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Looking at the election results on Friday afternoon, South Africa is in unchartered and uncertain waters with the Rand and the markets volatile as everybody waits to see how the chips will fall, economists say.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research at Stellenbosch University, says although the election results are still trickling in, with just over half of the votes counted by the time of writing, projections are starting to line up.”
However, she says, it remains premature to make a firm call on the final share allocation per party with official results are expected this weekend. “Still, some trends are clear. The ANC is on track to lose its majority in parliament but remains the biggest party at a national level.
The rise of the MK party is remarkable with the number of votes outside of KwaZulu-Natal particularly significant and largely responsible for the loss in votes for the ANC as the established opposition parties failed to make significant inroads, save for the PA and EFF in the Northern Cape.
“In fact, at this stage, it is not inconceivable that MK will end up with more national votes than the EFF. With the ANC most likely losing its majority at a national level, it will have to cooperate with other parties to remain in charge of government. There seems to be no clear single party that could form a coalition with the ANC without either party making significant concessions.”
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The question, she says, is how the horse trading will play out. As expected, KwaZulu-Natal and Gauteng provincial results are also tight and this could play into national government negotiations, she points out.
In financial markets, the Rand started Thursday on a fairly firm footing but lost ground once the CSIR poll put the ANC national vote at about 41%, IJssel de Schepper says. Yields rose and markets became more jittery. A later estimate by eNCA for a 45% ANC outcome contributed to some renewed Rand strength.
“The Rand remained volatile throughout the day and closed around a one-month low against the dollar. Volatility was always expected and yesterday’s ranges are not out of line given the levels of uncertainty around the election outcome. The Rand is set to remain volatile over the next two weeks as parties negotiate a national coalition.”
She says on the JSE ALSI, it was mainly bankers and retailers that suffered as markets digested election projections. “Global sentiment also contributed to the Rand weakness and underperformance of SA assets.”
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Prof. Raymond Parsons, economist at the North-West University Business School, says against the background of the interim results so far, South Africa is for now in uncharted and uncertain waters, which is reflected in the initial reaction of the financial markets and the Rand.
“While the emergence of coalition government, both at national and provincial levels, is not unexpected, the exact configuration of coalition arrangements could have an important impact on South Africa’s economic performance.
“The challenge for new coalition governance at the national and provincial levels must be to ensure that South Africa implements the reforms necessary to get it back on a good economic track after several years where a great deal of economic ground has been lost.”
As the ANC will emerge as the biggest single party, it can still through a wise selection of political partners expedite the pace of growth-friendly economic reforms, he says. “Much will depend on which parties the ANC will enter into partnership with and what ‘horse trading’ may be necessary to create stable governance.”
Parsons points out that the immediate prospects of coalition governance therefore embody both risks and opportunities. “The challenge now is to create a framework of stable governance, which is needed to promote business and investor confidence.
“Most of the post-election configurations with the ANC will find the updated National Development Plan (NDP) recommendations valuable for this purpose, assuming that there is a desire to create a favourable economic environment within which the private sector can flourish.”
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However, if the existing ANC approach to the implementation of policy and projects does not improve and remains entirely unchanged, South Africa will not be able to break out of its current ‘low-growth trap’ of 1% to 1.5% and build a bigger, stronger, and better economy, Parsons warns.
“The lack of effective implementation and service delivery is widely perceived as the biggest failure in South Africa’s economic performance. Future job-rich growth requires the pace of growth-orientated reforms to be expedited within a macroeconomic framework which offers efficiency, stability, consistency and certainty.”
In addition, he says, keeping the debt trap at bay for South Africa will also now become more challenging unless the promises made during the ANC’s election campaign on the NHI and the BIG are revised by the time the Medium-Term Budget Policy Statement is due in October.
“Therefore, there remain serious risks to the fiscal outlook. South Africa’s risk premium would rise if the fiscal commitments made in the 2024/25 Budget in February are not met. Hence, the direction of South Africa’s economic and fiscal policies will also depend on who fills the vacancies in the cabinet’s economic cluster, especially at the National Treasury.”
Parsons says the sooner coalition configurations are finalised, the sooner the broader implications for the economy can be firmly identified and confirmed.
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Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the Rand lost some ground and traded at R18.70/$ against the dollar by the close of Thursday as preliminary election results showed the ANC losing parliamentary seats.
“While it remains the biggest party, some estimates show that it will be difficult to maintain the 50% majority, forcing the party to form coalitions with smaller parties. The possibility of coalitions left investors concerned and uncertain about the future direction of policy.”
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