ANC/DA coalition: better politically/economically; risk of unrest higher

An ANC/DA coalition after the election on 29 May will be better for the country thanks to a rosier real GDP growth outlook and cleaner governance, but the political regime risk is higher, as messy intra-coalition bunfights could lead to votes of no confidence and potential coalition collapses, while the risk of protest and unrest is also higher.

Although both parties loudly deny that they will ever consider a coalition, Louw Nel, senior political analyst and Jee-A van der Linde, senior economist at Oxford Economics Africa, write in their third research briefing for the election about the ANC and DA election scenario about what could happen if the ANC) wins only 40% of the vote and decides to make a deal with the official opposition party for 25 years: the liberal DA.

Four polls since February, two by polling firm Ipsos, one from the liberal Brenthurst Foundation and the last by the liberal Social Research Foundation (SRF), found support for the ANC between 38% and 40%.

The same polls found support for the DA between 21% and 27%, with the two liberal outfits’ responses flattering the liberal party. In the latest polls, where former President Jacob Zuma’s uMkhonto weSizwe (MK) Party is an option, around 10%-11% of respondents pick the Economic Freedom Fighters (EFF) and 8%-15% choose the MK Party.

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ANC/DA coalition scenario

In this scenario, the ANC’s share of the vote drops from 57% (in 2019) to 40%, with more radical voters flocking to the EFF, which earns the red berets 18% of the vote (up from 10.2%), or to the MK Party, which gets 5%.

The DA loses some votes to new liberal challengers like ActionSA (which gets 4%), RiseMzansi and Bosa. Compared to 2019, the DA loses 1.3 ppts of the vote to end at 19.5%. The result still gives the DA 78 seats in the National Assembly, the second-biggest caucus after the ANC. Small parties that appeal to ethnic or cultural electorates, like the VF+, Al-Jama’ah, and the Patriotic Alliance (PA), continue to grow.

This is where Nel sees the ANC’s dismal showing at the polls forcing it to go in search of a big coalition partner and choosing the DA over the EFF, at least partially due to the ANC’s concerns about the EFF and its larger-than-life leader Julius Malema, usurping the organisation over time.

With a combined 238 seats in the 400 member National Assembly, Nel says an ANC-DA government will be free to name a president and a speaker and to divide up cabinet positions between the two parties. Coalition governments will then also be replicated in Gauteng and KwaZulu-Natal.

However, Nel says with no formal tie-up to consider as a blueprint, it is difficult to speculate about what such an arrangement would look like. “However, one thing is certain: John Steenhuisen, an effective former chief whip for the opposition, has a great deal of respect for parliament as an institution and a tool to keep the executive in check, meaning he will demand senior positions at the legislature and quite possibly, the position of speaker for himself.”

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Haggling over cabinet positions

Haggling over cabinet positions will be fraught but, as with our previous scenario, the ANC will not easily relinquish the position of finance minister, Nel writes. He says Enoch Godongwana is an example of a minister the DA had comparatively few run-ins with and the DA will likely recognise the benefits of continuity and having him stay on.

“Others will be much more difficult: individuals like belligerent police minister Bheki Cele would surely only be retained if reshuffled to a less important portfolio, a move that will weaken Ramaphosa within his party.”

Nel also thinks the DA will demand critical portfolios to convince their voters (and naysayers within the party) of the wisdom of the collaboration. Both parties will be wary of being punished at the polls in the future and know the importance of negotiating well to be seen as ‘winning’.

Nel writes that despite historical hostility, if the ANC’s and DA’s leaders could convince supporters and internal stakeholders that a tie-up is a best-case scenario for the parties and the country, while careful haggling over cabinet positions could deliver a compromise executive that allows both parties to claim victory.

The focus would then shift to boosting economic growth as the DA demands greater private sector participation and economic liberalisation. Nel says in this case, the macro-outcomes will then be better than in Oxford Economics Africa’s baseline forecast and will in fact be their best-case scenario from the macro-economic point of view.

“The first effects are those of investor sentiment: the Rand strengthens throughout the second half of 2024, while bond yields drop as investors’ opinion of the fiscal outlook improves. Second-phase effects will take shape in more disciplined government spending. “

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ANC/DP coalition will benefit economy

Van der Linde adds that the fiscal deficit will become narrower than in the baseline, although social spending obligations make excessive austerity unplayable and as a result, the gross government debt to gross domestic product (GDP) ratio grows more slowly and stabilises sooner.

“The inflation outlook is for higher inflation than baseline in the medium term as hotter activity exerts a demand effect, but lower than baseline in the longer term as capital inflows remain at stable levels.”

Although South Africa’s overall political-economic risk profile is expected to improve in this scenario, risk on certain risk pillars worsens under an ANC-DA coalition government, Nel writes.

“Political regime risk is notably higher. South Africa is inexperienced with coalition politics and the ANC and DA have never been partners in a coalition. When ANC politicians become embroiled in corruption scandals in a coalition, the DA will support them or at least refrain from attacking them, angering its base.”

The ANC will also be forced to defend the coalition’s more liberal economic policies, to the dismay of its communist allies in the Tripartite Alliance, Nel says. And although this coalition should be more stable than one with the EFF, policy uncertainty, votes of no confidence and potential coalition collapses remain risks.

Van der Linde expects that structural unemployment and pronounced inequality will remain concerns, but that there will be progress on inclusive economic growth. “Quickening real GDP growth and policies geared towards uplifting unemployment will lessen the excess policy concerns on this risk pillar.

“Financial capacity risks will also dissipate marginally as short-term consumption spending is curbed in favour of longer-term development spending. Policies favouring savers and investors bode well for South Africa’s business environment, increasing tax revenue and narrowing the budget deficit.”

Van der Linde writes while the public sector will still be a prominent source of employment, private sector growth will tick up thanks to market-friendly economic reforms.

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Uptick in political violence possible with ANC/DA coalition

Nel says although political violence and polarisation risks drop slightly compared to the baseline, an ANC/DA coalition will represent a significant portion of the electorate, decreasing polarisation, although this will be offset by an uptick in political violence between different ANC factions, especially by members seeking to exploit the ANC’s new minority status to unseat Ramaphosa and his allies.

Nel expects that that the risk of protest and unrest will be higher and whether it comes from members of the Tripartite Alliance, forces within the ANC believing the former liberation party has been captured, or from disgruntled DA supporters, the risk of escalating protests is distinctly elevated.