The South African winter (June – August) is traditionally a time of discontent. Partly this is because it is the country's 'strike season', when trade unions flex their muscles ahead of wage negotiations for the coming year. Partly it is the reality that winter weather exacerbates the already challenging conditions confronting those living in less developed townships and particularly in the informal settlements around the country. In recent years, the incapacity of the country's electricity infrastructure to cope with heightened consumer demand during winter months has contributed to a general mood of dissatisfaction among South Africans. As the winters of 2008 and 2009 so clearly demonstrated, this discontent manifests in both benign forms (lowered consumer and business confidence, an escalation in levels of service complaints, etc) and more malignant ways (violent protests, increased levels of crime, etc).

In the eyes of many observers, the winter of 2010 is likely to assume a different quality to those of previous years due primarily to the fact that the FIFA World Cup will, predictably, dominate the South African scene for much of June and July. With images of cheerful fans and busy cash registers dominating the build-up to the event, it is difficult for some observers to see how this winter can possibly be dominated by discontent and lead to significant political risks. South Africa has however provided clients with a sobering perspective to upbeat expectations, cautioning that current conditions have created an environment conducive to uncertainty.

Pasco's business intelligence team concede that making predictions about the future political landscape in South Africa is far from an exact science. “We continually collect, analyse and interpret a stream of information relating to political, security, social and economic indicators of risk, but the identification of specific patterns or constellations of data that point to one or other outcome is as much an art as a science”, CEO George Nicholls explains. “We have political scientists, security specialists and social scientists working together to plot and interpret the significance of events”.

In considering the possibility of uncertainty in South Africa, Pasco's specialist team is currently weighing a number of developments in the country. Foremost among these are crime, the recurrent service delivery protests, tensions within the ruling African National Congress (ANC) party, industrial disputes, infrastructure risks and a variety of short- and long-term economic indicators. According to Nicholls, the key to forecasting the emerging risk environment is to avoid looking at indicators in isolation of each other, but to rather gain perspective on potentially significant points of friction between seemingly diverse indicators. For example, Nicholls explains that “service delivery protests in Johannesburg's townships are partly a reflection of grievances about lack of adequate housing and sanitation, but they may also be an indicator of significant political fault-lines within the ruling party, a predictor of industrial disputes, and an early warning of general instability”.

The Pasco team is also monitoring a number of potential 'wild cards' that could contribute to uncertainty in South Africa. Among these are the capacity of the South African Revenue Services (SARS) to meet its collection targets for the financial year (which will have a crucial bearing on the 2011/12 budget), the possibility of a resurgence in xenophobic violence in township areas, the potential inflationary effect of recent electricity price hikes, and food and water sustainability in South Africa and neighboring countries. “Although it may seem a long way off when one is sitting in a boardroom in Cape Town”, Nicholls explains, “it is essential that eye are not taken off the ball when it comes to factors that could impact on the cost and availability of food”. He adds that “in underdeveloped and developing countries food security has in some instances served as one of the most reliable indicators of political and security risks down the line so that, for example, a shortage of rice in a region, coupled with other risk indicators that we monitor, may a leading indicator for further downstream risk.

Communicating such a diversity of indicators and possible outcomes to corporate clients, who most often require concise and discreet predictions, can be challenging. Dr Mark Welman, a behavioural scientist by background, explains that when faced with complex situations the human mind is fundamentally more receptive to images than words. According to Welman, an image can capture in an intuitive moment what in some cases an entire report will struggle to convey, and this is the primary reason that scenario planning based on visual metaphors has become an entrenched part of business strategy development.

Turning back to the question of uncdertainty in South Africa, Pasco has devised a number of scenarios to assist clients to understand the complex challenges, risks and opportunities ahead.

A gentle breeze

In this scenario, the World Cup has little or no impact (positive or negative) on South Africa's social and political fabric, service delivery protests gradually abate – opening the way for a resolution of tensions within the ANC and a patching of relations between the ANC and its alliance partners – and the economy shows a slow but consistent return to positive growth. Effectively this amounts to a 'business as usual' scenario in which fundamental issues of crime, poverty and unemployment remain medium- and long-term concerns and points of vulnerability so far as South Africa's country risk profile is concerned.

A gale force wind

This scenario reflects higher levels of political risk that are likely to manifest in the aftermath of the World Cup and could be precipitated by a sense of collective disappointment that the event failed to better the lot of most South Africans. “The 2004 Athens Olympics are a prime example of what we might term a 'social bathos' – referring to a hiatus that can set in following the termination of an event which has been keenly anticipated but once over leaves a sort of social 'hangover'”, explains Welman. In the case of Athens, this phenomenon translated into escalating levels of social and political dissatisfaction that, Welman believes, contributed to the riots of 2008. “In South Africa”, Nicholls comments, “the conditions are even more set for this sort of development, but we are probably looking at a much shorter time-frame for its manifestation”. Should there indeed be a World Cup hangover of this nature, it could combine with service delivery frustrations and grassroots agitation associated with political in-fighting in the ruling party to generate a scenario characterized by escalated township protests, violent political demonstrations, industrial disputes and other forms of social protest. “In the gale force wind scenario we are predicting an intensive period of instability that could have a sudden onset but may dissipate relatively quickly”, Nicholls explains, adding that “although matters will return to normal fairly quickly, there would obviously be a longer-term impact on investor confidence in the country”.

A perfect storm

The more concerning scenario is that of a 'perfect storm'. Nicholls explains that this scenario, in which the conditions associated with the 'gale force wind' escalate rather than dissipate, could occur if there is a coalescence of risk factors. “For example,” he puts forward, “if we take the scenario of post World Cup social dissatisfaction and rapidly introduce into that social environment factors such as a significant division within the ANC or between the ANC and its alliance partners, and perhaps something like escalating food prices, we could see a significant intensification of the gale force wind scenario”. Under such conditions, Nicholls notes, one could see social unrest on a scale that has not been witnessed in South Africa since the Apartheid era, which in turn would have a significant impact on the economy. “The government would be faced with an immediate need to restore security and stability, particularly in township areas, but thereafter it would have to come to grips with the diverse factors that played contributory roles”.

Dramatic climate change

Considered to be an unlikely scenario but nonetheless one worth considering, is the possibility of a dramatic shift in the country's political landscape that, in turn, would herald substantive shifts in economic and social policies. For example, this could entail the break-up of the ANC into smaller political parties, with one particular faction emerging as effectively a new government. Nicholls emphasises that “although investors traditionally do not like profound social change in environments, this scenario is not necessarily a catastrophic one. Indeed, there are schools of thought that consider that a shift of this magnitude would reinforce the democratic foundations of post-Apartheid South Africa and open the way for a meaningful political opposition in parliament”

Which way ahead?

The 'gale force' and 'perfect storm' scenarios are considered as viable possibilities, but it is too early to make an informed call on the matter. Nicholls concludes that the period from August – September 2010 may be critical in determining which of the above scenarios are likely to become the dominant political risk paradigm for the immediate future in South Africa: “We will need to see what the World Cup leaves in its wake and how the issue of service delivery is addressed. Also, the ANC's National General Council meeting in Durban in September 2010 should provide key pointers as to levels of unity or disunity in the ruling party. By then, we should also have a better idea of how resilient the economy is and whether it has in fact pulled out of last year's recession or whether it remains vulnerable. Taken together, these indicators will put us in a position to know if South Africa has dodged a bullet or if we are headed for further uncertainty”.