Risk analyst spells out impact of political uncertainty on investor confidence

South Africa is clearly on the watch list of most major investors and should brace itself for an overpricing of political risk, says Anna Fruehauf, Africa Analyst at Control Risk. Speaking at the launch of Control Risks’ annual RiskMap in Johannesburg last week, Fruehauf warned the country of some tough times ahead saying much depended on the coming election. “There is every sign that the Rainbow Nation has an uncertain path ahead in the near future. The ANC presidential candidate Jacob Zuma’s legal tribulations will remain the crucial political risk factor.” She said while the government’s steady course of fiscal prudence and orthodox macroeconomic management had been widely hailed and had boosted investor confidence, economic prospects had been dampened by the global downturn as well as the rand’s vulnerability to fluctuation. Fruehauf warned that South Africa’s political situation carried the most risk for future investment. “Foreign investors are very nervous about various aspects of South Africa’s future, including its economic policy following the election. We expect the ANC to win the next election – and while we think a two-thirds majority is plausible – it is not assured.” Fruehauf said it was unlikely that Zuma would steer South Africa into calmer waters on becoming the next president and would not see a honeymoon period. “The obstacle of his trial remains a serious concern while decisions over the next cabinet are also a matter of discussion.” Fruehauf said while there was progress in certain areas such as health and education, labour legislation, social grants and BEE remained challenging and contentious issues. She said governance and institutional capacity remained a major concern that would have to be addressed to minimise the country’s risk profile.