By Kopano Gumbi
JOHANNESBURG (Reuters) – Investors are optimistic South Africa’s new unity government can deliver stable economic policies to revive growth, but are wary of how the main partners of the new coalition can reconcile their stark ideological differences.
The African National Congress (ANC) – which has been in power since the 1994 vote that marked the end of apartheid – has struck a deal with the white-led, pro-business and minority Democratic Alliance (DA) after failing to win parliament. majority in last month’s national elections.
The agreement between the ideologically opposed ANC and DA marks a major political shift in the country and paves the way for the Government of National Unity under President Cyril Ramaphosa to implement the necessary reforms to create economic growth and address high levels of unemployment and inequality.
Investors and credit rating agencies see the two largest parties in the unity government agreeing on more liberal economic policies, but struggling to overcome ideological differences.
The ANC, for example, has increased spending on welfare payments, but the DA has been in the running until the election is pushed to roll back some and scrap some ANC Black empowerment policies.
The left-wing Economic Freedom Fighters (EFF) and former president Jacob Zuma’s party, uMkhonto weSizwe (MK), will not join the unity government, opting instead to be part of the opposition alliance.
“With the populist party choosing to reject the GNU, and its larger ANC partner at the center of the ruling coalition and opting for a more liberal economic policy, we think the GNU opens up possibilities for more growth-friendly structural reforms and prudent macroeconomic policy choices,” HSBC Economist David Faulkner said in a note.
“But the GNU could also face ideological divisions and increase fractures in the ANC, factors that could make a stable policy framework difficult.”
Among its priorities, the unity government is set to focus on rapid, inclusive and sustainable economic growth, promoting fixed capital investment, job creation, land reform and infrastructure development, the ANC has said.
“The election results are generally favorable for economic and fiscal prospects, compared to alternatives,” S&P Global Ratings said on Tuesday, but also said the government faces an uphill battle to revive growth and maintain fiscal discipline, while navigating new realities. from coalition politics.
“Despite the fairly constructive results, significant ideological differences between the ANC and DA on issues such as affirmative action and foreign policy could undermine the government,” S&P said.
Minor parties in the unity government include the socially conservative Inkatha Freedom Party and the right-wing Patriotic Alliance.
SURGE MARKET
Financial markets have welcomed the unity government, with South Africa’s banking index, seen as a gauge of local economic recovery prospects, up 19% since June 7 – when the ANC announced it would seek a unity government.
The rand, one of the few emerging market currencies that has posted gains since the start of the year, and local government bonds.
“The spread between our bonds and US bonds, it’s pretty much back to where it was pre-Election,” said Mike van der Westhuizen, portfolio manager at Citadel, a local wealth management company. “The risk premium on the bond is at fair value,” he said.
Investors are hopeful that the unity government will implement the ANC’s reform plans for the power, rail and port sectors. This is needed to revive an economy that has barely grown in the last decade and has the highest unemployment rate in the world.
The DA has approved a government program code named “Operation Vulindlela”, a Zulu term meaning road clearing, to be launched in 2020 by the ANC-led government to speed up structural reforms.
Adam Furlan, emerging markets fixed income portfolio manager at NinetyOne Investments – South Africa’s largest asset manager, said the DA’s desire to support the initiative bodes well for policy continuity.
“We expect it to continue and hopefully quickly,” Furlan said.
Ramaphosa is expected to announce a new cabinet, in consultation with his new coalition partners, a few days after being sworn in on Wednesday.
Some analysts have expressed concern that the ANC is unlikely to hand over key finance portfolios.
“The best scenario for asset prices from now on is that the DA gets responsibility for finance, public companies, and energy, and the worst case, that the cabinet representation is just a token,” market research Tellimer said in a note. .