Business

What economists think of ANC’s Government of National Unity plan

While politicians negotiate and find ways to work together, what matters for economists is how their decisions will affect South Africa’s economy.

Economists seem to think that a Government of National Unity (GNU) is not such a bad idea for economic growth.

While it was initially difficult to decide where to start with the weekly comments as it was a big week locally, globally, economically and politically, Thursday night’s address by ANC president Cyril Ramaphosa swooped in to take the top spot,” says Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER) at Stellenbosch University.

Advertisement

“In the delayed speech, reminiscent of late Sunday night family meetings during Covid, Ramaphosa announced that the party would be seeking a government of National Unity. Listening to the speech, Ramaphosa came across as humble and he was at pains to stress that the ANC had accepted the election results and had taken the slide in support to heart.

Ramaphosa said the ANC would be seeking a Government of National Unity that would first and foremost need to tackle the pressing issues that South Africans want to be addressed, including job creation, inclusive economic growth, high cost of living, service delivery, crime and corruption.  

Ramaphosa said the ANC would be open to discussions with any political party “so long as it is in the public interest”.

Advertisement

De Scheppers notes how Ramaphosa did not mention the MK party in the list of parties the ANC was engaging with at the time.

ALSO READ: ANC’s game-changer: Pursuing a Government of National Unity to break deadlock

Discussions are encouraging – economists

“It is encouraging that, according to Ramaphosa, constructive discussions with some political parties have already taken place. The speech also emphasised that this government should reach beyond the political realm and wanted to engage with all social partners.

Advertisement

“We are not in a position to comment on the practicalities of the workings of this proposed type of government, but bringing together parties from across the political spectrum and making tough policy decisions is probably easier said than done,” said De Schepper.

With a sizeable 40% for the ANC, De Schepper saidit is not necessary for every party to agree fully on all matters. She adds that it also remains to be seen whether parties are willing to accept the ANC’s invitation and if they are willing to work together with not just the ANC, but also each other.

“There are parties with starkly different (even opposing) mandates and some parties may ‘uninvite’ themselves. In the end, it is important to have a government that works efficiently and is able to implement coherent, realistic and sustainable policies without too much delay.”

Advertisement

De Schepper said South Africa’s financial market assets remain sensitive to the political news cycle and this is likely to remain the case until we have clarity on the new government’s composition.

“The Rand exchange rate has steadily, albeit slowly, weakened against the major currencies since the election last week. The rand is currently about 2% weaker to the euro, pound and dollar from Thursday last week. The JSE ALSI is flat compared to a week ago.

“However, broadly speaking, South Africa’s assets have been significantly more stable than the swings experienced in Mexico and India after their election news broke,” said De Schepper.

Advertisement

ALSO READ: Declining GDP dominated economic news in SA this week

Uncertainty about coalitions weighed on the Rand

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, also point to the Rand weakening further this week as the uncertainty surrounding post-election coalition talks weighed on the local unit.

“Markets were hoping that the ANC would form a coalition with the “business-friendly” DA. However, the leading party suggested a government of national unity, which would see several parties with divergent policies ruling alongside the ANC.

“Unfortunately, the ANC’s decision did very little to abate concerns about the future direction of policy. The Rand traded weaker at R18.90 against the dollar, R24.20 against the pound and R20.60 against the euro,” said Matshego and Nkonki.

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say with the ANC failing to gain an outright majority for the first time since 1994, the political landscape has sparked intense political horse-trading.

They point out that the president, when he announced that the ANC would talk about a government of national unity, emphasised that the primary goals of this government must be to address job creation and inclusive growth, the high cost of living, service delivery and the issues of crime and corruption. Both markets and society will likely take a constructive view of this option, they say.

ALSO READ: ANC’s surprise move: Unity government proposal rocks political boat

Economists to review NGU’s effects once it’s in place

“We will be ready to review our macroeconomic projections once the invited political parties have agreed on the government of national unity for the new administration,” they said.

They expect that the new administration will face difficult policy choices. “Preserving energy reforms and improving logistics through the Freight Logistics Roadmap is paramount, particularly in unlocking new investment.

“At 11.2% of GDP between 2012 and 2023, fixed investment falls short of the 2030 target of 20% envisioned by the National Development Plan (NDP), published more than ten years ago. All else constant, we linearly approximate that had private sector fixed investment gradually lifted from 11.7% in 2014 to around 20% by 2019, the economy would have expanded by around 2.5% to 3.0% over that period, sufficient to stabilise government debt,”they said.

While difficult political choices are being made, they say prioritising the rule of law, stability and growth should be the focus.

“Thereafter, the effective implementation of pro-growth policies early in the new administration’s term will ensure that macroeconomic fundamentals improve over the medium term. This is pivotal for the economy’s transition to a key destination for private-sector investment, enabling the reaching of NDP goals,” they added.

For more news your way

Download our app and read this and other great stories on the move. Available for Android and iOS.

Published by
By Ina Opperman
Read more on these topics: Government of national unity (GNU)