Johannesburg - As South Africans voted in local municipal elections yesterday, economists waited to see if the outcome might cause the government to alter its economic course.
An opinion poll released by research company Ipsos on Tuesday showed the ANC winning the total vote with 54 percent and losing its majorities in both Pretoria and Johannesburg. The ANC has captured more than 60 percent of national support in all elections since the end of apartheid in 1994. This comes at a time when one in four South Africans are unemployed, the cost of living is increasing and the Reserve Bank expects zero growth this year.
The rand in intraday trade yesterday continued to break through the key level of R14 to the dollar, while local financial markets were closed. At 12.41pm it was at R13.9739 to the dollar. By 5pm it was R13.9851.
The currency has weakened about 40 percent against the dollar since Jacob Zuma took power in May 2009. The elections could add to political risks, which ratings agencies are watching. S&P Global Ratings cut its assessment of South Africa’s debt to its lowest investment grade level last year, with a negative outlook, while Fitch Ratings also has us just one step above junk.
Dominance
Greg Katzenellenbogen, a director at Sanlam Private Investments, said investors would probably welcome any slippage in the ANC’s dominance in yesterday’s municipal elections, because it could push the party to do more to attract investment and stoke an economy growing at the slowest rate since a 2009 recession.
“The rand could strengthen in the short term,” he said. “People may think that opposition gains will spur the government to have a long hard look at themselves. It will appear that people are actually looking for some real change.”
The ANC will probably try to halt defections to the EFF, rather than the DA, by increasing welfare benefits, introducing a wealth tax and setting a national minimum wage, Peter Attard Montalto, an economist at Nomura, said.
“The election doesn’t necessarily mean a new shift to the left per se, but instead an accelerated move down an existing path,” he said. “Investors may be overlooking the risk that policy heads in the wrong direction and is ultimately destructive for jobs.”
Wayne McCurrie, the head of portfolio management at Momentum Wealth, is among those who does not expect the elections to have a major bearing on policy.
Real relevance
“As far as overseas investments are concerned, or as far as the economy is concerned, it is only the national elections that carries real relevance,” he said.
“Even if the ANC does badly in this municipal election in comparison to how they’ve done before, I don’t think anyone is going to start speculating that they might be in the minority after the next national election.”
Investors and ratings companies are more concerned about the country’s growth challenges than about the elections and its possible policy implications, according to George Herman, the head of investment at Citadel Investment Services.
“The financial markets will reward South Africa for an effective democratic process,” he said.
For now reduced bets for US rate increases and prospects for more stimulus in Europe, the UK and Asia are spurring demand for higher-yielding assets.
“Investors are not paying attention to the underlying fundamentals or the possible risks, but just diving head-first into the pursuit of returns,” said Peter Rosenstreich, the head of market strategy at Swissquote Bank in Switzerland, whose strategy is to “invest with the markets”.
Foreign investors bought a net R9.1 billion of South African bonds in July, bringing inflows this year to R50.2bn.
BUSINESS REPORT