In this photo illustration, the stock market information of Moodys Investors Service seen displayed on a smartphone with the Moodys logo in the background. (Igor Golovniov/SOPA Images/LightRocket via Getty Images)
South Africa may struggle to make much more progress on
resolving the country’s long-standing challenges if a coalition government
emerges after elections this month, Moody’s Investors Service cautioned.
“These include stimulating years of sluggish economic
growth, curbing chronic power shortages and reducing very high unemployment,”
said Aurelien Mali, vice president – senior credit officer at Moody’s. “The
current government has made incremental progress on these issues.”
Opinion polls suggest the ruling African National Congress could lose its
national majority in the 29 May elections for the first time since taking power
in 1994. While it’s expected to remain the largest party, dropping under 50% of
the vote will force it to form a coalition government.
Already complicated
“The strength or otherwise of the new administration’s
mandate – and any concessions to minor parties needed to secure support – could
make the already complicated management of fiscal, economic and social policy
objectives even more difficult,” Mali said.
Gross domestic product growth in South Africa has averaged 0.8% in the past decade, a rate
insufficient to address rampant unemployment and poverty. Growth has been
hampered by fraying port and rail networks, crime and state-owned utility Eskom’s
inability to meet electricity demand due to poor maintenance and aging power
plants.
“The election raises the possibility that policies from
comparatively radical parties, including policies not friendly to investors,
will emerge,” Mali said. “Yet we believe the ANC will remain the
dominant political force in South Africa, even within a ruling political
coalition, which limits the risks of an abrupt shift from the current mix of
economic and financial policies.”
An Ipsos poll released on April 26 showed ANC support at 40.2%
compared with the 57.5% it won in the 2019 election.
It also suggested the newly formed uMkhonto weSizwe Party,
backed by former President Jacob Zuma, is sucking voters away from the leftist
Economic Freedom Fighters. It saw the EFF polling around 11.5%, down from 19.6%
in its February survey, while MKP has the support of 8.4% of voters.
Moody’s sovereign credit rating for South Africa is stable
at Ba2.