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July in South Africa has been dominated by eight days of “anarchy and mayhem”, in the words of President Cyril Ramaphosa. The imprisonment of ex-president Jacob Zuma lit a tinderbox among citizens of the world’s most unequal society, instigating widespread looting and violent protests from 9 July, concentrated in Gauteng and KwaZulu-Natal provinces. The ruling African National Congress (ANC) has described the outbreak as an organised, orchestrated attack on democracy, intended to destabilise a system built on the concept of a rainbow nation – a heterogeneous society where all ethnicities benefit and thrive. President Ramaphosa even went as far as to call the unrest “a failed insurrection”. The disorder is believed to have been led by those close to the former president, the unofficial Free Zuma movement. In a country accustomed to civil unrest and protests criticising poor service delivery, these riots have been the most devastating since the end of apartheid, with over 300 killed and at least 3,000 arrested. The disturbances, known as #UnrestSA, strayed from the familiar pattern of even violent service delivery protests, with sabotaged infrastructure and destroyed businesses, rather than just small-scale looting and tyre burning.
Delayed government response worsened destruction
The government’s late response to #UnrestSA allowed its instigators to capitalise on the delay, and sabotage key economic hubs, according to transport minister Fikile Mbalula. Authorities failed to deploy the army until three days into the unrest, enabling the rioters to block key export corridors and commit largescale damage to infrastructure from 9 to 12 July.
With the most affected areas in one district of KwaZulu-Natal, eThekwini, facing a public infrastructure bill of more than ZAR 20 billion (USD 1.35 billion), a potential loss of 150,000 jobs, and government-owned insurance body Sasria Insurance Ltd paying out up to ZAR 20 billion to businesses impacted by the riots, the delay to deploy the army has cost the government dearly. A pickup in tax collections from the mining and financial services sectors have exceeded government expectations, helping fund the relief package, but it is liable to be a costly delay.
Sluggish growth and delayed promises of fiscal reform aggravate economic picture
In the short-term, we can expect prolonged operational disruption and supply chain disturbance as a result of the property and infrastructure damage. Acute economic harm is expected, with the revenue agency predicting losses of more than ZAR 48 billion (USD 3.24 billion). Worsening the outlook, state-owned entity, and ports operator, Transnet SOC Ltd, declared force majeure on 27 July over a cyberattack that targeted software managing goods at four harbours – many of which are the export points for South Africa’s landlocked neighbours. Most commodity shipments will continue unaffected, but imports and exports are likely to be hard hit by the shutdown, including those in the manufacturing or agricultural sectors. The combined impact on GDP growth is likely to be considerable, with many forecasters shaving one percentage point off growth statistics for 2021. Transnet, as of 28 July, is gradually bringing ports back online but exporters’ confidence remains low.
Prospects for renewed growth are slim. Start-stop curbs on economic activity as a result of the pandemic are likely to continue, the impact of which in 2020 led to a 7 percent shrink in the economy – the most in 100 years. Further out, ratings agencies will be considering the disruption as they reconsider South Africa’s credit ratings – many already at sub-investment grade. A negative sovereign debt assessment, influenced by sharp contractions in manufacturing, services and consumption as a result of the dual blow of the unrest and COVID, will not brighten the picture.
Politically, the government needs to address the inefficient bureaucratic systems that prevent it from intervening in crisis areas to remedy issues such as water provision or service delivery. Audits of municipalities’ infrastructure and maintenance, the creation of a disaster plan and fund, and relocating production to townships in order to stimulate informal economies are all important interventions that should be taken to stimulate the economy.
Zuma was the trigger, but the unrest’s root causes run far deeper
President Ramaphosa and the ANC face an uphill battle to resolve the underlying causes of the rioting: a perfect storm of brewing dissatisfaction with inequity, poverty and unemployment, poor service delivery and COVID-19 restrictions. The Free Zuma movement and its leaders may have pulled the trigger, but underlying socioeconomic malaise and disenfranchisement drove the scale and opportunistic nature of much of the criminality. Economic and civil stability depends upon remedying these drivers.
