A toxic mix of government stasis, creaking infrastructure and social unrest is prompting doubts about South Africa’s stability in a continent with too many economic scare stories.
It may, in the end, be events on a dusty patch of Highveld two hours’ drive from Johannesburg that end South Africa’s 18-year post-apartheid honeymoon.
In the weeks since dozens were killed in clashes between police and miners at Marikana, a wave of violent strikes has swept the South Africa, strangling vital mineral production and threatening fuel supplies.
Long pent-up anger at the slow pace of economic reform has come to the fore. More militant unions and political populists such Julius Malema are mining that rich seam of discord.
“Things are not rosy” said Mohammed Nalla, an economic analyst at Nedbank Capital in Johannesburg. “(The outlook) is deteriorating; we’ve got institutional decay and structural decay in the economy that is setting in.”
According to Nalla and others, the root of the problem is a lack of accountability at the top.
With no serious electoral rivals, the ruling ANC is accused of being too concerned with the accumulation of wealth and power.
Today ANC members are squarely focused on a December meeting that will select their next leader and, de facto, the next leader of the country.
Unpopular President Jacob Zuma faces a potential challenge from Deputy President Kgalema Motlanthe. Neither man is risking difficult decisions that could upset their power base.
That political drift is starting to eat away at investor confidence, and the timing could hardly be worse.
Just as the financial world seems ready to give Africa a shot at replicating the growth that transformed South East Asia and Latin America, some are wondering if Africa’s economic talisman is going to the dogs.
The cruel irony of the situation was underscored this week.
South Africa was welcomed into an elite group of bond issuing countries – opening the door to a whole new set of foreign investors – while at the same time having its bond rating cut.
Moody’s downgrade left South Africa, rated at Baa1 – around the level of peers Russia, Brazil and Thailand. But the diagnosis was bleak and a further ratings cut is likely.
Moody’s said South Africa’s twin fiscal and trade deficits were a serious worry, but the more immediate problem was a government that is unwilling and, increasingly, unable to tackling mounting economic problems.
If that sentiment takes root South Africa could be in serious trouble very quickly.
Thanks to the country’s mineral wealth and because of low returns to be had in the developed world, investors have been happy to seek out profits in more risky but growing markets such as South Africa.
As a result South African debt and the rand are still well liked by traders, helping keep the country’s already large trade deficit and tattered public finances under control.
“That momentum does not last forever, we know that these things come to end,” warned Nalla.
A significant slowdown in investment would be a double whammy for South Africa, which is highly dependent on both foreign inflows of capital and foreign imports.
A slowdown would increase the government’s cost of borrowing, squeezing public spending and at the same time weakening the rand, which would push up the price imported food and energy.
Already, over the last year, foreign inflows to the South African stock market have turned into modest outflows. Equities may yet prove to be the canary in the coalmine, but so far more crucial bond and currency investors seem willing to roll with the punches.
“We are not seeing the ‘Zimbabwe’ situation in South Africa. That is not what is happening. We are not seeing investors run away with their hands in the air,” said Peter Attard Montalto of Japanese investment bank Nomura.
“What is happening is a slow grind of under-performance, (South Africa) not realising its full potential and that is a result of policy and the politics that are going on.”
South Africa may be saved, at least for now, by the few institutions that still work well, he added.
“The problem is, investors go to see the Sarb (South African Reserve Bank), they go to see the National Treasury and these are amazing world-class institutions that are on a par with, or even better than, some developed markets.
“People don’t actually go and interact with the education ministry, the labour ministry – that’s where you see the real issues (and) at the provincial level, where the vast majority of provinces are highly inefficient, with large amounts of corruption.”
If political stasis allows that type of institutional decay to spread, South Africa could be in for a rough time ahead.