JOHANNESBURG, Aug. 5 (Xinhua) -- The pronounced drop in support for South Africa's ruling African National Congress (ANC) in the nationwide municipal elections increases the risk of more populist government policies, Fitch Ratings said on Friday.
"However, our base case remains broad policy continuity," Fitch said in a statement in response to the SA local government elections held on Wednesday.
According to early results, the ANC's share of the vote fell to 54.4 percent, from 62 percent in the previous municipal elections, its worst showing since 1994. The share of the opposition Democratic Alliance (DA) rose to 26.2 percent from 24 percent, and support for the radical Economic Freedom Fighters (EFF) stood at 7.9 percent, only moderately above the 6.4 percent in the 2014 national election (the EFF was founded in 2013).
The initial results also suggested that the ANC failed to obtain an absolute majority in four of the eight large metropolitan districts: Cape Town (already held by the DA), Johannesburg, Nelson Mandela Bay and Tshwane (Pretoria).
This suggests that South African politics has become more competitive and constitutes a setback for the ANC, Fitch said.
There is a risk that the ANC turns to more populist policies to address rising voter dissatisfaction with perceived insufficient improvements in living conditions since the end of Apartheid, the agency said.
This could include costly spending measures that could require breaching expenditure ceilings or redistributive regulatory policies that might undermine economic growth.
"Increased in-fighting within the ANC could divert political energies from policy-making, and we think it most likely that the national government will continue without major changes to policies," Fitch said.
This would entail no substantial progress on structural reforms that could accelerate sluggish trend growth, but also no measures that could seriously threaten fiscal sustainability.
A more populist stance could alienate greater numbers of black middle-class voters, and the limited gains of the EFF, which runs on a platform of radical wealth redistribution, point to the limited effectiveness of populist political strategies, according to Fitch.
Municipalities have no role in macroeconomic policy-making, but such a blow to the ANC's traditional predominance could have an impact on policies, depending on the political repercussions and the conclusions that ANC leaders draw.
The results may weaken President Jacob Zuma's position inside the ANC, because the outcome may be attributed to a scandal about state funding for the refurbishment of his private residence and court decisions to reinstate corruption charges, according to Fitch.
However, Zuma has built a strong network of support in the ANC's upper echelons, and there have been no clear signs that a majority of leaders could withdraw their support before the ANC conference in December 2017 that will choose his successor as party president and presumptive ANC candidate for the South African presidency in 2019, said Fitch.
"We affirmed South Africa's 'BBB-'/Stable Long-Term Foreign-Currency IDR in June. A track record of improved growth, for example bolstered by structural reforms, could be positive for the rating, while failure of GDP growth to recover sustainably could be rating negative," Fitch said.
Currently, Fitch and S&P rate South Africa's sovereign debt a notch above sub investment, while Moody's has the country's debt two level above junk status grade but with a negative outlook.
