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SOUTH AFRICA: Ripple effects of unrest

Table of Contents

  • President Cyril Ramaphosa is under massive pressure to tackle the fallout from nine days of unprecedented unrest and looting by cleaning up the party and cabinet.
  • Although the government's initial security response to the mayhem was too little too late, the deployment of more than 21,000 SANDF troops has since largely restored order in affected areas in KwaZulu-Natal and Gauteng.
  • The economic costs of the unrest are still being counted, but it has already triggered a fiscal response with fresh social and business relief announced on 25 July.

Political ramifications

The ruling African National Congress (ANC) is taking stock of events at a special extended National Working Committee (NWC) meeting on Monday, 26 July. Given that President Cyril Ramaphosa has described the unrest as an “insurrection” – which was seemingly orchestrated and fanned by a small but highly motivated hard core of Zuma allies in security structures, local party structures and his family – shines an uncomfortable spotlight on the extent to which internal ANC divisions between Ramaphosa's side and the so- called'radical economic transformation' (RET) faction pose a risk to South Africa's stability. Although further acts of economic sabotage cannot be ruled out, by grossly overstepping the mark and taking the nation to the brink of a breakdown in law and order, the RET faction is actually losing support, including within the ANC National Executive Committee (NEC). This may have several implications:

  • Within the ANC, the egregious nature of the'economic sabotage' will allow Ramaphosa, albeit in his ever-cautious style, to continue his clean-up within the party, including suspensions, possibly expulsions and disbanding of units like the MKMVA military veterans.
  • Within government, pressure on Ramaphosa to carry out a much-anticipated cabinet reshuffle has also redoubled, particularly in light of the dismal performance of the security cluster ministers in recent weeks. One clear problem, however, is the extremely limited talent pool of credible, uncorrupted, and reform-oriented replacements.
  • On the electoral front, the fallout from the showdown with Zuma's lieutenants could cost the ANC votes in KwaZulu-Natal (KZN), perhaps in the municipal polls (which the Independent Electoral Commission will try to postpone from October 2021 until February 2022 on account of the pandemic). Nevertheless, opposition weakness could mean low voter turnout, rather than mass migration of votes to opposition parties. While electoral losses could pile pressure on Ramaphosa's leadership, over time a clearer split within the party could begin to unblock some (though hardly all) impediments to reform over the medium-term.
  • Ahead of next year's ANC elective conference, the RET faction's setbacks, particularly the suspension of secretary-general Ace Magashule, has cost it control over membership and electoral processes from the branch level upwards. This should bolster Ramaphosa's chances of securing re-election for a second term as party leader in 2022.

This is not to say that the ANC is on the cusp of being reformed, quite the contrary. The deeply dysfunctional party, coupled with Zuma's networks and the losers of Ramaphosa's cleanup inside and outside of the ANC, pose a continued threat to stability. This applies especially in the context of record-level unemployment, inequality, poverty and outright hunger, as well as a very poor intelligence and police response to the unrest.

Economic costs

The costs to the economy and business confidence are still being counted. So far, the SA Property Owners' Association estimates the damages, particularly to malls, road freight and warehouses, to amount to some ZAR 50bn (USD 3.4bn). Independent economists expect the unrest to reduce South Africa's GDP growth by 0.4%-0.7% this year. The South African Reserve Bank (SARB)'s monetary policy committee (MPC) has maintained its GDP growth forecast for 2021 unchanged at 4.2% on account of the unrest. However, it had previously expected to announce an upward revision on the back of better-than-expected Q1 growth. Nevertheless, its medium-term inflation outlook remains comfortably around the mid-point of its targeting range, at 4.3% for this year, signaling lower rates for longer.

Fiscal response

The biggest fiscal implication of the unprecedented unrest is the extent to which it has moved the needle on a decade-long debate about whether South Africa should introduce a basic income grant (BIG). A BIG increasingly appears to be seen as the price for keeping the peace in a climate of profound, pandemic-aggravated socio-economic despair, particularly after the special Covid-19 grant, worth ZAR 350 a month and introduced in June 2020, ran out at the end of April. Late on 25 July, Ramaphosa announced fresh social relief, including a ZAR350 (USD 24) per month income grant expected to reach the 7mn recipients of the original Covid-19 grant plus 2.5mn child caregivers, who currently receive childcare grants of ZAR 460 (USD 31) per child. The National Treasury – on the hook to deliver fiscal consolidation – does not have appear to have been in the driving seat of such proposals but will be left to scramble to find the money. The expected cost is currently estimated around ZAR 40bn (USD 2.7bn), though the government expects to finance this via better-than-expected revenue driven by higher commodity prices. Technically the scheme will expire at the end of March 2022, but the political scope for withdrawing aid will be limited.

In response to business pressure, Ramaphosa has also announced additional support measures. He provided assurance that the state would back state-owned risk insurer Sasria amid concerns that it might not be able to settle claims estimated at around ZAR 10-12bn. He also promised dedicated funds to assist uninsured businesses; the extension of unemployment benefits to businesses closed by the violence; an extension of the employment tax incentive scheme by four months; and temporary tax relief.

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SOUTH AFRICA: Ripple effects of unrest

President Cyril Ramaphosa is under massive pressure to tackle the fallout from nine days of unprecedented unrest and looting by cleaning up the party