South Africa is close to concluding discussions on forming a national unity government, the African National Congress has said. Rand jumped.
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Published June 28, 2024 • 2 minutes of reading
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(Bloomberg) — South Africa is close to concluding discussions on forming a national unity government, the African National Congress said. Rand jumped.
“We are almost done with the GNU discussions, for the benefit of all South Africans,” said ANC Secretary General Fikile Mbalula in a post on X. “It will be done as promised.”
Mbalula’s statement coincided with Bank of America strategists saying they had ended their bearish trade recommendations for the currency as they expect a coalition government to be formed by the ANC and the centrist Democratic Alliance.
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The rand strengthened by 1.7% and traded 1.5% stronger at 18.2009 per dollar at 11:19 in Johannesburg. A cap at that level would mark the currency’s biggest gain this month, according to data compiled by Bloomberg.
The ANC and DA emerged as the two largest parties in last month’s election and have been in talks for the past week about forming a new cabinet. The talks stalled on Thursday over differences in the deliverables President Cyril Ramaphosa will give to the DA.
If the two sides agree, investors expect an acceleration of economic reforms needed to tackle South Africa’s energy crisis, repair crumbling ports and railways, and reduce crime and corruption.
“The last day or two tensions have looked like the DA is threatening to walk away from street market bargaining, but a deal is wanted by both sides,” said Charlie Robertson, head of macro strategy at investment firm FIM Partners.
DA spokesman Richard Newton said his party’s negotiating team was meeting with Ramaphosa today and remained intent on reaching a deal, with talks expected to conclude soon.
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“Discussions are ongoing,” he said by phone. “We want this to work for the good of the country as well as for the party.”
Bank of America strategists including Mikhail Liluashvili said the market is still pricing in about 3% of the “positive premium” to the dollar/rand exchange rate.
“We think it is justified by the improvement of electricity in the country,” he said, referring to the power utility Eskom Holdings SOC Ltd. efforts to stabilize the supply after record outages.
South Africa’s benchmark equity index rose 1%, with gains led by banking stocks. South African equities are on track for their strongest quarter since 2022. The yield on the benchmark 10-year government bond fell 22 basis points.
“When the rand and local bonds have rallied significantly, the national unity government including the DA will likely help to anchor South Africa’s trade assets,” Samir Gadio, head of African strategy at Standard Chartered Bank.
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