In South Africa, the rhythm of life can often feel the pulse of the political landscape, especially during election season. While the excitement and debates around elections primarily focus on political ideologies and leadership qualities, the effects of election outcomes ripple far beyond the political sphere, significantly impacting personal finances. Understanding these impacts can help South Africans navigate the economic tides that follow an election, enabling them to make informed financial decisions.
Out of a total population of over 62 million South Africa has a total registered voters of 27 672 264. These voters represent the rest of the population.
Policy Shifts:
Elections bring the potential for major shifts in economic policy. A new government can implement policies that alter taxation, government spending, and regulation, all of which directly affect personal finances. For example, adjustments to personal income tax rates or VAT can significantly impact disposable income. A tax hike reduces take-home pay, while tax cuts can provide a financial cushion. An increase in the VAT rate has been suggested on several occasions. Moreover, changes in business regulations can influence job creation, affecting employment and income levels. B-BBEE regulations play a pivotal role in our economy, it may even play a role for international companies such as Shell to leave our shores.
2. Investor Sentiment
Election results also influence investor confidence. A government seen as stable and business-friendly is likely to encourage investment, stimulating economic growth and job creation. Conversely, political uncertainty or policies viewed as unfavourable to business can lead to capital flight and economic instability. Minister of Mineral Resources and Energy Gwede Mantashe is seen as creating uncertainty and promoting selective parties to contract within the energy space. Media reports stated, “The Central Energy Fund’s long-awaited annual report shows that PetroSA generated R24.5 billion in revenue in 2022/23, largely by selling diesel to Eskom; PetroSA earns “aggressive margins” on diesel sales because Mantashe refuses to grant Eskom a diesel wholesale license.”
3. Currency and Inflation
Rand Volatility.
The South African rand often experiences volatility around election periods. Political uncertainty can weaken the rand, making imports more expensive and contributing to inflation.
Inflation Dynamics:
Persistent political instability or poor economic management can lead to higher inflation, which affects everyone.
4. Employment and Wages
Job Market Shifts.
The outcome of an election can significantly influence the job market. Policies that encourage investment and growth can lead to job creation and lower unemployment rates. Conversely, economic contraction due to unfavourable policies can increase unemployment, reducing household income and financial stability.
Wage Policies.
Labor laws and regulations set by the new government can affect wage levels. Policies such as minimum wage laws and collective bargaining agreements can influence earnings. For instance, an increase in the minimum wage can improve the living standards of low-income workers, while stringent labour regulations might increase business costs, potentially affecting job growth and wage increases.
5. Public Services and Social Grants
Government Spending:
Election outcomes determine government priorities, especially in terms of public service spending. Enhanced spending on healthcare, education, and infrastructure can improve quality of life and reduce out-of-pocket expenses for households. Conversely, austerity measures and cuts in public spending can increase the financial burden on individuals, particularly those who rely heavily on public services.
Social Grants:
Social grants play a vital role in the livelihoods of many South Africans. The allocation and management of these grants are influenced by the political climate post-election. Policies favouring social welfare can increase support for vulnerable populations, while austerity measures might reduce the availability or amount of these grants. The country's social grants system is one of the largest in Africa in terms of number of beneficiaries. Research shows that this has helped reduce poverty.
About 26 to 28 million social grants have been paid every month to children, older persons, people with disabilities, and the unemployed.
The sustainability comes into question as South Africa has approximately seven million taxpayers.
6. Interest Rates and Borrowing Costs.
Monetary Policy:
The South African Reserve Bank (SARB) sets interest rates based on economic conditions, which are influenced by the political climate. Elections that result in a stable government can lead to lower interest rates, reducing the cost of borrowing for consumers. Lower interest rates mean cheaper loans for homes, cars, and personal needs, thus improving financial conditions for many South Africans. According to the SA Reserve Bank, the total nominal value of outstanding listed and unlisted rand-denominated debt securities issued by residents and non-residents in the domestic primary debt market increased by 8.1% year on year to R6.3 trillion at the end of 2023. That is an enormous number that has an enormous effect on the cash flow of the man on the street.
Property and Investment Markets
Real Estate:
The property market is sensitive to political stability and economic policies. A stable political environment and favourable economic policies can boost property values and rental yields, benefiting property owners and investors. On the contrary, political uncertainty can depress the property market, reducing property values and making it harder for homeowners to sell at desired prices. For those investing in property, election outcomes can therefore influence both short-term profitability and long-term investment returns.
Stock Market:
Election periods can cause short-term volatility in the stock market as investors react to potential policy changes. Long-term impacts depend on the economic policies implemented by the new government. A government that is business-friendly can boost market confidence, driving up stock prices and benefiting individual investors and pension funds. Conversely, policies perceived as hostile to business can lead to market declines, affecting the value of investments and retirement savings.
7. Preparing for Election Impacts
Given the significant impact of elections on personal finances, South Africans can take several steps to prepare for and mitigate these effects:
Build an Emergency Fund
An emergency fund acts as a financial safety net in times of economic uncertainty. Saving enough to cover at least three to six months of living expenses can provide a buffer against job loss or unexpected expenses, offering peace of mind during politically turbulent times.
Manage Debt Wisely:
In an environment of potential interest rate changes, managing debt becomes crucial. Paying down high-interest debt and avoiding new debt can reduce financial strain. If interest rates are expected to rise, refinancing to a fixed-rate mortgage or loan can lock in lower rates, providing cost certainty.
8. Re-evaluate Budget and Spending:
Adjusting budgets to accommodate potential increases in costs due to inflation or changes in taxation can help maintain financial stability. Prioritising essential expenses and cutting back on non-essential spending can free up resources to cope with higher living costs.
Advocate and Engage:
Participating in civic activities and engaging with policymakers can influence decisions that impact personal finances. Voting, attending community meetings, and joining advocacy groups can help ensure that government policies reflect the needs and concerns of citizens.
Conclusion
General elections in South Africa have profound implications for personal finances, affecting everything from tax policies and inflation to employment and investment markets. By understanding these potential impacts and taking proactive steps to manage their finances, South Africans can better navigate the economic uncertainties that accompany election cycles. Whether through diversifying investments, building an emergency fund, or staying informed about political developments, individuals can safeguard their financial health against the ebb and flow of the political tide. Ultimately, informed and engaged citizens can play a crucial role in shaping a stable and prosperous economic future.
* Kruger is an independent analyst.
** The views expressed do not necessarily reflect the views of Personal Finance or Independent Newspapers.
PERSONAL FINANCE