Strategy Note /
South Africa

The stark inequality behind South Africa's riots

  • Riots, looting, army deployment, deaths, and arrests sparked by jailing of ex-President Zuma

  • President Ramaphosa blamed unrest on exploitation of ethnicity but income inequality, ANC split are better explanations

  • SA's risks not new; its equities cheaply valued with 10x PE a 30% discount to 5y median and REER in line with 10y median

The stark inequality behind South Africa's riots
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
14 July 2021
Published byTellimer Research

In South Africa, riots, looting, the deployment of the army, deaths and arrests have followed the prison sentence handed down to former President Zuma for failing to attend hearings to address corruption charges. The most important factors behind the unrest are the country's stark inequality, economic hardship, divisions within the ruling ANC party, and paralysis in structural reform more than the ethnic splits mentioned by incumbent President Ramaphosa or, even, the corruption allegations surrounding his predecessor.

None of these negative risk factors are new, eg measures of inequality were just as unfavourable 15 years ago, and South Africa equities remain cheaply valued relative to history. The commodity price rally and hopes for a pick-up in structural reform momentum have driven South Africa equities (JSE All Share) up 17% ytd, compared to MSCI EM up 5%. But, despite this recent outperformance and the violence seen in recent days, they remain attractively valued, with forward PE of 10.1x close to a 30% discount to the 5-year median and with the real effective exchange rate is on par with the 10-year median.

Inequality and economic hardship more than ethnicity or corruption

Incumbent President Ramaphosa, who was elected partly under an anti-corruption banner, has blamed the exploitation of ethnic divisions for the outbreak of violence. For example, Zuma's support base is particularly strong in the c20% of the national population from his home province of KwaZulu-Natal.

"It is a matter of concern to all South Africans that some of these acts of violence are based on ethnic mobilisation. This must be condemned by all South Africans at all costs as we are a nation committed to non-racialism and non-tribalism that is underpinned by the diversity and unity of all the people of South Africa, whatever their language, culture, religious beliefs and race," South Africa President, Cyril Ramaphosa.

However, there is a much deeper context here:

  • Severe economic inequality

  • Worsening economic hardship

  • Enduring poor perception of corruption (although not as bad as many others in EM);

  • Paralysis in reform.

These are all factors which Ramaphosa might have been expected to address more effectively since he assumed power in 2018, even prior to the Covid shock. The next general election is due in 2024.

Drawing on data from the Tellimer Emerging Markets Investability Matrix, we chart below South Africa's extreme inequality (Gini coefficient), severe economic hardship (misery index), but relatively contained corruption (perceptions index).

Income inequality

Severe economic inequality – South Africa has the highest Gini coefficient (63, where a score of 100 indicates maximum inequality) in the emerging markets we track.

Income inequality - South Africa most unequal among EMs

Economic hardship

Worsening economic hardship: South Africa's misery index (34%), defined as inflation plus unemployment rate (South Africa's almost 30% unemployment rate is the main driver of such a high misery index score), is among the highest in the EMs we track.

Misery index - South Africa among the most miserable EMs


Enduring poor perception of corruption – South Africa (44, where 100 represents the cleanest) scores relatively better on corruption than many other EMs.

Corruption - South Africa less corrupt than many in EM

Reform paralysis

Paralysis in state-owned enterprise reform and splits within the ruling ANC party (leftist elements more resistant to market-oriented reforms are more closely aligned to Zuma than Ramaphosa) – the fiscal deficit has worsened from 4% of GDP in 2018 to about 8% in 2022 (according to IMF forecasts).

Fiscal deficits widened in post-2018 Ramaphosa presidency

Related reading

Inequality, corruption, and protests in EM

Jobs matter more than votes: ESG pointers from Tunisia and Lebanon, January 2021

Corruption: The latest Transparency International scores in EM, January 2021

Domestic politics in EM after Covid-19: Authoritarianism and inequality, May 2020

LatAm protest dominoes, November 2019

South Africa equities and economics

Emerging-Frontier Equity Monthly – June: Dollar strength and Covid resurgence, June 2021

South Africa: Reforms show first sign of life (Curran), June 2021