Last week, South Africa saw its worst civil unrest since the end of apartheid leaving 337 people dead and losses of an estimated R50 billion in its wake. The unrest was largely confined to KwaZulu-Natal and Gauteng provinces (see News24’s map of ‘hotspots’ to get a sense of the extent of the damage), yet photos and videos of violence and looting circulated the internet — some false and inflammatory, others true and shocking.
There has, and will continue to be, much debate about the causes of the recent chaos. Our assessment is that the riots have been predominantly driven by two forces that have coalesced to form a very volatile environment in KwaZulu-Natal and Gauteng, but with the potential to spillover more widely.
The first is the intention by the puzzle of different interest groups which support former President Jacob Zuma (broadly known as the Radical Economic Transformation (RET) faction) not just to protest against his imprisonment but to attempt to overthrow the legitimate government led by President Cyril Ramaphosa. The extent to which it can be called an ‘insurrection’ has, however, been contested, even between Ramaphosa and his Defence Minister, Nosiviwe Mapisa-Nqakula; nonetheless, accusations that high-level ANC officials may have been involved in instigating the unrest makes this claim increasingly credible.
The second is the socio-economic tinderbox that is South Africa. High unemployment, crippling corruption, an ailing economy, the failure of basic municipal services, and the highest level of inequality in the world, all of which have been exacerbated by the COVID-19 pandemic, make South Africa a ticking timebomb, and one which the RET forces arguably had at their disposal in KwaZulu-Natal and parts of Gauteng.
While it will be crucial to determine and characterise recent events in order to move forward, it is also valuable to ask what the long tail of the unrest might be. Below, we explore what we consider to be the most likely scenario and the wider impacts it may have on South Africa’s operating environment.
Most Likely Scenario: The economic fallout from the unrest exacerbates pre-existing socio-economic weaknesses, which have already been heightened due to the effects of the COVID-19 pandemic. This results in further pockets of unrest in the long-term, but none as widespread as recent events. President Cyril Ramaphosa fights to retain his authority and remove threats to his position from the RET faction within the ANC; ultimately, however, his position is weakened and he does not run for a second term as President. This presages a leftward shift within the ANC, which deters investment and increases the risks for multinationals operating in South Africa.
Security and Operational Risks Remain High Hundreds of thousands of individuals are added to South Africa’s already burgeoning group of unemployed, which in Q1 2021 accounted for 32.6% of the population (and 43.2% if accounting for the expanded definition of unemployment which includes those discouraged from seeking work). According to the World Bank, the periodic lockdown restrictions have seen the loss of 1.4 million jobs — jobs which it took South Africa six years to add to its pre-pandemic economy.
Figure 1: South Africa’s unemployment rate rose to 32.6% in Q1 2021. It’s anticipated that a further 150,000 jobs are at risk as a consequence of the riots. Produced by Trading Economics <link>.
Concerns about food insecurity increase social tensions. This is of particular concern in KwaZulu-Natal where not only were trucks burnt and key transport routes closed during the peak of the unrest but where there have been subsequent fuel shortages, causing further disruptions to supply chains. Moreover, the extensive damage to shopping centres, which were at the epicentre of the looting and arson, means that supermarkets are closed and those that are open have limited supplies.
Figure 2: The estimated cost of the looting and vandalism, with a focus on KwaZulu-Natal. Produced by the South African Property Association <link>.
There is a surge in COVID-19 cases due to the mass gatherings, disruption to testing and hospital supplies and the vaccination programme in KwaZulu-Natal and Gauteng, which prior to the unrest had accounted for 45% of all vaccinations. This leads to further job losses and the extension of lockdown.
These threats to people’s basic livelihoods fuel further instances of unrest in the coming months, most likely in KwaZulu-Natal. This is particularly likely to be among the youth, for whom the unemployment rate is very high and the opportunity cost of participating in unrest low. As we head towards the local government elections, originally scheduled for October 27 2021, but which are likely to be postponed until February 2022, we may see an uptick in unrest as people resort to protests to air their grievances.
Figure 3: Labour market rates by group, Q1 2021. Produced by Stats SA <link>.
Public trust in the South African Police Services’ (SAPS) ability to ensure the security of assets and personnel is undermined. This results in civilians continuing to protect their own property, which further raises social and ethnic tensions, and sees the exit of some multinational corporations.
Political Risk Increases President Cyril Ramaphosa is presented with an opportunity to disempower the RET faction by arresting high-profile ringleaders and removing influential figures from positions of power within key institutions (such as the SAPS). However, this requires a degree of state investigation, which could lead to the unrest spilling out of KwaZulu-Natal and undermining Ramaphosa’s position if he is unable to effectively put a lid on the factionalism.
Ramaphosa’s authority will be further challenged by the toll the unrest takes on South Africa’s efforts to rebuild the economy in the wake of the COVID-19 pandemic. Gauteng and KwaZulu-Natal account for almost 50% of South African output and the estimated economic impact of the unrest is currently R50 billion on national GDP. Thus, not only does the sovereign credit risk increase, undermining business confidence, but at the local level, the ability of the government to provide basic services such as water, sanitation, and electricity is hampered, heightening social
Figure 4: Contribution to gross domestic product according to province. Produced by Bloomberg <link>.
Consequently, Ramaphosa announces he will not run for leader of the ANC at the next national elective conference in December 2022. This encourages further factionalism as ANC members rush to rally around potential candidates. Moreover, it raises the likelihood of a shift to the left by the ANC, with support for candidates such as Deputy President David Mabuza who are ideologically sympathetic to the rhetoric of radical economic transformation. This increases uncertainty in the long term and deters investment.
A lot stands in the balance for South Africa over the coming weeks and months. As recent events have shown, the situation can change rapidly and take even those who are supposed to be most prepared by surprise. So, with cautious optimism, we hope that we are proven to be too pessimistic.