South Africa

Warning to investors about the new South African government

The Government of National Unity (GNU) has done little in terms of fundamental reform that can boost the South African economy, which threatens to limit the rally seen in local financial assets. 

It is also at risk of falling apart, with fundamental differences in policy and ideology between partners. Two of the DA’s so-called ‘red lines’, the National Health Insurance (NHI) Act and the Basic Education Laws Amendment (BELA) Bill, have been crossed. 

Despite these risks, sentiment towards the new government has been immensely positive. This is partly due to the relief that worse alternatives were avoided and its apparent business-friendly nature. 

As a result, local assets have rallied strongly. At the time of writing, 10-year bond yields are down 90 basis points (8.8%), the JSE All Share is up 10.9%, and the currency is 4.6% stronger since the GNU’s formation. 

Coronation economist Marie Antelme said this rally has also been boosted by encouraging signs that GNU members can work together on a shared agenda. 

Feedback from both large parties following the working Lekgotlas has highlighted a common commitment to the foremost priority of the Statement of Intent signed at the GNU’s formation. 

However, there are still several underlying risks to this political arrangement. Antelme said it is concerning that replica arrangements have not been created at a local government level, particularly in Gauteng. 

This will threaten unity at a national level as the volatility in Gauteng threatens to spill over. 

Different views on policy are also a potential area for conflict or compromise, with reforms passed by the previous administration but challenged by the then-opposition DA most at risk.

Antelme said the early days of the GNU have seen regress and progress relative to the principles of the SoI, but also the emergence of a common agenda and considerable support from the private sector. 

Coronation expects the GNU to survive at a national level throughout 2025 but is unsure whether it will survive until the next election. 

A major threat to this is factionalism within the ANC, exemplified in Gauteng, which threatens to split the party at its National Conference in 2027. 

The local elections in 2026 will see GNU partners campaign against each other in local councils – keeping agendas and competition separate is not unusual in coalitions globally but is untested in South Africa.

On balance, Coronation sees the current political arrangement as more capable of delivering an enabling environment for stronger growth than before.

Coronation economist Marie Antelme

Apart from potential instability, the GNU has also failed to implement economic reform since coming to power. 

Much of the reform that has had a significant impact on the local economy was already underway under the previous administration. 

Crucially, the GNU has ensured these reform processes will continue, but it has not meaningfully accelerated any of them yet. 

Much progress has been made regarding South Africa’s electricity challenges but painfully little has been achieved regarding logistics, crime and corruption, and the growing water crisis. 

Antelme said the rubber will hit the road during the Medium-Term Budget Policy Statement (MTBPS) next week as it is the first budget done under the new government. 

Much is expected of Finance Minister Enoch Godongwana, who will have to balance the need to contain government spending while boosting economic growth. 

The primary reason for the slowing was a steady collapse in investment, which undermined productivity and contributed to weak, low-quality employment and low economic-value consumption. 

The degradation of institutions, largely public but also private, in a reinforcing loop also systemically undermined confidence.

Coronation expects investment to remain low as there is not sufficient evidence of meaningful momentum. 

The MTBPS does give the government an opportunity to make its intentions clear regarding future reform, particularly the reduction in regulatory red tape. 

Cyclical factors, such as the Reserve Bank cutting interest rates and the two-pot retirement system boosting household spending, should also encourage South Africa’s economic growth. 

Antelme said Godongwana does not have to present a new plan but rather a renewed focus on the work that has yet to be done. 

The medium-term strategic framework has always been the basis for its budgeting and implementation, but the focus has become fragmented, and accountability has been lost. This is the ideal chance to refocus and coordinate policy to boost economic growth. 

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