Big development in South Africa’s new cabinet

The leaders of South Africa’s two largest political parties, the ANC’s Cyril Ramaphosa and DA’s John Steenhuisen, have reportedly reached a deal over their positions in the new cabinet.

This comes after an extended negotiation period characterised by fights over prominent cabinet positions, notably those of the Minister of Trade and Industry.

Initial optimism about the new Government of National Unity (GNU) and mixed government disappeared after negotiations stalled last week.

The main sticking point was the Minister of Trade and Industry position. The ANC reportedly withdrew this offer after last-minute changes to the cabinet’s composition.

Ramaphosa wanted to switch that portfolio to Tourism and drop one of the deputy minister positions.

The DA did not back down, threatening to leave the Government of National Unity unless the original offer was reinstated.

This caused havoc in the South African markets. It led to a selloff in local assets, weakening the rand by over 1%.

However, on Friday, news emerged that Ramaphosa and Steenhuisen were nearing an agreement over positions in the executive.

Bloomberg reported that the leaders had a constructive meeting to resolve an impasse over new cabinet positions.

DA spokesman Richard Newton said the last negotiations between the two leaders were still wrapping up on Friday.

On Sunday, IOL reported that the ANC and DA made a breakthrough, saying the parties have reached a deal over their involvement in the cabinet.

Citing well-placed sources, IOL said the DA settled on six ministers in Cyril Ramaphosa’s new cabinet.

These ministries are Home Affairs, Basic Education, Public Works, Communications, Forestry, Fisheries, and Agriculture.

The report said that Ramaphosa is expected to announce his new cabinet within the next two days.

The Sunday Times also reported that the cabinet deal is as good as done and that Ramaphosa will likely announce his cabinet within days.

“DA leaders are likely to endorse a deal for six cabinet posts and several deputy minister positions at a FedEx meeting today,” The Sunday Times reported.

Despite the progress and optimism, DA leaders Steenhuisen and federal council chair Helen Zille said nothing had been finalised.

ANC spokesperson Zuko Godlimpi said the party was “happy with the attitude of most political parties” and had received “positive responses across the board.”

A new government of national unity cabinet with a mix of ANC and DA ministers is the preferred option for investors.

A combination of the left-leaning ANC and centrist DA is expected to accelerate economic reforms in South Africa.

It includes improving the country’s energy crisis, fixing Transnet through private sector participation, and addressing the high levels of crime and corruption.

The rand has already started strengthening on Friday after ANC secretary-general Fikile Mbalula said a deal on the next government is “almost done”.

The markets are expected to respond positively if an official deal between Ramaphosa and Steenhuisen is announced.

Renowned economist Dawie Roodt said such a positive outcome could bolster the rand and South Africa’s capital and equity markets.

He said the JSE was at least 30% undervalued compared to its global peers and could rise by 20% to 30%.

South Africa’s capital market is also cheap and yields around 10%. Positive news about the new government can bolster the capital market by 200 basis points.

The rand, which has already strengthened significantly following the formation of the GNU, can continue its rally.

“The rand has been under tremendous pressure. Although it is always undervalued, it is now more undervalued than previously,” Roodt said.

He said a good outcome could see the rand strengthen to R17.50 or even R17.00 against the US dollar.