Perception is everything — how SA’s new unity government will impact investor sentiment

The rand has continued to trade strongly and the JSE’s largest stocks have all surged in the past week since the African National Congress (ANC) announced its plans to form a government of national unity (GNU) with the Democratic Alliance (DA) and the Inkatha Freedom Party (IFP), and which have been later joined by Goof and the Patriotic Alliance parties.

This initial enthusiasm should be seen as a positive sign for South Africa’s economy, which has remained stagnant with roughly 1% growth per year over the past decade amid growing corruption and failing service delivery in many of South Africa’s largest metros.

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Of course, this optimism is based solely on perceptions, as investors see the IFP and, in particular, the DA as much more business friendly. The DA, for example, has called for replacing Broadbased Black Economic Employment (BBBEE) policies with UN Sustainable Development Goals and improving the governance of state-owned entities, in particular Eskom and Transnet, which are vital for a growing economy. While the DA’s policies would be likely to further improve investor confidence in South Africa, the ticker tape of Ramaphosa’s inauguration has yet to be cleaned up and there is still no guarantee the DA, IFP and other parties of the GNU will have the influence needed to enact any of these reforms.

Despite the early days of the GNU, foreign investors seem optimistic, about the new government, despite a large amount of criticism and pushback from some South Africans. Again, perceptions are at play, with some seeing the ANC’s alliance with the DA as contrary to its principles and which caters to South Africa’s minority white population rather than its majority Black and rural population, which has long been the ANC’s base.

Former president Jacob Zuma, now the leader of the opposition uMkhonto Wesizwe party, has labelled the new government as “a return of apartheid and colonialism.” Some commentators have gone even further, stating that the rise of the markets and the JSE are proof of the racism inherent in these institutions.

Read more in Daily Maverick: Zuma slams GNU as ‘white-led unholy alliance’ as MK party decides to join Progressive Caucus

However, while one can argue for days about the DA’s tone-deafness surrounding its majority white leadership, the markets and investors are not concerned about skin colour, they are concerned about returns, and there are several actual reasons for their optimistic perception.

Market optimism

First, the way Ramaphosa and the ANC leadership accepted the results — in which it dropped 17% from 2019 — was the sign of a mature party which has accepted it is no longer the sole decision maker in the country. The ANC’s decision to push for a unity government illustrated its willingness for compromise and to work towards a government which will be for the good of the country’s institutions in the long term, rather than a short-term plan in order to rule for five more years. Ramaphosa’s internal politicking within the ANC to consolidate his power, driving out many of the individuals allegedly involved in corruption (many of which then joined MK), has been key to the maturing of the ANC as a political party. It is highly unlikely we’d be in the same position had Zuma been in charge of the party and the country with these electoral results.

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Second, the ANC rightly welcomed all parties, including MK and the left-wing Economic Freedom Fighters (EFF), who refused to accept the GNU’s principles, largely due to the inclusion of the DA or, for MK, keeping Ramaphosa as leader of the new government. But perceptions matter, and in the months ahead of the election, our clients who invest in South Africa have repeatedly asked for clarity on the likelihood of the EFF, and later MK, doing well in the election and having influence over government policy. Both parties’ radical manifestos, which call for nationalisation of all land and scrapping of the constitution, would have meant instability politically and economically and we’d see a much more negative outlook had the ANC leadership decided to forgo Ramaphosa for a coalition partnership with MK.

Finally, the DA’s track record in the Western Cape — arguably the best-governed province in South Africa according to recent governance indexes — has given hope that it will be able to put these practices into effect at a national level and, with the other parties of the GNU, limit corruption and improve efficiencies at a ministerial level and improve the operations of state-owned enterprises. Ultimately, an improved economy will equal more tax revenue for the State, and improved governance will mean this revenue will likely be used to improve the lives and opportunities for all South African citizens.

However, it is important to remember that perceptions can change quickly and we are still just out of the starting blocks with this GNU. There will be arguments and issues and it is very unlikely that the GNU we have now will be the same government prior to the next elections in five years. Ultimately, the future of South Africa will not be predicated on how well the markets are performing, but how well the political parties of the GNU are able to compromise and work together to ensure we have policies which help the economy to grow and citizens to benefit. DM