December 12, 2011 / 10:59 AM / 8 years ago

FACTBOX-Key political risks to watch in SAfrica

JOHANNESBURG, Dec 12 (Reuters) - South Africa is facing a confidence crisis after its ANC-dominated parliament rammed through a state secrecy bill critics said would make it easier to cover up corruption and punish those who try to expose it.

President Jacob Zuma, already on the hot seat for perceptions his ruling African National Congress government is fostering cronyism, has seen his spokesman dragged through the media for suspicions of receiving kickbacks and lying to investigators.

His plans to create jobs and revamp Africa’s largest economy have mostly been failures, with analysts saying he is not willing to push through the necessary reforms to make South Africa more competitive with its emerging market peers.

Meanwhile, the rand has weakened severely against the dollar, stoking worries of inflation as imports become more costly for a country that relies heavily on overseas producers for many of its goods.

CORRUPTION

South Africa has slid in the Transparency International gauge of perceived corruption in recent years from 38th in the world in 2001 to 64th in 2011, with many worried about the government tunring a blind eye to sweetheart deals that benefit the politically connected.

Transparency International said about 60 percent of respondents in a survey replied corruption had increased under President Zuma while 12 percent said it had dropped.

The Protection of Information Bill approved by parliament allows any government agency to apply for classification of information that is “valuable” to the state, and criminalises the possession and distribution of state secrets.

Critics say the bill harms the nation’s already weakened credibility and intimidates those who try to expose graft. The ANC said the bill is essential for protecting state information and keeping spies at bay.

The press has criticised the legislation as an attempt to silence whistleblowers and muzzle investigative journalists, who now face up to 25 years in jail for revealing state secrets.

What to watch:

- Court filings aimed at having the bill struck down

ECONOMIC STRUGGLES

Rising costs of imports would likely drive annual consumer price inflation above the upper end of the central bank’s 3-6 percent target range in the final quarter of 2011, and inflation would peak at 6.3 percent in the first quarter of 2012, slightly higher than the 6.2 percent seen in September, the central bank said.

Debt troubles in the euro zone and United States have scared investors away from assets seen as risky , including the emerging market currency, the rand, which in recent days has weakened to levels not seen in more than 2 years.

South Africa needs to increase the rate of economic growth to an average 7 percent a year to make a meaningful impact on unemployment that is at 25 percent of the labour force. But the economy grew less than expected in the third quarter, hitting 1.4 percent on a seasonally adjusted and annualised basis.

More than a million have lost their jobs since 2009. The slowdown will make it even harder for the legions of unemployed to find work, probably keeping the unemployment rate above 25 percent and fuelling social tensions.

Meanwhile the ANC is trying to pass a raft of legislation that a presidential commission said would ratchet up unemployment and greatly increase labour costs for employers.

What to watch:

- Mounting pressure on the central bank to cut rates

- ANC movement on the labour bills, which could undermine sentiment

POLITICAL FIGHTS

Zuma may have derailed one of his biggest rivals, ANC Youth League leader Julius Malema, who is facing expulsion from the party for five years for bringing it into disrepute.

Malema has appealed but prospects for reinstatement are dim.

The knives are out for Zuma as the ANC heads into a major meeting next year where it elects its leaders with many in the ruling block wanting him out. But with Malema sidelined and rivals biding their time, Zuma is poised, for now, to win re-election as ANC head, which also means re-election as the country’s president given the party’s stranglehold on politics.

Rivals may try to discredit Zuma by exposing embarrassing secrets for the politician who has faced corruption charges but has never been convicted. They could also try to attack his inner circle already weakened by the suspicions swirling around spokesman Mac Maharaj.

What to watch:

- Dirty laundry being aired to score political points

- The final decision on the Malema appeal. If Malema wins, Zuma’s political future could be in doubt.

ELECTRICITY

After the near-collapse of the grid in 2008, electricity supplies continue to worry businesses and households, even though state utility Eskom said it has secured enough cash to build new power stations.

However, supply in the world’s top platinum producer is likely to remain tight until the first of the new units comes on-stream in 2012, and the country will not be fully in the clear until 2015.

The 2008 power crunch forced mines and smelters to shut for days and deterred new mining and manufacturing investment.

Large tariff increases over the next three years have helped Eskom plug its funding gap but industry leaders, complain that the extra costs are likely to stifle growth.

What to watch:

- Additional tariff hikes to pay for power station that could fuel inflation.

- Blackouts caused by system overload may undermine Eskom’s assertions that there will be no repeat of 2008, deterring long-term direct investment. (Editing by Giles Elgood and Alessandra Rizzo)

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