. Calls for Zuma to resign have been coming thick and fast, particularly from the opposition Democratic Alliance (DA) and the newcomers in the Economic Freedom Fighters (EFF).

Zuma's control over the ANC remains firm, and he can continue to bat away these calls with ease. There are several possible candidates to replace him waiting in the ANC's wings, but none have yet dared reveal themselves.

Strikes and factions

Beyond the cosy corridors of power, the South African economy is struggling, with gross domestic product (GDP) growth at a minimal level. The government has not achieved much in sectors such as housing provision and service delivery. Labour relations across mining, manufacturing and commercial agriculture are as tense as they have ever been since 1994.

The Association of Mineworkers and Construction Union led a costly five-month strike in the platinum sector during 2014, eventually securing a 13% annual wage increase for its lowest-paid members. The National Education, Health and Allied Workers' Union, the main public-sector union, wants tangible rewards for its support of the government in the factional fights plaguing the Congress of South African Trade Unions (Cosatu) and will react angrily to any lower wage offer from the government.

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The ANC will hold a National General Council (NGC) in mid-2015. At the last NGC, back in 2010, much of the debate was about whether to nationalise mines.

Partly in response to the strong showing in the 2014 elections by the EFF – it took 6.4% of the national vote – the issue will resurface, though probably couched in terms of increasing black ownership rather than boosting state control.

Another topic will be whether to reduce the number of provinces from the current nine. Many in national ministries dismiss provincial government as expensive and incompetent. Provincial governments provide patronage opportunities, and there will be resistance to proposals for restructuring.

A woman next?

The NGC will no doubt reveal the rifts within the party. Particularly illuminating will be another item Zuma wants on the agenda: whether the next president should be a woman. The two obvious candidates are Zuma's ex-wife and chair of the AU Commission, Nkosazana Dlamini-Zuma, and ANC chairperson and National Assembly speaker Baleka Mbete.

Dlamini-Zuma's AU term expires in 2016, leaving her the option of returning to South Africa to contest the presidency. But Cyril Ramaphosa, the deputy president of the ANC and thus the official heir apparent, may have other ideas.

The DA intends to push for corruption charges against Zuma to be reinstated. But for as long as he is president, he will retain a formidable influence over the intelligence agencies, the National Prosecuting Authority and the justice department, which could also help him craft a strategy to stay out of court once he is no longer president.

Cosatu turns 30 in 2015, but it may have little to celebrate. Its 15th national conference will likely feature a bruising leadership battle between pro- and anti- Zuma factions, the latter drawn from the National Union of Metalworkers of South Africa (NUMSA), the union federation's largest affiliate. South African real GDP growth fell 0.6% during the first quarter of 2014 due to the platinum miners' strike and a weakening in manufacturing output. Then it rose 0.6% during the second quarter, thus saving the country from its first recession since 2009.

A plethora of government economic plans have concluded over the years that growth of at least 5% is needed to make a dent in the unemployment figures, but clearly South Africa is far from reaching this level. Barring major new strike action at the mines, mining output will be higher in 2015 than in 2014, largely because so much platinum production was lost during the 2014 strike. Such an increase will be tempered by the platinum price, which dropped about 17% from July to October 2014.

Gold is set to continue its decline in output, with sinking prices too – it recorded a 27% drop in price from January to October 2014. Prospects for agriculture and the service sector are brighter, though South African consumers will remain under severe pressure, reining in their spending capacity, which in turn limits the country's growth.

Keeping the lights on

The main upside to the country's feeble growth story is that it is keeping the lights on. The country's energy parastatal Eskom has predicted that electricity supply will be highly constrained over the next five years. But if South Africa were enjoying higher economic growth, the pressure on the grid and the likelihood of debilitating electricity blackouts would be even higher.

The government authorised Eskom to raise an additional $4.5bn in debt and promised an equity injection in September. The Medupi coal-fired power station in Limpopo Province was beset by endless costly delays but is scheduled to produce 4,800MW of electricity once fully operational, adding 11.4% to the country's currently installed capacity of 42,000MW.

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It will consume 40,000tn of coal a year to do so, rendering South Africa's electricity generation among the most polluting on the planet. Its first production was set to hit the grid in December.

A major area of innovation in the economy in 2015 will be renewable energy. A number of new projects, mainly in solar and wind, will come on stream during the year, though a new problem has cropped up, namely that Eskom is struggling to connect them all to the national grid.

A widening current account deficit is partly driven by the rising cost of imports but also by a worrying decline in domestic manufacturing output and exports. This is fuelling domestic inflation, which exceeded the Reserve Bank's 6% target during the second half of 2014.

Average annual inflation in 2014 was expected to be around 6%, perhaps dropping to 5.5% during 2015. The winding down of the quantitative easing programme in the US reduced global liquidity, cooled investor appetite for riskier investment destinations, like South Africa, and weakened the rand against the US dollar.

China is South Africa's single largest trading partner, with bilateral trade climbing from R205bn ($24.2bn) in 2012 to R270bn in 2013, but the trade is skewed heavily in China's favour. The two governments have formed a joint working group to attempt to achieve a more equitable balance.

South African business continues to expand its presence across Africa, particularly in retail, telecommunications, mining and engineering services. Meanwhile President Zuma has requested Russian support for South Africa's peacekeeping efforts in Africa, including its participation in the AU's standby force.

The country will maintain its military deployment to eastern Democratic Republic of Congo, where its soldiers are teamed with troops from Tanzania and Malawi in a UN-backed intervention force.

The man in the red beret: Outspoken, but never dull

Julius Malema's chant to President Zuma during a National Assembly debate in August that he must"pay back the money" has already entered popular culture. A dance remix of the chant was released within hours of the debate about spending on Zuma's private residence in Nkandla.

Some of Malema's ardent detractors, of whom there are many, admitted that the EFF leader had dramatically made his point despite the ANC's best efforts to prevent him from doing so. Malema will keep pushing for an answer on Nkandla from Zuma during 2015.

Whether he will make much headway in pushing for EFF policies, which include the Zimbabwe-style confiscation of white-owned land without compensation or the nationalisation of South Africa's banks and mines, is another question entirely.

A large majority of South Africans still prefer the ANC's moderate approach, requiring willing buyers and willing sellers in the first instance and black economic empowerment rather than takeovers in the second.

However, Malema's dynamism and concerns about corruption within the ruling party have begun to erode its support base. Malema's tax and legal troubles should subside somewhat during 2015, thanks to generous financial contributions from mystery donors. In the meantime, his political profile is likely to remain sky high.



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