By Gordon Bell
Investors fear a shift in the policies that have fuelled South Africa's longest period of economic growth despite expectations that next week's election will leave the political landscape unchanged.
Investors want to see whether the new African National Congress administration undermines the independence of respected institutions such as the central bank and unravels lauded economic policy with the ruling party's Jacob Zuma now seemingly assured the presidency.
Prosecutors this month dropped corruption charges against Zuma, clearing his way to the top post, while a challenge from a breakaway party has lost momentum, largely removing uncertainty about the outcome of the April 22 vote.
But worries linger over the direction of fiscal and monetary policy under a more left-leaning ANC, despite assurances from Zuma there will not be major change at a time when the economy has been hard hit by the global financial crisis.
"In the immediate term, we have become more positive about the election … it is looking like a story of continuity in the short term and markets like that," said Jon Harrison, emerging markets foreign exchange strategist at Dresdner Kleinwort in London.
"But there is a risk that institutions may be undermined … a big worry is the central bank. What we are concerned about is that policy may change in the medium term."
The ANC has consistently won about two-thirds of the ballot in elections since the end of apartheid in 1994. In the last election in 2004, the party won 70 percent of the vote.
Opposition groups, including a new party of ANC dissidents — the Congress of the People — are unlikely to significantly dent its majority in parliament.
But the breakaway by centrists loyal to ousted President Thabo Mbeki has boosted the influence of trade unions and communists on the ANC.
Rating agencies have put the country on notice that they are eyeing any major shifts in policy — particularly on inflation targeting — and any changes to a relatively market friendly environment.
REINING IN THE TREASURY
The fate of market favourites, Finance Minister Trevor Manuel and central bank Governor Tito Mboweni, is of particular interest.
"The ANC will win (so) the more important issue is what the cabinet will look like," Francis Beddington of Insparo Asset Management said, adding it would be sensible to keep Manuel in his post at least for a year or two.
A time of global market turmoil and a world economic downturn was not one for change.
"The markets are still nervous about many things, so why add fuel to the fire. This is not a good time to rock the boat."
Zuma — hugely popular among the left-wing that helped him become ANC leader — has tried to assure investors his government will not lurch to the left.
Yet comments in the run-up to the poll have sown fears about the independence of the judiciary and central bank.
Zuma lashed out at the judiciary last week after finally persuading prosecutors to drop corruption charges — a decision that ended years of court appearances that, if continued, threatened to disrupt his presidency.
Other top officials have criticised the central bank's efforts to tackle inflation, suggesting a short leash for the institution, as well as the Treasury's fairly tight control of state spending.
The ANC has said it will review the structure of the cabinet after the elections, mooting a powerful "planning" ministry to help improve service delivery.
Some analysts believe the new ministry will take powers away from the Treasury, a department praised for helping usher in economic growth for a decade until the final quarter of 2008, but criticised by Zuma's trade union allies for ignoring the plight of the poor.
"If the quality of policy which has been very high is maintained, then there is no concern … you can't argue that the policies of South Africa over the past 10 years have been a failure," Beddington said.
RISING DEBT
Faced by the global crisis, South Africa has raised debt levels to spur growth as many other government have done.
Analysts said that while the tolerance for looser fiscal policy has grown, this should not be used as an excuse to structurally shift the economy away from private hands.
The Treasury forecast a budget deficit of 3.8 percent of GDP for the 2009/10 financial year, up from 1.2 percent last year and a surplus the year before — still tame in comparison to the massive extra state spending in the United States and Europe.
"Because the fiscal balance is in a healthy state, no-one is particularly worried about that … the starting point for South Africa is very healthy," Citigroup sub-Saharan Africa strategist Leon Myburgh said.
Investors will be hoping for a competent replacement for Manuel, should he leave the finance ministry, and for continuity on fiscal and monetary policy, especially inflation targeting, he said. For now, they may give the ANC the benefit of doubt.
"What people do before the election, and after, is often chalk and cheese," Myburgh said.
