The announcement of the 2024 National and Provincial election outcomes in South Africa signified a significant transformation in the country’s political scene. The African National Congress (ANC) experienced a substantial setback, losing its parliamentary majority of three decades. With a turnout rate of 58.61% and over 16 million votes cast, the ANC secured only 39.77% of the National Assembly vote, a notable decline from previous elections. This loss translates to a reduction of 71 seats in parliament compared to 2019.

Additionally, the ANC no longer holds a majority in key provincial legislatures, including KwaZulu-Natal, Gauteng, and the Northern Cape.

Consequently, the ANC must now explore coalition partnerships at both national and provincial levels to have a role in forming the seventh administration. Sources close to the Presidency say that Cyril Ramaphosa is leaning towards a broad arrangement, possibly a unity government, that would include the Democratic Alliance, the second-biggest party, as well as the Inkatha Freedom party. The ANC has 159 MPs in the new parliament, with the DA at 87, MK on 58 and 39 for the EFF. Other small parties, including the Patriotic Alliance, with 9 seats, could be persuaded to join an ANC-EFF alliance, according to political analysts.

Furthermore, there’s a deep divide regarding the course of action, according to an ANC insider. Moving in the direction of the DA would be a win for the “reformists” in the ANC but a setback for those who favour
a more drastic overhaul of the economy.

The rand gained some ground on Monday after falling sharply against the US dollar last week when the election results were announced, as speculation about an ANC-DA partnership grew.

Nonetheless, Moody’s rating agency issued a warning, stating that South Africa may experience a period of “political and policy uncertainty” following the era of coalition governments. “A coalition government could complicate the execution of fiscal, economic and social policies that would help address South Africa’s structural credit weaknesses, such as slow economic growth, inefficiencies in the energy and logistics sectors, and high unemployment,’’ the ratings agency noted. Zahabia Gupta, S&P’s South Africa analyst, was quoted by the Financial Times saying that: “if a government was formed through an unstable coalition or with a party that pushes policies of nationalisation or dilutes the independence of institutions such as the central bank, then this could be bad for the country’s ratings.” This was a reference to MK and EFF, which both support such measures. Gupta also added that if a coalition leads to faster momentum to implement reforms, which would help South Africa’s GDP growth rate move beyond 2%, then this would be positive.

National Assembly vote share percentage

Bottom line:

As expected, the ruling party has lost many seats in the national
assembly. With 71 seats amiss the ANC is under immense
pressure to reform and do better. A solid coalition can pave the
way for such reforms, but politics is not always rational and
less market friendly coalitions are still a risk. We monitor these
events over the next couple of weeks. In the meantime our
portfolios remain very well-diversified to shield against a more
negative outcome as well as benefit from a more positive one.
In truth it is not the time to position portfolios towards specific
binary outcomes and some caution is warranted

Macroeconomics in Brief

Macro Economics 5 June 2024