Ramaphosa has unveiled a series of relief measures intending to placate the protestors, including the reinstatement of a monthly welfare stipend of ZAR 350 (USD 23.58) until the end of March 2022, and a ZAR 400 million (USD 27.4 million) state contribution to a humanitarian relief fund. Uninsured businesses will receive direct support, and other affected companies some tax breaks. Equally, the Treasury will produce a relief package worth ZAR 38.9 billion (USD 2.6 billion) for both businesses and individuals affected by the rioting. A ZAR 350 stipend is not enough to fix unemployment and underemployment, though it kicks the can down the road, buying the government enough time to instigate much needed reforms where possible. Zuma-aligned factions within the ANC are losing steam, particularly with the recent suspension of Ace Magashule as secretary-general, and the pendulum appears to be swinging towards Ramaphosa and his reform agenda.
Longer-term, the discussion around a guaranteed annual income, or universal basic income grant, is picking up pace across the country. Long touted as a solution to a burgeoning class of unemployed and underemployed, a universal income grant for everyone over 18 would be costly, at a time when the country’s economic circumstances are already dismal. The official unemployment rate stands at 32 percent, but with 2.2 million jobs lost in the second quarter of 2021, the reality is likely closely to 40 percent, with 74 percent of young people unemployed. Revenue collection continues to let down government budgeting, and significant changes would be needed in order to balance the books. The government’s wage bill for 1.3 million state workers continues to rise, despite an interim pay deal struck with the unions last week. Cutting it would cause major political upheaval, and risk imminent strike action. It is difficult to see where South Africa would be able to turn to plug the fiscal gap and increase social welfare spending, especially when confronted with ailing infrastructure and liabilities like Eskom.
The bureaucratic, political and budgetary issues that would arise from rolling out the most commonly discussed stipend – at a total of around ZAR 200 billion (USD 13.7 billion) annually, or 20 percent of the government’s wage bill – are not worth considering for the ANC. Raising wealth taxes, increasing personal and corporate income taxes, or introducing financial transaction taxes are all easier said than done, and would undoubtedly increase the wealth flight and offshoring that is already underway among South Africa’s wealthier residents. Existing tax rates are already uncompetitive on a global stage, and Ramaphosa and the ANC executive committee will be weighing up the potential for low-paid working voters to abandon the ANC as a result. Any permanent social stipend programme would give the opposition fresh political ammunition as municipal elections approach.
Societal and political divisions laid bare, but lightning is unlikely to strike twice
The Electoral Commission of South Africa (IEC) has sought permission from the courts to postpone the municipal elections, currently scheduled for 27 October 2021, after an inquiry recommended the delay because of the pandemic. The inquiry’s report aims for the elections to be held no later than February 2022. Even if the courts accept the delay, it does not buy Ramaphosa enough time to heal the rifts within the party, let alone the country. Ramaphosa has tried hard to portray himself in a Mandela-like light, as the father of the nation, bringing it back on course after the tumultuous Zuma era. A delay in the elections, buying time for increased vaccine rollout, the extension of the basic emergency income stipend, and a healing time for a nation bruised by the protests, will all play into the ANC’s hands. Weaknesses of traditional opposition parties such as the Democratic Alliance also help brighten the outlook for the ANC. As local, district and metropolitan councillors are up for re-election, AML expects the ANC to maintain overall control, despite frustration over its perceived lack of achievements.
Every difference in opinion within the ANC is instrumentalised to sow further divisions amongst its factions. That is unlikely to change. But the state as a concept, and the strength of the constitution, political and judicial systems in South Africa guarantee that an assault on democracy on the scale of #UnrestSA is a black swan event and unlikely to happen again in the next two to three years. That said, all eyes will be on the resumption of Zuma’s corruption trial, set for 10 or 13 August as a potential flashpoint for smaller-scale unrest.
