By Gordon Bell
JOHANNESBURG, May 4 (Reuters) - Feuding within the ruling African National Congress, the World Cup, regular violent public service protests and power supply problems could all affect investor sentiment in South Africa.
Africa's biggest economy is struggling to recover from last year's recession and households remain under strain, leaving investment as a key potential driver of growth.
However, tyres burnt in protests ahead of the June hosting of the World Cup, racially tinged slogans and demands for nationalisation are threatening the investment outlook.
ANC INFIGHTING Julius Malema, the outspoken leader of the ANC's youth wing, is stoking racial tension and deepening divisions within the ruling party ahead of a crucial policy-setting conference in September.
The upstart has defied calls for restraint in public statements after breaking with ANC policy by backing Zimbabwe's Robert Mugabe and for continuing to sing racial songs, including "Kill the Boer" (Kill the farmer).
President Jacob Zuma rebuked Malema last month and ANC leaders have moved to discipline him.
While primarily an internal party issue, the process will be closely watched with Malema having polarised the ANC and wider society.
Any disciplinary action is fraught with pitfalls, setting the militant youth wing against more experienced party leaders. It may also expose loyalties and ambition, with some weighing the cost of opposing Malema versus the loss of the youth support in future leadership campaigns, particularly ahead of September's policy meeting.
Malema's Zimbabwe-style campaign for mines to be nationalised and for land to be seized and handed to blacks has spooked investors, prompting reassurances from the government.
What to watch:
-- Malema has appeared before an ANC disciplinary hearing. If he manages to side-step disciplinary action it will signal he has the backing of most of the ANC's top decision making body, the national executive committee, giving him impetus to keep pushing for nationalisation.
-- The policy conference in September will set the agenda for debate ahead of the ANC's 5-yearly national convention due in late 2012. Issues such as nationalisation will be proposed at that meeting.
-- Signs more controversial, militant leaders are gaining prominence, or if the party agrees to move policy towards a more pro-poor left wing stance will stoke investor fears. A shift in policy has been the biggest concern for investors since Zuma rose to prominence, given the backing he received from the trade unions, communists and youth movement.
-- Any change will likely weaken the rand through negative investor sentiment. Some ANC members may push for concrete proposals to intervene to ensure a weaker currency.
WORLD CUP Hosting the world's biggest sporting spectacular from June 11 to July 11 is both an opportunity and a risk.
Should something go wrong -- high profile crime victims, transport mayhem or a terrorist attack -- any benefit of staging the tournament would be lost, and prove a disaster for South Africa's image.
The national and regional governments have spent an estimated 40 billion rand to host the first World Cup in Africa, which is forecast to boost economic growth by 0.5 percentage points this year.
The government hopes it will help attract millions more tourists over the next five years.
The bulk of the economic boost will come from foreign spending, with about 230,000 overseas fans seen buying tickets for games and more than 100,000 others expected from Africa and elsewhere.
Although much of the money spent has improved infrastructure, particularly roads, the political fallout could be huge if the tournament is not seen as recouping the spending.
Conversely, a successful and largely incident-free World Cup will elevate South Africa's profile abroad and paper over the racial cracks in its society -- much like the Rugby World Cup in 1995.
What to watch:
-- Violence in the run-up to the tournament will scare fans and damage the country's image for tourism and investment. Less foreign spending will limit the currency inflows and hurt the rand currency.
-- High-profile crime incidents or a terrorist attack during the event will be devastating, given the focus that will be on the country, hitting markets as investors pull money out.
STRIKES/PROTESTS AND THE LEFT Often-violent protests for better living conditions in sprawling townships have hurt the government, damaging the ANC's -- and President Zuma's -- image as a party for the poor.
Pictures of stone-throwing youths, burning tyres barricading main roads and police firing rubber bullets at rampaging mobs are often seen in newspapers abroad, and could hit investor sentiment should they continue or escalate.
Coupled with that is the rise in the number and militancy of strikes, which pick at cracks in the relationship between Zuma's government and the ANC's powerful trade union federation ally COSATU and the small, yet influential, Communist Party.
COSATU and the SACP helped Zuma to the top ANC post and in national elections last year but are unhappy over the government mostly shrugging off demands for left wing economic policies.
Already this year there have been 54 major protests over lack of basic services compared with 105 for the whole of 2009 and 27 in 2008, according to Municipal IQ, a local government monitoring service.
Nearly half the protests took place in Gauteng, the main industrial and financial region around Johannesburg.
What to watch:
-- Further deterioration in the relationship between the trade unions and Zuma's government will lead to confrontation and more militant demands for change. The government will be under pressure from leftist cabinet ministers and influential ruling party figures to give in to the demands.
This will scare investors who fear a move away from centrist economic policy. So far, initial fears of a shift have proved unfounded with Zuma sticking to the previous conservative stance.
-- A breakdown in relations with COSATU and the SACP, as well as a failure to be seen to change living conditions in townships, will damage Zuma's chances of a second presidential term. No-one has put their name forward to run against Zuma, although Housing Minister and ANC heavyweight Tokyo Sexwale and COSATU leader Zwelinzima Vavi are known to have presidential ambitions.
-- An escalation in protests and strikes will receive wide coverage in newspapers abroad, undermining investor sentiment. Widespread strikes are seen as a weight on the rand, which has underperformed other emerging market currencies in 2010.
POWER AND MONEY
Electricity supply worries continue to haunt businesses and households, and efforts by state-owned utility Eskom to raise money to build new power stations are proving tough.
Any repeat of the power crisis in early 2008 that almost collapsed the energy grid 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. Johannesburg is already suffering blackouts blamed on technical problems.
South Africa's economy has performed well over the last decade, save for the globally-led recession in 2009, but unemployment remains one of its biggest problems. Nearly one in four of the labour force is without work.
Dwindling investment, particularly into big labour-absorbing and energy-consuming manufacturing projects, will exacerbate joblessness and heap pressure on the government to do more to help the poor.
What to watch:
-- Continuing blackouts, especially during the World Cup, will hurt businesses and damage sentiment.
-- A failure to raise enough money to build new plants may scare off direct investment as businesses and manufacturers will be unwilling to put big money into smelters and other factories should power security remain a concern. Using price hikes to raise money will increase costs for companies.
-- The blackouts of early 2008 sent the rand and stock market sharply lower, with mining stocks such as Anglo Platinum , Impala Platinum, Gold Fields and AngloGold Ashanti, taking a massive knock. (Editing by Giles Elgood and Peter Apps)