South Africa's ruling party will struggle to appear business-friendly without alienating voters by exposing corruption at the highest levels.
Bloomberg and other outlets reported Feb. 3 that Germany, the Netherlands, Switzerland, the United Kingdom and the United States had warned South Africa's government that ineffective corruption probes and a weak rule of law could threaten foreign investment there. The U.S. Embassy in South Africa responded Feb. 4 by saying that it had merely sent the South African government an informal discussion paper and not a signed memorandum. This response, however, came after South Africa's ruling African National Congress (ANC) had fired back by condemning interference in its internal affairs. While the memorandum may never have been official, the problem of corruption and the Western concern it elicits are very much genuine.
Why It Matters
The memorandum's highly unusual nature lends credence to the embassy's denial. It still doubtless alarmed Pretoria because at least 70 percent of foreign direct investment in South Africa comes from people or institutions in those five Western countries. Such a document would send a clear message to South African President Cyril Ramaphosa that his anti-corruption efforts must be maintained, but he may have trouble doing so during the political jockeying ahead of elections scheduled to take place before fall 2019.
Ramaphosa has staked much of his political credibility on his ability to appeal to foreign investors, and has repeatedly stated his ambitious goal of winning over $100 billion in foreign direct investment. Unfortunately for the president, cultivating his appeal to foreign investors might cause him to lose support from voters. As general elections approach, Ramaphosa and some factions from his ANC might be loath to risk undermining their popularity by drawing attention to perceived or real wrongdoing through corruption probes.
South Africa is keen to court foreign investment, but its approaching elections threaten to complicate these efforts.
What Happens Next
Regardless of whether any memorandum was actually signed, reports of it alone and Pretoria's harsh response to them underscore how key investor countries are closely watching South Africa as it attempts to put two decades of corruption and mismanagement behind it. But though the country is keen to court foreign investment, approaching elections threaten to complicate these efforts. This conflict between short-term political successes and longer term economic improvement is likely to continue — meaning the ruling ANC will struggle to appear business-friendly without alienating voters by exposing corruption at the highest levels.