South Africa cannot afford to lose any more credibility 

South Africa cannot afford to lose any more credibility in the eyes of investors, as the country seeks to emerge from a decade of economic stagnation and mounting government debt. 

The drama within the Government of National Unity (GNU) steadily erodes the country’s policy stability and investor trust. 

While political turmoil is not unique to South Africa, it lacks a track record of strong economic growth and wealth creation, which would lend it additional credibility.

This is feedback from Old Mutual Wealth investment strategist Izak Odendaal, who outlined the impact of continued drama within the GNU. 

Odendaal likened it to a dense fog settling over South Africa’s political landscape, with the latest episode of brinkmanship not going down well with investors. 

Not long after the 10-party GNU reached the milestone of its first anniversary, President Ramaphosa unexpectedly fired Andrew Whitfield, a DA deputy minister. 

The firing was for the seemingly minor transgression of not getting approval to travel overseas in February. This is unlikely to be the real reason, and it caused much unhappiness on the part of the DA. 

Although the party indicated that it would not leave the GNU as it is not in the best interest of South Africa, it will pull out of Ramaphosa’s planned National Dialogue.

More importantly, the relationship between the ANC and the DA, the two largest parties in the governing coalition, took another hit. 

South Africa is far from the only country experiencing political turmoil from time to time, Odendaal explained. 

Sometimes there are inconclusive elections and minority governments, where the largest party holds less than 50% of the seats in parliament and hasn’t formed a coalition. 

Minority governments must manage by getting votes from opposition parties on an issue-by-issue basis. Canada, France and Japan are current examples. 

Then there is the US, where long-established political norms are being upended daily, and uncertainty is at near-record levels.

However, these countries have strong track records of economic growth, stability, and investor-friendly policies, which endows them with immense goodwill in the eyes of investors. 

The United States, in particular, is emerging from a prolonged period of strong growth and wealth creation. It can “afford” some political dysfunction and has much credibility to lose. 

South Africa, on the other hand, does not. It is trying to escape years of economic stagnation and must simultaneously gain investor trust and reduce government debt. 

The GNU is stable – for now

The GNU is the best platform South Africa has had in years to try to escape economic stagnation and drive meaningful economic reform. 

This is why its formation was cheered by financial markets and why any threat to its stability and functioning is met with investors selling out of South African assets, Odendaal said. 

By including the two largest parties in parliament, the ANC and DA, the GNU is more stable than alternative coalition scenarios that small single-seat parties can undo, as we’ve seen at the municipal level. 

The other benefit is that, while the two largest parties disagree on many issues, they agree on core principles, such as respect for the constitution and broadly centrist economic policies. 

They are natural bedfellows from an ideas point of view, but clearly not when it comes to personalities or political style, Odendaal said. 

Opinion polls suggest that it is popular among the South African public, too. This means that GNU members still have a strong incentive to hold their noses and continue to work together. 

However, the local government elections on the horizon present a difficult problem to members of the GNU, with parties having to present a unique proposition to voters while maintaining unity in government. 

That’s the central difficulty with coalitions. If it operates too smoothly, voters don’t necessarily know who to credit. Why not just merge the parties, they may ask. 

A degree of tension and competition is healthy in coalitions, and parties can be expected to perform loudly for their constituencies. 

Too loudly, however, and with too much competition and tension, relationships will fray to breaking point. 

South African politicians, voters and investors must all still get used to the nuances of coalition politics, Odendaal explained.  

While it might lead to a weaker executive branch from a divided Cabinet, it can lead to a stronger legislative branch. Since no single party controls Parliament, there is more opportunity to hold the government accountable.