July 5, 2017 / 1:31 PM / 3 months ago

South African ANC leadership battle hobbles economic reform

South African Rand coins are seen in this photo illustration taken September 9, 2015. REUTERS/Mike Hutchings/File Photo

JOHANNESBURG (Reuters) - South Africa’s ruling party failed on Wednesday to agree a clear plan to get the economy out of recession and tackle near 28 percent unemployment, but risked rattling investors with pledges on nationalizing the central bank and expropriating land.

Backroom infighting blighted the six-day African National Congress conference, held every five years, as factions rallied behind the candidate they hope will replace President Jacob Zuma as party leader in December, sources said.

One section of the party is supporting Deputy President Cyril Ramaphosa, while another backs Nkosazana Dlamini-Zuma, former African Union chair and Zuma’s ex-wife.

Dlamini-Zuma’s supporters, who include Zuma, want the ANC to implement radical policies to redistribute wealth to address the gaping inequality that exists between black and white South Africans 23 years after the end of apartheid.

Ramaphosa’s backers also want to reduce inequality but by growing the economy, reducing unemployment and rooting out the corruption that has plagued the ANC under Zuma. They fear Dlamini-Zuma will continue in the mould of her ex-husband.

On Monday, Dlamini-Zuma’s supporters called for ANC lawmaker Derek Hanekom to be thrown out of a meeting of the party’s economic committee after he dismissed their proposal to change the constitution to allow land expropriation without compensation, two ANC sources said.

Hanekom has been a critic of Zuma and corruption in the ANC.

The ANC officially agreed to accelerate land reform, with the possibility of expropriation without compensation as a last resort, without giving any details on how they would navigate the constitution to do this.

The party also said it would like the central bank to be wholly state-owned, which initially spooked investors as the rand ZAR=D3 extended its losses against the dollar.

The currency later recovered when the central bank said it wouldn’t make any difference because the constitution protected its mandate whoever the shareholders were. The rand was still down 1.46 percent on the day.

Most central banks are state-owned and the ANC made a resolution that its central bank must be independent.

Talk about state-ownership, however, worries investors given the far-left of the ANC, who largely support the Zuma faction, have called for the nationalization of mines and banks.

It also followed a damaging row about whether the central bank’s mandate should be changed by the government.

INFIGHTING

South Africa’s economy is deteriorating, having entered recession in March. The rand currency is weakening against the dollar and unemployment is at a high.

The bitter divisions, however, meant no one got what they wanted from the conference leaving the withering economy with no clear path to recovery.

“Zuma camp’s strategy has been successful –- to drive a wedge of factionalism through the party,” said Nomura emerging markets analyst Peter Attard Montalto.

“Generally, the factionalism has resulted in the conference unable to take a firm stance on issues. There is nothing to hint at an escape from the low growth trap.”

Any policies recommended this week need to be ratified at the December conference where Zuma’s replacement atop the ANC will be named, and with the party so divided it may be difficult to come to an agreement.

Even if reforms are approved, they are unlikely to be implemented until after an 2019 election.

The ANC, which swept to power under Nelson Mandela in 1994, is not guaranteed to win in two years time given the public’s increasing frustration at rising unemployment, economic stagnation and high-profile corruption cases.

“I think we’re looking at policy paralysis in the medium-term,” said Darius Jonker, Africa director at Eurasia Group.

”The likelihood of the Zuma faction and the Ramaphosa faction resolving their differences is very slim. The ANC has be

en irrevocably damaged.”

Additional reporting by Ed Stoddard, Joe Brock, Tiisetso Motsoeneng and Olivia Kumwenda-Mtambo; Writing by Joe Brock; Editing by James Macharia/Jeremy Gaunt

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