This is a paid article which your subscription is allowing you to read.

The essay below is based on briefing notes developed by advisory firm Frans Cronje Private Clients to help foreign investors understand how to position themselves on South Africa over the next two years.

Let us start with the very much broader context of what is happening structurally in South Africa, because that is essential to understanding the shorter-term trends and their implications, and even feeling somewhat reassured about the implications, in a manner that might not have been possible in many other post-colonial emerging markets which wobbled politically after their independence in the aftermath of the Second World War.

The Union of South Africa was established in 1910 as a merger of the Boer republics of the Orange Free State and the Transvaal, and the British colonies in the Cape and Natal. That union held together for the ensuing almost 120 years because of the central authority of Pretoria, which arose initially through brutality and force of arms, and later through moral virtue, and the very significant economic and social progress South Africa made between 1994 and 2008.

Now, that authority is beginning to weaken, and as a consequence, so is the union that it held together. While this is very significant, it is not as dramatic as it sounds. What it means is that, as the central state weakens and recedes, its authority is reduced, and regional, private, and non-state actors come to usurp many of its functions.

An example is that the rate at which private solar-power installations occur on people’s and businesses’ rooftops is in near-direct proportion to the rate of Eskom breakdown. Freight carried on the roads by private trucking operators rises in proportion to the rate at which the state-owned railways struggle to meet demand. The starkest example is in policing and security, where the private security industry now outnumbers that of the state by a ratio of 4:1 and has appropriated many of the state’s investigative functions.

All of this manifests in the formation of enclaves.

These range from the private housing and lifestyle estates that dot the country and much of its capital province in Gauteng to the southern coastline, but they are present everywhere.

At a larger scale, where the central state is not in power, we see the Western Cape province, and within it, the Cape Metropole — two of the world’s most exciting emerging markets, undoubtedly. Networked together, as they in practice are, the broader enclaves represent one of the world’s most exciting emerging markets too. They will be home to approximately one million people living in family units with earnings over R1 million per annum, and a further around 4–5 million people in family units with earnings of between R500 000 and R1 million — all of whom run, or work for, very successful businesses, are well hedged, and will increasingly work in the service economy and for clients all around the world. Millions of people with much lower earnings will remain employed as a consequence, and the welfare system will hold up to a degree.

Our thesis on the enclaves is that they are as strong as the state is weak to an infinite degree. Meaning that, if the state is a little weak, they will be a little strong. If the state is very weak, they will be very strong. If the state is in chaos, they will be unassailably strong. That means that the extraordinary statement can be put to you that there are no more fundamental risks to South Africa sustaining its middle class – to a degree.

The implications are important.

If we are correct, it means that even if South Africa continues its present phase of volatile politics and counterproductive policy, it will retain much of its capital base, skills base, entrepreneurs, tax, and employment base. That will subsidise the balance of society and prevent an apocalyptic breakdown of order.

It also means that South Africa has time to live through an extended era of lacklustre reform, because if a future administration, an enlightened one, were to come to pass, it would not need to repatriate a diaspora to rebuild. But even if that does not occur, the enclaves will become a permanent condition and a viable emerging market in their own right.

The politics of the country is therefore relatively less important than at any previous point in its history.

In poorer rural areas, and on the urban fringes, the same enclave phenomenon will play out, just in a different form, which we won’t go into now.

If you can see through the macro and understand the enclaves, and what lies behind them, and what a critical — and now perhaps irreversible — strategic shift that is, you will understand South Africa about as well as it is possible to do.

So, having set that scene, what is happening on the ground?

The first thing is to understand what has historically determined support for the African National Congress (ANC), because then you will understand why that support is so low today.

Investor confidence rose sharply between 1994 and 2008, driving the fixed investment rate to the lower end of emerging-market averages and the economic growth rate to 5% as the number of people in employment doubled. Thereafter, that process was reversed. Fixed investment sits at just 14% of GDP, the job market is stagnant, and real per-capita GDP has fallen year-on-year for a decade. As it did so, the intensity of protest action lifted, and ANC support fell accordingly.

