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Terra Incognito

04 June 2024 Old Mutual Wealth Investment Strategist, Izak Odendaal

South Africa has always been a country with high levels of political uncertainty, but not political instability. For the last three decades, it has been governed by a single party with a comfortable majority. No more.

We are now in unchartered political territory, and things can go in very different directions from this point forward.

While the ANC’s share of the national vote was expected to drop below 50%, the end result was even more startling as it only secured 40%. It is a massive drop from the 57% share it won in 2019. It also lost its majority in KwaZulu-Natal, Gauteng and the Northern Cape. The big winner, of course, was the MKP, securing 14.6% in its first election and ending second behind the DA, which grew its support slightly to 21.7%.

In the weeks running up to the election, the broad consensus among local and international investors was that the ANC would get between 45% and 50%, allowing it to remain in power with the help of one or two smaller parties. However, its losses were too big and it will need to partner with one of the large parties – the MKP, EFF or DA – in a formal or informal coalition arrangement.

Chart 1: National election results (biggest parties)


Source: IEC

The immediate market reaction was negative, since markets are always moved by surprises. But this doesn’t mean that the outcome was negative. Democracy is alive and well in South Africa. Voters are still engaged and turned out in numbers to express their hopes and frustrations. Despite being an extraordinarily violent country, we’ve managed yet again to host a free and fair election, without major disruptions. The ANC accepted the outcome, unlike in many other countries where losers instinctively cry foul or where the military gets involved to influence political outcomes. While our democracy isn’t perfect, South Africa is not experiencing a disastrous slide to authoritarianism.

But where are we headed? Coalition talks are tentatively getting underway, but given the scale of the election surprise, the biggest discussions are probably happening inside each of the major parties. They need to agree on what they want internally before negotiating externally. It could take weeks for talks to be finalised, so we will have to wait. The most pressing step is that the National Assembly must elect a president within 14 days, otherwise fresh elections must be held. This can take place without formal coalition agreements in place, but a majority of MPs must support the candidate, who at this stage is still likely to be Cyril Ramaphosa.

A number of different things could still happen, but the market will treat the outcomes as binary: either a ‘Grand Coalition’ between the ANC and the DA and others emerges, which would be seen as positive; or there will be a leftist/populist coalition of the ANC and either the EFF or MKP, or both.

In the case of the former, South African assets and the rand would rally, while they would sell off in the case of the latter.

However, beyond the knee-jerk market reaction, there is still complexity and nuance. For instance, while there is much common ground between the ANC and DA in terms of the substance of their policies, there remains a wide gap in terms of the style of politics which could make it a volatile relationship. On the other hand, if the ANC partners with the EFF, the latter’s relatively weak showing in the election means it will not have the upper hand in setting coalition priorities.

It is also not the case that there has been a decisive shift to the left on the part of South African voters. The old joke has it that the problem with socialism is running out of other people’s money. The parlous state of government finances means there is no room to embark on fantasies like widespread nationalisation. The EFF’s growth has topped out, while the MK’s success is probably more due to ethnic mobilisation and a protest vote by disgruntled ANC voters than a leftist policy platform.”

Given that South Africa is the most unequal society in the world, at least as measured by the Gini coefficient, one would expect a large and natural constituency for leftist policies. But South African voters, for whatever reason, continue to favour centrist and centre-left parties.

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