S.A.'s key political risks

April 7, 2011 - 0:0

JOHANNESBURG (Reuters) -- With World Cup euphoria fading, old tensions are resurfacing in South Africa, including strike threats by trade unions, anger towards migrant workers and rifts in the ruling African National Congress (ANC).

Other problems such as a strained power grid and anger among poor blacks at shoddy public services are also likely to bubble up again, especially as politicians prepare for council elections in the first half of next year.
Many of the issues at stake feed demands for more government spending, a route that risks stoking inflation and widening the budget deficit at a time of international concern about public debt.
The rand ZAR=D3 and government bonds would be the most likely victims of any loss of confidence.
The mid-year “strike season” is still in full swing, with nearly a million public sector workers threatening to down tools in early August if government does not meet demands for a wage increase about twice the rate of inflation, now at 4.2 percent.
A repeat of the massive and prolonged industrial action that crippled government in 2007 looks unlikely given the proximity of the two sides' current positions.
However, a generous settlement for some state workers is likely to raise expectations across the board, and ultimately put pressure on the budget at a time of concern among investors at home and abroad about unsustainable levels of public debt.
Workers at state logistics group Transnet in May won a pay rise well above inflation after a three-week rail and ports strike that hit exports of coal, cars and fruit, and which cost the economy about $1 billion in lost production and sales.
Unions at state utility Eskom
[ESCJ.UL] then used the threat of disrupting power supplies during the soccer World Cup to press successfully for a similar increase.
The confrontational rhetoric and tactics also pick at cracks in the relationship between the ANC and its formal governmental allies -- the trade union federation COSATU and the small yet influential Communist Party.
They also suggest a lack of willingness among unions to accept the need for reform of the economy and labor market to tackle 25 percent unemployment, a factor behind the country's alarmingly high crime rate and almost daily public service protests in black townships.
What to watch: - Intensity of strikes. Violence is likely to intensify concerns about economic competitiveness and could hit the rand.
- Generous wage deals for state workers. The budget deficit is at 6.7 percent of GDP and government promises to bring it down have bought some breathing space. Signs of those deficit reduction plans slipping could undermine the rand and bonds.
- Unions throwing their weight around before an ANC conference in September at which they are likely to push for economic policies favoring workers and the poor.
The World Cup generated a surge in African “brotherly love” as local fans rallied behind other teams from the continent, but the soccer-fuelled pan-Africanism did not last long beyond the final whistle.
More than 16 years after the end of apartheid, millions of South African blacks continue to live in squalid shanty towns and unemployment running at 25 percent after last year's recession has only increased their anger and frustration.
The resentment is stoked by the presence of as many as 5 million African migrants -- some legal, many more illegal -- competing with locals for houses and scarce jobs.
That volatile mix exploded in 2008 in a wave of violence in which 62 people died and 100,000 were made homeless across the country. The rand fell as the political frailties of the “Rainbow Nation” were laid bare.
July saw isolated attacks on foreigners near Cape Town and Johannesburg, but the government was quick to send in the police and army, suggesting it would not allow the incidents to escalate across the country, as happened in 2008.
Watch out for:
- Documented attacks on foreigners
- Speed and size of response from security forces