On the latest data, and this has been consistent over several polls since the May 2024 election, the ANC stands at around 40% of the national vote and the Democratic Alliance (DA) at 25%. The consistency in that data makes sense to us from the perspective of what regime change in any society entails. It is a two-step process. The people lose the belief that the old regime can protect their interests, and in South Africa, that has occurred to a considerable degree. But step two is that the people must believe that the new regime will — and that has not occurred beyond the middle classes. Hence the stalemate.

The stalemate is present in many of the big cities.

In Johannesburg, the DA leads the ANC by around 40 to 30. In Pretoria, they are both in the 40s. That kind of result will be true for scores of municipal districts when the country goes to vote in November. But in Cape Town, the DA remains dominant, and in Durban, the ANC is polling at around 10%, with the uMkhonto weSizwe Party at near 50%. You can see so clearly in that latter data how the central authority of the state is fragmenting back into its pre-1910 regional centres.

South Africa will remain in deadlock unless the ANC can reinstil the belief it once commanded, or the DA instils that belief beyond the middle classes.

Can that occur? The answer, on the balance of probabilities, is not at this time.

Part of the reason relates to the matter of Mr Ramaphosa.

When the allegations he is again facing first emerged, his instinct was to resign, but he was leaned on by his peers who said they could bury the report in question in Parliament. At the time, his party’s majority there allowed that. Now that has been lost, and the report is back in play.

Mr Ramaphosa faced three options: resign, testify, or play for time until the clock ticks down on his term in office. He has chosen option three and, on the balance of probabilities, should be able to run down the clock into December 2027, when the ANC has an electoral conference. The key thing to understand is that, while the man survives in office, the idea of reform around him has died, which is the much more consequential thing.

The risk to that is a vote of no confidence that takes place with the support of the DA and a secret ballot. But the DA is under pressure to protect him and shows little appetite for that level of political ruthlessness.

Who succeeds him?

The latest polls place support for Patrice Motsepe at nearly 50% among ANC voters, with no other candidate polling above 20%. Our advice is that, if a campaign around Mr Motsepe sees its way through the party’s December 2027 conference, he will probably run. But there is no apparent way through at this time — which means that a way around may have to be found, and there are options here, such as an uncontested conference and the like.

Should none of that come to pass, you have your pick of other candidates, ranging from Fikile Mbalula to Paul Mashatile, and there may be others of a compromise nature. The point is, though, that none of those could either drive the policies or instil the belief needed for the ANC to restore its majority.

Mr Motsepe will do that in short order if he runs and wins the race. Because it goes to credibility, our firm was sceptical of “CR17”, the much-celebrated campaign around Mr Ramaphosa’s rise to power, and advised that he would not drive the reforms needed to lift the investment rate — advice that has turned out to be precisely accurate. Hence, we do not buy into these popular reform horizons easily. But on Mr Motsepe, we are confident enough to tell you that, if he runs and wins, he will probably take the decisions needed to lift the growth rate back to near 3% in short order, and following from that, restore the ANC’s national majority in the 2030s.

We are regularly asked about the fiscal and related risks around Paul Mashatile. We do not know the answers, of course, because the nature and format of what may become his government is unclear even to the people near him. However, our sense of it, insofar as that is worth something, is that there is a broad understanding about consequences, if not for the economy, then for the ANC’s revolutionary prospects in a collapsing fiscal environment, and that a deep thread of conservatism runs through that party. It is, however, too soon to say. But there is reason to weigh the severe downside prognosis for the economy that attaches to his name.

Could the DA seize the initiative and win the battle for belief and come to govern South Africa?

We have been asked to consider the implications of the DA winning its first black township ward in a recent by-election near Johannesburg. That is, of course, a milestone, but its importance has tended to be overstated. The DA and the ANC are polling neck-and-neck in the 30s in Gauteng (the province Johannesburg is in), and that was basically the result in the ward, with the DA pipping the ANC by a few votes.

There is no evidence at this time that the deadlock can be broken. Remember the regime change thesis – and that the DA does not possess, beyond its undoubted expertise at administering cities, the nous to be deadly competitive in the cut and thrust of national and international politics and policy.

So, the upshot, certainly as far as the next two years are concerned, is this: the deadlock in politics persists. Mr Ramaphosa hangs on. Fixed investment remains in the 15% zone, and growth necessarily therefore in the 1% rut. The enclave phenomenon deepens, establishing a very interesting emerging market, that causes South Africa to remain broadly stable in the relative sense of the thing.