Mon séjour en Afrique du Sud (Cape Town)

The major internal security development in South Africa recently has been the outbreak of very seriousanti-immigrant riots in a number of areas of the country. The wave of violence, much of which wasconcentrated in and around Gauteng province and the Johannesburg area, started on May 11 and over therest of the month led to the death of 62 people, with hundreds injured, and tens of thousands displacedfrom shantytowns where they were living to new makeshift camps. This situation stabilised in June withSouth Africa Troops subsequently withdrawn from Johannesburg, Cape Town townships. Most internallydisplaced persons (IDPs) reportedly returned to neighbouring states and on June 12 the governmentannounced plan to reintegrate some 20,000 remaining IDPs before closing camps in two months.

However, at the heart of the problem lies the large influx of immigrants from neighbouring countries,especially from Zimbabwe, and observers have said that the political and economic crisis withinZimbabwe has been so acute that the flow of emigrants leaving that country did not appear to havediminished. Although many immigrants have considered returning to their home countries, a furtherescalation in Zimbabwe's political crisis could trigger a new wave of refugees entering South Africa,which could lead to a worsening in unemployment and increase competition for local resources. Wetherefore believe that the recent outbreak of violence in South Africa could significantly harden the rulingAfrican National Congress (ANC)'s stance towards Zimbabwe's President Robert Mugabe. Whilemilitary action is not a policy option, the South African government could opt for economic sanctions toput pressure on the Zimbabwean authorities. That said, possible political repercussions from interventionand Zimbabwe's status as a historic long-term ally could prevent the South African government fromtaking any decisive action at all.

In our view, a further likely deterioration of the domestic growth outlook and surging inflationarypressures add another dimension of risk to social stability. Indeed, while we forecast that real GDPgrowth will decelerate by two percentage points to 3.1% in 2008 (thus increasing the risk of job losses),we expect headline inflation to remain relatively high in 2008 and ease to 8.5% year-on-year (y-o-y) atthe end of the year, down from an expected peak at around 12.0% in Q308 (as projected by the SouthAfrican Reserve Bank, SARB). Although declining, it is noteworthy that the decrease in inflation will bemainly due to base effects during the latter half of H208 and not because of underlying disinflationarytrends. As a result, the burden of inflation will be maintained on consumers and is therefore likely tocontinue to weigh on social stability.

Aside from violence and deteriorating economic conditions, we believe that the ongoing internal divisionswithin the ANC will also fuel political uncertainty and will remain a risk to policy continuity for quitesome time. In September 2008 Thabo Mbeki was forced to resign, and was replaced as interim presidentby Kgalema Molanthe. Rightly or wrongly, Mbeki has been accused of providing insufficient leadershipto the ANC and the country as a whole, facing severe criticism over his government's inability to preventthe attacks on foreigners and over his allegedly ineffective 'silent diplomacy' strategy in Zimbabwe. Withpresidential elections due in 2009, Jacob Zuma therefore remains the current favourite to win, havingreceived the backing of the ruling ANC at its annual conference in late 2007. While the power strugglebetween Mbeki and Zuma will likely have taken a toll on South African politics, we believe that the ANCis unwilling to give in to the growing demands made by the trade unions and the communist party. Sowhile we believe that South Africa is far off from surrendering its market economy to a centralisedplanning model, the differences nevertheless depict the ideological gap between the ANC and COSATUand SACP, could give rise to further rifts in the future.

Internally, South Africa faces the daunting challenges of an anti-immigrant xenophobia, well-establishedorganised crime and drug trafficking networks, vast wealth disparities, and high levels of HIV infectionwithin its population. Yet its security concerns also extend beyond its borders. Recent restructuring andmoves to modernise the South African armed forces have created the best-equipped and most advancedmilitary on the African Continent. As the hegemonic power, particularly in the southern Great Lakesregion, it has a heavy involvement in the continent's trouble spots in terms of securityforces/peacekeepingdeployments. While the numerous security threats in the region have the potential to destabiliseSouth Africa on a variety of levels, the potential for its neighbours - particularly Zimbabwe - todestabilise it, economically and politically, is especially strong.

The defence industry witnessed major upheavals with the lifting of the arms embargoes on South Africawhich led to increased competition from foreign companies. With the South African National DefenceForce (SANDF) no longer a captive customer of the sector, companies have had to shed large sections oftheir workforce, leading to dwindling numbers. Recent procurement packages may be the first step inreversing this trend. However, arms imports should increase substantially with the delivery of the majorweapons platforms recently ordered by the government, particularly with the recent normalisation ofrelations between the US and South Africa. The future of the South African defence industry depends onits successful breaking into international markets. Joint ventures (JVs) will aid the country in gaining atechnological lead in key areas. Currently, the biggest single long-term problem within the defenceindustry is the lack of research and development (R&D), funding and policy. Arms exports are proving amore vital area of sales for South African defence companies, and should be the main catalyst for anygrowth in the industry. Encouraging figures from key defence companies seem to suggest that the defenceindustry is growing and making inroads into international export markets.