South Africa on the edge

South Africa’s Government of National Unity (GNU) is under immense strain and is unlikely to continue in its current form.

However, a potential breakup or reduced influence of the DA would have significant consequences for the country’s economy. 

At the country’s last general election in May 2024, the ANC lost its majority for the first time since 1994 and formed a broad coalition with ten parties, including the DA. 

The election results highlighted widespread public frustration over deteriorating economic conditions, poor service delivery, the legacy of state capture, and high inequality and unemployment.

S&P Global Ratings said the GNU was met with widespread optimism by investors, which is one key reason the agency has maintained its positive outlook on the country’s finances. 

The presence of business-friendly reform-minded parties in the GNU indicated that the country’s economy could move in the right direction, with much faster economic growth. 

However, there have been several disagreements among members of the GNU, with the latest and most severe being the Budget debacle. 

The GNU has managed to stay together despite these disagreements, but it appears unlikely that it will continue in its current form without some reworking. 

It has reached some important compromises, such as those on the parameters of a five-year medium-term development plan, National Health Insurance (NHI), and land expropriation. 

Nonetheless, in its latest ratings action on South Africa, S&P said that it anticipates the government will face an increasingly tough battle to revive growth and maintain fiscal discipline. 

It also said that attempts by various opposition parties, such as the MK Party and EFF, to block legislation remain constant. 

S&P warned that if the current coalition collapses, then these parties would be likely to join the ANC in government, with a severe detrimental impact on growth and fiscal consolidation. 

GNU key to faster growth 

S&P forecasts faster economic growth for South Africa, with it expecting more than double 2024’s reported 0.6% growth. 

This will largely be driven by a significant reduction in load-shedding and increased private-sector investment in the country. 

Tariffs on goods imported into the United States will limit growth, though both direct and secondary effects will be felt by South Africa’s major trading partners, such as China. 

Electricity load-shedding peaked in 2023, and the ratings agency expects electricity shortages to be less severe in the coming years as private generation capacity comes online. 

Nevertheless, some load shedding has occurred since March 2025, and subdued consumption and logistics bottlenecks around railway capacity and port operations continue to affect activity across several sectors, including export-oriented ones.

These industries are crucial for South Africa to earn valuable foreign exchange and boost the value of the rand, potentially creating a virtuous cycle. 

S&P forecasts a slight rebound in growth from 2024 levels, but lower than our November forecast of 1.5% on average over fiscal 2026-2028. 

Economic growth will be partly supported by likely lower interest rates, as well as the recent establishment of a two-pot retirement system that allows people to partially withdraw funds from their retirement accounts, which could boost consumption. 

Nevertheless, given population growth, the agency forecasts per capita GDP growth to be less than 0.5% and insufficient to materially raise living standards or reduce unemployment, which stands at 33%.

S&P’s GDP growth projections over fiscal 2025-2027 (averaging 1.4%) are slightly lower than the government’s (averaging 1.7%), largely because of our less supportive view on investment.

Crucially, all of this depends on the GNU holding and continuing to accelerate reforms in South Africa. The country’s economic outcomes will likely be far worse if it collapses. 

Given that several reform-minded parties are in the GNU, the government is aiming to accelerate growth and business-friendly reforms, as well as improve service delivery. 

Efforts to realise private participation and public-private partnerships in the railway, ports, power, and water sectors, as well as to strengthen the regulatory environment, could boost private sector investment beyond S&P’s expectations.