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04 Aug 2022

Politics and Investment Process

The political environment is top of mind for most South Africans. Portfolio manager NANCY HOSSACK explains how Foord looks at voting trends to assess future political outcomes as part of Foord’s forward-looking investment process.

South African national and local government elections (LGEs) are held non-coterminously every five years. Between national elections, we can use the outcome of LGEs and by-elections to infer voter trends. The IEC calls by-elections when an elected ward councillor can no longer serve due to death or incapacity.

Monitoring by-elections results allows us to assess shifting voter support for political parties in real time. We need to be cognisant that there are some significant differences between ward by-elections and national government elections. Firstly, not all political parties are represented in every ward, and independent candidates not on the national elections roll also take votes. Secondly, there are differences in voter turnout and voter apathy for by-elections; and, finally, there are differences in strategic voting patterns.

There have been 52 by-elections since the last LGEs in 2021. This is a very small sample size, but by-elections happen surprisingly regularly — and as we move towards the next national elections in 2024, the data gets richer and richer. We build up our projections for the 2024 national elections by analysing the shifts on a provincial level and then aggregating these to a national forecast.

Despite the small sample size, the model nevertheless suggests support for the ANC dropping to about 45%, the EFF being the biggest opposition party at roughly 20%, the DA at 15% and other parties at 20%. Within other parties, we are seeing Action SA doing very well in Gauteng and the IFP taking share in KZN. The ANC’s own current polling is reported to be in the same range as our model, so that adds some confidence to our forecast.

The forecast implies that SA may be headed for coalition politics at the national level. However, because it is politically unpalatable for politicians to throw in their lots with parties their supporters didn’t vote for, we’re more likely to see informal co-operation between the parties, as has been the case in some of SA’s large metros. The game changer would be if the ANC could find a coalition partner above the 5% support level to hand them a majority, which I see as a low probability outcome.

Without an outright majority, parliamentary election of the president will become interesting. The constitution dictates that parties nominate their presidential candidate and then, in successive votes, the candidate with the lowest number of votes is removed until only one remains. This means that all the political parties would need to coalesce around just one alternative candidate to elect a president from outside the ANC. That seems unlikely to me at this stage, and so my base case is that the next president will still be from the ANC.

Legislative change will be difficult in a fragmented political space, although sometimes that’s a good thing for economies. We want to avoid investing in markets where public policy can get too wild. With no party holding a majority, there is a reduced chance of black swan outcomes.

Businesses also seem to prefer environments where the rules don’t change too quickly or too radically. For example, studies show that the US economy performs best when the House and Senate are in different party control and regulatory change becomes difficult. Within the South African context, it will be more difficult to execute state capture.

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