As some of SA’s largest parties scramble to form a government ahead of Friday’s first sitting of parliament, ratings agency S&P said the lack of consensus in the ANC to govern with the DA might lead to an unstable government of national unity (GNU).
The ANC, which has governed SA since the 1994 democratic breakthrough, extended an olive branch to other parties to form a GNU, after losing its outright majority in May’s election — an outcome that rocked the country’s political establishment.
By the time of going to print, only the IFP and Patriotic Alliance had indicated their desire to form part of the proposed GNU, while the DA, the country’s second-largest party, was also said to be considering forming part of such a government.
“For the first time in many years you are going to have some sort of a coalition or possibly a GNU... It looks like the ANC may try to form a GNU with the DA as well as the IFP. Those three parties together polled roughly two-thirds of the national vote,” Frank Gill, Europe, Middle East and Africa sovereign specialist at S&P, said.
“But the history of the DA party is such that there appears to be a lack of consensus within the ANC to govern with the DA. So, I think it’s a very complicated situation. If a GNU is formed, it may prove to not be particularly stable.
“There are a lot of questions about how long that government might last. And whether it can tackle the challenges of public finances, particularly the very high wage bill and whether they can agree on other policies.”
Gill’s comments were made at a webinar hosted by the ratings agency on Thursday, which discussed recent events on key emerging and frontier market sovereigns.
The discussion included recent elections in Mexico, SA, India and the EU.
Gill told the webinar that the emergence of former president Jacob Zuma’s MK party, which won the lion’s share of the vote in KwaZulu-Natal (KZN), carried with it a risk of economic instability in the key province.
The MK party was on Thursday night set to occupy the opposition benches in KZN, with a government formed of the ANC, DA, IFP and National Freedom Party earmarked to control the province.
“They [MK] polled over 40% in KwaZulu-Natal. The reasons why that matters is that that is where two of the most important ports in SA, Durban and Richards Bay. There has been a lot of issues around the interruptions of export flows from those ports due to logistical challenges,” he said.
“So, the MK party is actually disputing the election results and if they do govern in that province and they take a somewhat antigovernment stance, they could disrupt economic activity further. So, that is clearly also a risk.”
Gill’s comments came shortly after the AU’s African Peer Review Mechanism (APRM) denounced ratings agency Fitch for what it sees as inappropriate attempts to manipulate SA’s internal politics by suggesting that the ANC tie up with the DA to form a government.
The APRM, designed to advance AU ideals of democratic governance and inclusive development in member states, was reacting to Fitch’s statement last week, highlighting risks to SA’s credit profile after the election.
The APRM was offended by its interpretation that Fitch was saying DA support for the ANC from outside government was likelier.
Asset manager Old Mutual Investment Group (OMIG) said while the country was on tenterhooks waiting for the outcome of GNU talks, this was a positive moment for the country’s democracy.
“Maintaining the status quo may have delivered familiarity for markets, but it certainly did not deliver growth,” said OMIG head of equities research Meryl Pick.
“We see no reason to change our positioning even ahead of Friday’s inaugural sitting of the new parliament. We are, however, hedging against tail risk events, and any potential significant currency movements using derivates.”
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