The GNU’s big test

Upcoming municipal elections will test the durability of South Africa’s ruling alliance, with its members set to compete fiercely for control of local councils, the nation’s deputy finance minister said.

“The coalition will remain stable for the next year,” Ashor Sarupen said in an interview at Bloomberg’s Johannesburg office on Thursday.

Its future will depend on whether the African National Congress — the largest party — “takes the right message from voters” and reforms its governing approach if it performs poorly, he said.

The ANC led South Africa outright for the first three decades after apartheid ended, but lost its parliamentary majority in last year’s elections amid public outrage over poor government services and high unemployment.

It then set up a so-called government of national unity that includes the Democratic Alliance, of which Sarupen is a member, and eight smaller rivals. 

The alliance’s resolve to prioritize growing the economy has sparked a rally in other South African assets. But internal relations have been fraught, with the ANC and DA sparring over a range of contentious laws. 

While Sarupen fiercely opposed Finance Minister Enoch Godongwana’s proposal to raise value-added tax earlier this year, tensions have thawed and they meet weekly for breakfast.

The municipal elections must be held before the end of January 2027. In a worst-case scenario, the ANC would walk away from the GNU, which would spook investors, Sarupen said.

The deputy minister views the current risks to South Africa’s economy as evenly balanced, with structural reforms on track and last week’s budget update passing “without a hitch.”

The country is however vulnerable to external factors, such as a global selloff in artificial intelligence-related stocks, which may feed through to currency markets including the rand, he said. 

US President Donald Trump’s imposition of 30% tariffs on some imports from South Africa is another worry. The levies have a limited impact so far, but some American firms frontloaded orders ahead of them coming into effect and sales could tail off, Sarupen said.

The National Treasury is also concerned about dysfunctional municipalities, which are failing to deliver reliable water, electricity and other basic services, and collectively owe state power utility Eskom about R100 billion rand.

The bulk of the debt is owed by 50 “delinquent councils,” and they will have to enter into distribution agency agreements with Eskom or risk having their bank accounts attached by the courts, Sarupen said.

He confirmed that he plans to run for the position of DA federal executive chairman at a party conference in April. The post is currently held by Helen Zille, who intends to run for mayor of Johannesburg.

The Treasury expects per-capita gross domestic product to stabilize next year for the first time since 2017, “which is an “important psychological milestone,” he said.