South African investors urged to be cautious about ANC-DA tie-up 

While a coalition government that includes the ANC and the DA will boost South African assets, this will be temporary. The market will wait for evidence of accelerated reforms and growth before heavily investing in the country. 

This is feedback from Old Mutual Wealth investment strategist Izak Odendaal, who said that investor optimism about the DA’s involvement in the government could be misplaced. 

The past week has seen intense discussions within and between parties on various cooperation and coalition possibilities. This is new terrain for a country governed by one party for the past thirty years.

There is strong disagreement within parties about who they should and shouldn’t partner with, which has elevated volatility in local financial markets. 

The ANC has invited all other parties to join a government of national unity (GNU), simply another form of a coalition.

So far, a few parties have ruled out participation. Most notably, the EFF. Jacob Zuma’s MK Party has been playing its cards close to its chest regarding a potential coalition with the ANC. 

Therefore, it still seems that the outcome investors fear most – a leftist-populist coalition – will not materialise. 

Nothing is guaranteed, however, and it will ultimately depend on whether the ANC and DA can reach an agreement since they are the two largest parties with 62% of the votes between them.  

The DA could join the GNU or support it as a minority government, voting for key legislation such as the Budget through a ‘supply and confidence model’ commonly seen in Europe. 

Odendaal said that either arrangement would be welcomed by the business and investor communities. 

If the DA and ANC cannot come to an agreement, the EFF could still join the GNU, which would hurt investor sentiment, given the party’s stance on property rights and fiscal policy. 

However, with a weaker election performance, the EFF will not be entering such a coalition on the front foot and will not be able to impose its policies on its coalition partners. Among other things, this means the ANC will still appoint the finance minister.

The main question is whether South Africa gets an acceleration of growth-enhancing economic reforms, fiscal discipline, increased emphasis on the fight against crime and corruption, and improved delivery of basic services. 

Populists and ideologues always reach for silver bullets, but there are none. Fixing South Africa requires the hard and tedious work of getting the basics right every day.

It appears as though President Ramaphosa understands this, urging any new government to continue the reforms his administration has initiated. 

Ramaphosa’s administration has undertaken reforms, including liberalising the electricity sector and increasing private participation in the country’s logistics. 

“Regardless of the form or composition of the incoming administration, it is important that the momentum of reform be retained and sustained,” Ramaphosa said.

“A change in direction would derail the positive progress that has been made and take us back to the starting blocks.”

The National Treasury’s modelling has shown that the successful implementation of reforms would raise the economic growth rate to 3% over ten years.

Whatever governing arrangement emerges in the next few days, political uncertainty will not go away, Odendaal warned. 

Coalitions can unravel anytime, including at some big upcoming political events – the ANC’s policy conference next year, municipal elections in 2026, and the ANC’s elective conference in 2027.

South African assets can enjoy a relief rally if a market-friendly coalition comes to power, but the real value will probably only unlock when there is evidence of faster growth, better governance, and debt sustainability. 

In other words, whatever happens in the next week, good or bad, will not be the end of the story. Investors will still need to remain calm and be patient.