Key political risks to watch in South Africa

By Jon Herskovitz

JOHANNESBURG, Oct 1 (Reuters) - South Africa's President Jacob Zuma is in a battle to shore up support ahead of an ANC election next year when the ruling party elects its leaders as a band of his foes have been lining up their own bids for power.

Zuma, widely seen as an ineffective leader, has dithered in countering corruption in his government, which has adding fuel to critics and worried investors that he will not seriously address problem.

But Zuma has set his sites on African National Congress Youth League leader Julius Malema, a power broker in the ruling block courted by Zuma's foes but now facing a disciplinary hearing that could derail his political career.

Zuma, looking for friends where he can find them, may draw closer to the labour federation COSATU, a governing alliance partner and side with them on legislation that would make it more difficult to hire temporary workers.

While the political fight heats up, Africa's biggest economy is showing signs of slowing down, severely denting the government's job-creation aspirations.

ANC FIGHT

Malema, 30, has been facing a disciplinary hearing on charges he has brought the ANC into disrepute, which could bring suspension for several years if found guilty.

The hearing is a high stakes gamble for Malema and Zuma, who rose to the party's top spot with Malema's support but in recent months has seen rivals court the youth leader as they line up their bids for power.

Malema has no direct policy-making power but has the ability to influence millions of poor South Africans who see him as a future leader.

If Malema is suspended, Zuma would find a far easier path to re-election as the ANC's president at the party meeting next year. Since the ANC has virtual one-party rule, its president is assured of becoming the country's leader.

If Malema is exonerated, Zuma would be considered a lame duck -- further undermining his government already seen as ineffective. It would add strength to Malema's calls for a takeover of the mining sector -- a move analysts say would bankrupt the country.

They say South Africa cannot afford nationalisation because the market capitalisation of its listed mining firms amounts to about two-thirds of its gross domestic product and twice its annual national budget.

If Malema survives the ANC hearing, he is also facing a police investigation into a suspected slush fund to collect bribes that could derail his political ambitions.

What to watch:

- Anything short of a suspension of a year or two for Malema would be considered a victory and undermine Zuma's position.

- Police stepping up probe of Malema's finances, which could pose more problems for him than ANC actions.

CORRUPTION

Despite calls from COSATU and others to crush corruption, Zuma has done little to address a problem that has eroded confidence in the government ruling the continent's top economy.

Zuma's cabinet include several troubled members including Cooperative Governance Minister Sicelo Shiceka -- suspected of spending 335,000 rand ($42,500)in state funds to visit his imprisoned girlfriend overseas. [ID:nLDE73J0KL}

Another is state security minister Siyabonga Cwele, whose credibility was questioned after his wife was convicted in May of dealing drugs. If Zuma sacks Cwele, he runs the risk of the security minister leaking secrets that could cause more trouble for the president.

Public Works Minister Gwen Mahlangu Nkabinde and police commissioner Bheki Cele, who is not in the cabinet, were named in a government-sanctioned report for suspected illegal conduct in property rental deals.

Zuma in September appointed a panel to investigate a decade-old arms deal mired in corruption. Analyst said Zuma may have acted to better control an investigation that could damage his presidency.

The 30 billion rand ($4 billion) deal to buy European military equipment from about a decade ago has clouded South Africa's politics for years.

It has led to a few convictions of officials who took bribes to help land contracts but critics said investigations did not go far enough, letting several others off the hook.

Zuma -- then deputy president -- was linked to the deal through his former financial adviser, who was jailed for corruption. This almost torpedoed Zuma's bid for high office but all charges against Zuma were dropped in 2009.

What to watch:

- Zuma exerting authority with a cabinet reshuffle or the sacking of tainted officials.

- ANC political infighting leading to the leaks that could embarrass Zuma and undermine his government.

ECONOMIC SLOWDOWN

The economy grew at its slowest pace in almost two years in the second quarter as the manufacturing and mining sectors slumped after strikes, boosting the case for interest rate cuts while denting the government's hopes to create 5 million jobs by 2020.

The slowdown will make it even harder for the legions of the country's unemployed -- more than a million have lost their jobs since 2009 -- to find work, likely keeping the unemployment rate above 25 percent and fuelling social tensions.

Reserve Bank Governor Gill Marcus has left the door open for a rate cut should there be a marked slowdown due to the global financial crisis.

What to watch:

- Continued signs of a slowing economy that would increase the chances of a rate cut.

- New government spending plans to spur job growth, which would drive up the budget deficit.

ELECTRICITY

After the near collapse of the grid in 2008