South Africa still has business opportunities but political risks high

South Africa continues to present attractive business opportunities, according to the annual South Africa Monitor Report. It states: “High political risk, combined with global economic challenges, have already contributed to a massive decline in meaningful foreign direct investment in South Africa. It is expected that the political risk to business will remain high in at least the next two years, as the internally diverse [President Cyril] Ramaphosa faction and [Jacob] Zuma factions continue to contest control over the ANC.” The report identifies three drivers to strengthen the dynamics of a hybrid regime and democratic decline in the coming years: The repositioning of the deeply divided ANC The further politicization of the security forces and securitisation of politics to prop up presidential rule The weak economy and more limited state resources. The report warns: “Mr Ramaphosa’s presidency has meant a continuing recirculation of elites and new networks of power and patronage, with related changes in rhetoric and policies. However, the Zuma faction and related networks remain strong at all levels of the ANC. Mr Ramaphosa and his supporter networks have been deeply embedded in the current neopatrimonial and one-party dominant system for years. They will be unable to significantly change the underlying, and by now well-established dynamics, rules of the game and the incentive systems described.” For business, it warns: “Policy swings and uncertainty will be experienced most by companies in those sectors most exposed to the government’s political priorities or regulatory and licensing power. Minerals, energy, security, agriculture, telecoms and pharmaceuticals would be among these sectors. “The ANC has proceeded with several regulations, policy initiatives, bills and laws regarding mining and energy, the security industry, affirmative action and black empowerment, land, patents, and foreign investors in general. The common underlying policy in all of them is the same: they greatly increase the ANC government’s interventionist powers in the economy.” It suggests the plans would weaken property rights and reduce private-sector autonomy. The high levels of state debt and the needs of the ANC’s patronage networks will drive efforts to look for new sources of income, both domestically and internationally. The value of some state-run corporations, but also other assets or opportunities of which it should be the public custodian, could be capitalised or mortgaged. Sometimes, this will have a knock-on impact on existing government undertakings towards business. At present, there is a real risk of the government inducing major pension and investment funds to invest in weakly managed or failing parastatals. The search for new sources of income will coincide with an increased effort at economic diplomacy, both formal and informal. The levels of visible state mismanagement and operational risk are likely to remain high or sometimes even rise. The South African Monitor Report has another warning. “Factions within trade unions and trade unions will compete intensely with each other for members, networks, power, status and resources. As a result, industrial unrest will continue to be a major risk. “Due to the context in which it will be occurring, the potential politicisation of disputes could be fast and assume militant forms. Real or instigated xenophobic, anti-Western or indigenisation sentiments may emerge during power plays or tough negotiations.” The ANC government does not consider a restoration of the security of citizens and businesses as a state priority. Business and NGOs should review and regularly update their risk mitigation measures. International business may find it worthwhile to conduct corporate social responsibility projects that focus on entrepreneurship training and business education, suggests the report. It urges: “Business and NGOs are advised to identify potential partners and to use the opportunities involved.”

South Africa still has business opportunities but political risks high

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