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Here is a bullish case for South Africa. Yes, you read that right. News from Africa’s most sophisticated, but troubled, economy has been unceasingly negative for years, with power outages, chronic unemployment, state corruption, crime, pitiful economic growth and a downward-trending rand as a constant background.
Add to that the fact that the African National Congress faces a national election in May in which its vote could fall below 50 per cent, and there’s all sorts of wild speculation about the political instability that could follow.
Yet in the short to medium term — we’ll leave anything beyond that to one side — there is a more positive story to be told.
The first bit of good news is that South Africa’s electricity crisis, a persistent drag on business and industry, will start to improve. Last year power was regularly off for 10 hours a day. Barring catastrophe, that will turn out to be the nadir.
The reason is this. In 2022, with his back against the wall, President Cyril Ramaphosa took on both the coal lobby — which opposes a shift to renewable power — as well as the ANC’s suspicion of the private sector. In one swoop, he removed limits on how much power private generators could produce. As a result, about 10 gigawatts of cheap solar and wind power will gradually come on stream. That will both relieve demand on the state power provider Eskom from private businesses now self-sufficient in electricity and increase the supply of power fed into the grid.
“In areas in which government lacks the balance sheet and the capacity to drive the necessary reform process, they have no choice but to let the private sector in,” says Simon Freemantle, senior political economist at Standard Bank, who also thinks South Africa may surprise on the upside.
The same factors are at play in transport and logistics, the other debilitating crisis. Transnet, the state-owned company that runs rail and ports, has been in as woeful a state as Eskom. Railways, where theft of cables and track has been rampant, have been unable to deliver freight. And ports such as Durban, Africa’s busiest, have been unable to handle it. In November, 79 vessels with about 70,000 containers on board were queueing off the coast. In 2023, transport backlogs pushed South Africa’s coal exports down to 50mn tonnes, their lowest since 1993.
As with Eskom, the worst may be over. This month, Transnet finally appointed a new chief executive, Michelle Phillips. Eskom, too, has a new (brave) chief executive, Dan Marokane, after the attempted cyanide poisoning and subsequent dismissal of his predecessor Andre de Ruyter in February last year.
More important, like Eskom, Transnet is turning to the private sector. International Container Terminal Services, a Filipino company, will run Durban port after a deal was clinched with unions to protect jobs. The provision of private security on the rail network by business has brought down criminal incidents on the vital north corridor by 65 per cent, according to the presidency. The government is discussing allowing businesses to run their own leased locomotives on Transnet rail.
The third bit of encouraging news was last month’s budget. Though elections are only a few months away, there were no big giveaways. In general, say economists, the treasury has done a decent job on reining in expenditure. A few years ago, there had been talk about a potential explosion of debt. In fact, it has held steady at around 75 per cent of output, according to Standard Bank.
Last, for those who crave stability at least, the result of May’s election is likely to be less dramatic than some are predicting. In all probability the ANC, which still inspires loyalty in rural areas, will not drop to the low-40s but will get 45 per cent or above. The fragmentation of the opposition helps.
That means the ANC should be able to govern nationally with a small junior coalition partner. There will be no vice-president Julius Malema or his radical Economic Freedom Fighters calling the shots. In short, if investors are braced for a turbulent year, they may be in for an anticlimax.
One should not overdo the optimism. The slightly brighter scenario this year may merely postpone the day of reckoning. As the electricity crisis fades, another — the provision of water, also undermined by decaying infrastructure — is looming into view.
More fundamentally, electoral relief for the ANC is likely to prove temporary as its failure to address structural problems becomes evermore manifold. Sooner or later politics is likely to reach boiling point. Just not yet.
david.pilling@ft.com
