South African President Jacob Zuma risks stumbling through the remainder of his term that expires in 2014 unless he can stem worries about growing cronyism, a soaring rand and rifts in his ruling alliance.

Zuma has revamped his cabinet to remove underperforming ministers while the Treasury has released a new three-year budget outlook that aims to cut the deficit and slow the appreciation of the currency that hit 2-1/2 year highs in October. Other problems such as labour strife and anger among poor blacks at shoddy public services are also likely to resurface, especially as politicians prepare for local government elections in the first half of next year.

Many of the issues feed demand for more government spending, a route that risks stoking inflation and widening the budget.

SOARING CURRENCY

The government, business and organised labour have expressed concerns about the strength of the rand, which has made it more difficult for manufacturers to export their costly products. The viability of manufacturing is crucial because the sector is the second biggest contributor to GDP and a key employer for the largely semi-skilled and unskilled labour force.

The rand has gained 26 percent since the start of 2009, prompting unions to call for a weaker currency. But the ANC at a policy meeting in September gave the cold shoulder to a call from COSATU to tax short-term capital inflows to stem the currency's strength.

What to watch:

- Fresh calls for a capital inflows tax. Financial policy makers have mostly fended off calls to try the plan, saying it would send the wrong signal to investors and be difficult to implement.

- Easing foreign exchange controls. Policy makers are working on plans that would allow pension funds and others to invest more money abroad, which could have a short term impact in bringing down the currency.

- Intervention. This is seen as too difficult for the government to manage. The central bank has said it will continue to accumulate reserves with the support of the Treasury.

- Purchases: State owned enterprises such as power utility Eskom are trying to leverage the strong rand into cheaper purchases abroad of major items, which could prompt deals for infrastructure projects with overseas firms that also add more debt to balance sheets.

STRIKES

The mid-year "strike season" is winding down, with a formal deal being reached in October to end a strike by about 1.3 million state workers. Financial policy planners are worried about the impact of this deal and others on the economy because of their wage settlements well above inflation.

Confrontational rhetoric between the ruling African National Congress and the country's largest labour federation COSATU, which is a governing partner with the ANC, suggests a lack of willingness among unions to accept labour reforms the economy and labour market need to tackle 25 percent unemployment, a factor behind the country's alarmingly high crime rate.

What to watch:

- Inflationary pressures. The National Treasury said in its three-year budget policy statement the high wage settlements to settle many of these strikes could add to consumer costs while decreasing the incentive of employers to hire more workers.

- Budget pressure. The deal to end the state workers strike has put pressure on the government to make cuts elsewhere. The government is the biggest employer in South Africa and is looking to slow its hiring of new employees, which would keep the unemployment numbers high.

CORRUPTION

Two questionable mining deals and two proposed measures to curb the media have posed a question mark about how Zuma's government has been running the country.

The deals and proposed media curbs in and of themselves may not be hugely significant, but they have triggered a volley of criticism directed at the government, suggesting it may suffer from a leadership vacuum where cronyism can thrive.

The risk for investors is that with few safeguards in place, a constrained media and a weak administration, sweetheart deals could increase in the remaining four years of Zuma's term.

What to watch:

- Labour group COSATU has seized on corruption as an issue to criticise government and elements in the ANC. It has pledged to name and shame suspected criminals, which could weaken confidence in Zuma's already shaky rule.

- An acceleration of the questionable deals if safeguards are not applied.

- Any changes coming to measures the ANC set up to help a broad section of the black majority win a greater stake in the economy, which COSATU and other critics say instead have served to enrich a narrow sliver of the political class.

NATIONALISATION

COSATU and the ANC's Youth League, former allies of Zuma who helped propel him to the presidency, have called for some degree of nationalisation of the mines, which account for about 5-7 percent of GDP. The ANC has said it will consider the proposals but did not expect any action to be taken by at least 2012 when it holds its next major political meeting.

Nationalisation is seen as highly unlikely given its high costs and the blow it would deal to South Africa's reputation as a country that supports open and free markets.

What to watch:

- The ANC could consider ways to secure more funds from the industry that include higher taxes on mining companies.

- The nationalisation debate is being used by forces opposed to Zuma in the ANC as a way to score political points and could intensify if anger grows about his leadership.

ELECTRICITY

Electricity supply worries continue to haunt businesses and households, and power utility Eskom is finding it tough to raise money to build new power stations.

Fears of a repeat of a power crisis in early 2008 that brought the grid to the brink of collapse and forced mines and smelters to shut for days will deter investment.

Eskom has warned of another power crunch between 2011 and 2013 unless more stations are built. Parts of Johannesburg have suffered blackouts in recent weeks although these have been blamed on technical problems.

What to watch:

- More blackouts will hurt businesses and output. If caused by system overload, they are likely to deter foreign investment.

- Efforts to raise money to build new plants. If the government fails to get the cash, firms are unlikely to want to build smelters or other factories with big power demand.

- The 2008 blackouts hit the rand and stock market, with mining stocks such as Anglo Platinum, Impala Platinum, Gold Fields and AngloGold Ashanti taking a knock.

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