WHAT IT MEANS: Immature opposition may stymie delivery. Political contestation could slow economic reform.
The economic implications of the municipal elections depend on whether coalition-run metros are able to transcend political divides to keep urban management on track, and whether President Jacob Zuma can be reined in at a national level.
SA relies on its large cities to buoy the country’s growth rate. While the national economy grew by 3% on average between 1996 and 2012, the metro economies grew by 3.7% and the mega-city provinces performed even more strongly.
Gauteng grew by 4.6%/year between 2001 and 2011, the Western Cape by 4.1% and KwaZulu Natal by 4%, compared with the national average of about 3%.
After national government, the big cities play the most important role in driving economic development because of their key functions, such as land-use management, and planning and infrastructure provision.
Take the building of a new shopping centre.
It is the city that is responsible for rezoning the land, approving the plans and putting in the links to bulk infrastructure to enable the development to take place.
Two years ago, national treasury launched a five-year Cities Support Programme (CSP) to accelerate investment in urban infrastructure and to get cities to reduce the costs of doing business.
Treasury director-general Lungisa Fuzile says treasury remains committed to working with cities through the CSP, regardless of the election outcome.
The four metros where the ANC has lost its outright majority — Cape Town, Johannesburg, Tshwane and Nelson Mandela Bay — preside over budgets totalling more than R130bn.
With national growth having slowed to a crawl, SA cannot afford new metro councils governed by inexperienced coalition partners to flounder. At a minimum, they must keep the urban management basics solidly in place or business will not be able to operate.
"If SA messes up one or two metros the country will be plunged into a recession. It’s really very serious.
" If Jo’burg is paralysed, then Gauteng will be too and it will be a disaster for the whole country’s economy," says Andrew Boraine, the CEO of the Western Cape’s Economic Development Partnership.
Boraine has 15 years’ experience in the partnership business, including running the Cape Town Partnership (an independent, nonprofit organisation that lowered inner-city crime and restored the Cape Town central city to world-class status). He says collaboration is the key to driving economic development.
Some previous coalitions in the Western Cape have been disastrous. Take Oudtshoorn, where political infighting dragged on for years and nearly bankrupted the town.
"The lesson from Oudtshoorn is that how you behave in opposition is as important as how you behave in leadership because political immaturity in opposition that focuses only on short-term point-scoring can paralyse services for everyone," Boraine warns.
There is a misconception that ideology doesn’t matter at a local level because municipalities have no role in macroeconomic policy-making.
Boraine predicts, however, that metro coalitions could get bogged down by the perceived dichotomy between economic and social development or between going for growth as opposed to economic inclusion.
"I would recommend building coalitions on a common agenda of inclusive growth, otherwise one party will only want to do projects in marginalised areas while the other will first want to grow the economy," he says.
"It doesn’t have to be an either/or situation. You can do both."
Simon Baptist, chief economist of the Economist Intelligence Unit, notes that a DA-EFF coalition could, in theory, take power in Tshwane and Nelson Mandela Bay, as well as in Johannesburg (with the addition of a third party). But he warns that their radically different policy platforms will make it hard to find common ground. "Also, as a new party, the EFF’s demands are unpredictable, and it may prove to be an unreliable partner," he says.
And, unlike in the Western Cape, any new DA-led metro coalitions will lack the backing of their provinces, which remain in ANC hands, making it that much harder for the DA to cement its reputation for stronger governance.
Coalition risks aside, the overall reaction to the election results has been resoundingly positive. "Despite the polarisation, all the race-baiting, all the intolerance that has been shown in our country over the past year, the people spoke and said they want a united, nonracial shared future, and that is enormously powerful," says DA leader Helen Zille.
The markets appear to have endorsed this interpretation, with the rand having strengthened from more than R15 to the dollar, R17 to the euro and R21 to the pound in mid-June to R13.30/$, R14.85/¤ and R17.30/£ as of last week.
While emerging markets in general have rallied on a surge in risk appetite caused by the dovishness of the leading central banks, Investec chief economist Annabel Bishop feels that the election outcome has also bolstered sentiment towards SA.
"SA is now believed to have a viable political opposition to single-party rule, that could incentivise growth-friendly economic reforms, and counter the previous growing threat to private sector property rights," she says.
Ratings agency Moody’s takes a similar view, concluding that "the change in the political power balance infers a shift from redistributive policies towards more growth-orientated economic management and business-friendly reforms."
This view holds that the election is a wake-up call and the ANC must realise that it has to be more responsive to voters and must double down on reforms to accelerate growth and investment so as not to lose further support by the 2019 general election.
With Cosatu devastated, the SACP hounded out and the radical youth wing in the form of the EFF ejected, the ANC has more space than ever before to introduce business-friendly policies.
However, S&P Global Ratings feels there is a risk that the rise in political contestation could distract the ANC’s focus from the economy and, over the medium term, lead to policy reviews that slow the reform momentum.
The local election results are a significant step towards the consolidation of democracy in SA, but they will do little to advance economic reform and progress, agrees Christopher Vandome, a research assistant at Chatham House, an international affairs think-tank based in the UK.
Writing in Newsweek, he predicts that the DA will battle to deliver on the promise of change due to weak coalitions, while the ANC will become embroiled in a leadership race that will consume the party. "While these political battles play out, the country will continue on a trajectory of policy paralysis with few solutions offered to tackle the ingrained structural problems that SA faces," he says.
Indeed, the emerging consensus among political analysts is that Zuma will go after his enemies, purge the Gauteng leadership, reshuffle the cabinet to promote his dominant faction and, in the process, profoundly weaken the ANC and the economy as a whole.
But there are several dissenters who just can’t believe that the party will allow Zuma’s wrecking ball to hasten the party’s demise.
"This would result in the ANC’s complete abandonment of the economic heartland. It would become a party of KwaZulu Natal, with diminishing support in other areas.
"If that happens, the ANC has got a really good chance of losing in 2019," says political analyst Nic Borain.
"I’m not sure anyone is that narrow or stupid to pursue a strategy like that."
On the other hand, the ANC says it has no plans to recall Zuma or make him accountable for its election losses. Borain feels the ANC is likely to bumble along some middle path in which Zuma is made to take a back seat in running the country for the coming year, but remaining both an obstacle to reform and a reminder of why it is so badly needed.
What’s problematic with this scenario is that as long as Zuma remains in the Union Buildings, the ANC will be unable to confront the deep-seated structural problems, such as corruption, cadre deployment and state capture, which define his administration. The question then becomes: how much genuine structural reform would SA be able to effect with Zuma in situ or under his anointed successor?
Or, put differently, how little structural reform could SA get away with for the ANC to avoid losing further votes or the country its investment grade rating?
It seems SA may be about to find out.