By Peroshni Govender
JOHANNESBURG (Reuters) - South Africa's President Jacob Zuma is the favorite to win a second term to lead the ruling ANC in a race dominated by factional politics instead of policy reforms for Africa's most powerful economy.
More than a dozen insiders in the ruling African National Congress told Reuters that Zuma had the race in hand even though there are strong factions in the party who want him out and could make things difficult.
"It's Zuma's race to lose," said one senior ANC member.
The winner of December's party vote is almost certain to be its nominee in the 2014 presidential election. Since the ANC enjoys virtual one-party rule, its nominee is almost assured of winning the five year term as president.
The race will be fought at the local level with little attention paid to warnings from all three of the major global credit ratings agencies who have said the economy is on the wrong track under Zuma, posing long-term risks to stability.
The battle to lead the 100-year-old ANC according to party insiders is a two-horse race between Zuma and Deputy President Kgalema Motlanthe.
Zuma has a commanding lead in delegates and unless Motlanthe make huge strides by the electoral conference in December, Zuma should secure victory.
Motlanthe, or any other candidate, is not going to openly declare their challenge to Zuma due to a party culture where raising one's hand too early is tantamount to political suicide.
The race will be fought behind closed doors, leaving out a public that has grown increasingly angry at the ANC for not doing enough to fix a broken education system, failing hospitals, rampant poverty and chronic unemployment.
"Motlanthe has strong support but it's all about timing and we want to make sure that his chances are good before nominations open," said a source close to the deputy president.
A RAW NERVE
The ANC, a former liberation movement that became the ruling party when the white-minority apartheid regime ended 18 years ago, is a broad-tent political grouping with members ranging from hard core communists to business moguls.
Its consensus-building approach has stifled radical ideas from the left that include nationalizing mines and seizing white-owned farmland.
But it has also allowed a rot to set in. Its allies, its members and voters have criticized it for turning a blind eye to corruption eating away at social welfare spending.
Zuma, Motlanthe and many senior leaders have faced suspicions of corruption, with many in the party using leaks of graft on rivals as a way to settle political scores.
"The perception that corruption is increasing on his watch, and that Zuma can be bought, weigh him down," one senior official said.
Comments from Nedbank chairman Reuel Khoza, one of the country's most respected businessmen, touched a nerve when he warned democracy is under threat from politicians incapable of running the country.
"Our political leadership's moral quotient is degenerating and we are fast losing the checks and balances that are necessary to prevent a recurrence of the past," Khoza wrote in the annual report of South Africa's fourth largest bank.
"South Africa is widely recognized for its liberal and enlightened constitution, yet we observe a strange breed of leaders who are determined to undermine the rule of law and override the constitution," Khoza said.
The ANC's top brass denounced Khoza this month, with some members calling him counter-revolutionary.
But economists say if the ANC government keeps up its current policies, South Africa risks slipping to new depths of unemployment, debt and corruption that could swell the ranks of the destitute and undermine long-term prospects.
Even if Zuma is replaced, it's unlikely Motlanthe will inject much needed reforms to make the economy more competitive.
Motlanthe, who served as the caretaker president for eight months, when former President Thabo Mbeki was ousted in September 2008 before his term ended, avoided confrontation during his stay in power.
The period was one of the most fractious in the post-apartheid era and Motlanthe was a unifying force in the party.
Although his unionist's political upbringing was shaped by leftist theories, he is seen at home as a moderate and is well regarded in international circles.
But the party race to succeed Zuma will be about handing out favors on the local level, and not addressing deficiencies in his government, analysts said.
"The ANC should really consider leadership and policy side by side. Not all leader candidates are equally capable to steer and lead complex policy issues in complex public institutions," Professor Susan Booysens from University of Witwatersrand said.
"The ANC is at a point now where it is essential to move into this nuanced position in order to get governance right."
Originally part of the "Zunami", a term used to describe Zuma's unstoppable rise to power, Motlanthe now appears to be fronting a campaign of dejected Zuma supporters and Mbeki loyalists.
"The mission to replace Mbeki was so great that we did not strategies beyond his demise and the consequences are now all too glaring," said a trade union leader who previously backed Zuma's rise to power.
"Policy is a mess and the party is dogged by infighting which served Zuma in his election bid but now threatens to ruin the ANC".
Since becoming president in 2009, Zuma a former ANC intelligence chief, has been seen as an ineffectual leader muddling through his term.
One success was raising the country's diplomatic profile by having South Africa included into the BRIC - Brazil, Russia, India and China - group of leading emerging economies.
His major pieces of legislation include measures to protect state secrets, which critics said will give the government greater power in hiding reports pointing to corruption.
Job creation is one of Zuma's top policy priorities, but since he took office, the country has lost about a million jobs, with the manufacturing sector the hardest hit. Many of these posts will not come back because labor has priced itself out of the market, with the ANC bowing to its union allies to protect labor friendly laws that drive up personnel costs.
The average factory worker in South Africa earns about six times as much as a factory worker in China and is less efficient. Industries in sectors which were once internationally competitive, such as footwear, have faded.
Zuma's government has sent to parliament four major labor reforms aimed at pleasing labor by forcing employers to take on temporary workers as full time staff.
But a report commissioned by the presidency said the measures would drive up joblessness by adding more costs and regulations on employers.
LOOKING FOR SUPPORT
With eight months to go until the ANC elects its leaders in Manguang in the Free State province, the party's birthplace, Zuma has to work at keeping his supporters.
Trade union federation COSATU, in a governing alliance with the ANC and a powerful vote-gathering machine with two million members, has not fully thrown its weight behind Zuma.
"We don't have a consensus position yet and the big unions are still divided. We won't have a decision until September when the unions hold their own elections," a union official said.
COSATU Secretary General Zwelinzima Vavi, with teachers union SADTU, and the metal workers NUMSA, support a leadership change while union President Sidumo Dlamini, metal workers union NUM and NEHAWU, the health and education workers body endorse Zuma's second term.
Zuma has sidelined one of his biggest foes, ANC Youth League leader Julius Malema, a populist expelled from the party for violating ANC rules.
Malema has won strong backing from the country's poor for his calls to nationalize mines and seize white-owned farmland. Malame has lined up behind Motlanthe and still could be a factor even though he is prohibited from appearing at ANC events.
"Expelling Malema from the ANC is a lame attempt to neutralize him. He is just going to be even louder outside the party. It's a small victory for Zuma but a man like Malema does not shut up. Zuma has unleashed a demon," said an ANC official who did not want to be named.
As factions up the ante in the leadership race, Razia Khan the head of Africa research at Standard Chartered, said the emphasis on politics was a distraction from the immense structural challenges South Africa faces to lift growth.
"From a development perspective it is crucial to have long term policies to see the real impact," she said in an interview from London.
"It is crucially important to have a leader with enough of a long term perspective to be able to drive meaningful structural change."
(Editing by Jon Herskovitz and Anna Willard)