The markets are expressing the overwhelming relief that many citizens are still too war-weary to fully accept — that, after many wayward years, South Africa has chosen the high road to cleaner, more accountable and potentially more effective government.
Most economists are reluctant to revise up their growth forecasts until further details of the government of national unity (GNU) arrangement emerge, especially the apportionment of cabinet posts. But the markets have wasted no time in celebrating, with the currency initially strengthening by about 3% and bond yields rallying by about 40 basis points.
On Friday, the JSE’s all share index was up almost a percent, with several banking and retail shares surging by 5% to almost 8% after the DA and ANC formally entered a GNU and re-elected Cyril Ramaphosa as the country’s president.
For the markets, the composition of the GNU is seen as “the best possible outcome for now,” says Standard Bank CIB strategist Mamokete Lijane.
As it is a good catalyst for capital inflows, she expects the rand to end the week below R18/$ and move to R17/$ in the next few months; long bond yields to drop another 30-70 basis points over time; and equities to grind higher.
The consensus view is that not only will all GNU leaders uphold the integrity of key institutions such as the Reserve Bank, the National Treasury, the South African Revenue Service and the criminal justice system, they will also expedite key structural reforms to unblock the national logistics system in an effort to break South Africa out of its low-growth trap.
This view will be affirmed if the DA is given some of the cabinet ministries needed to drive urgent, practical reform (such as water & sanitation and energy) and to improve the business climate (such as trade, industry & competition).
Though the composition of the new cabinet — particularly the economics cluster — still needs to be negotiated, North-West University Professor Raymond Parsons sums up the consensus view — that “the GNU has tilted South Africa towards an investor-friendly outlook, more driven by considerations of efficiency, stability and consistency”.
It could strengthen the hand of the Treasury in two ways, Parsons thinks. First, by further empowering the joint presidency-Treasury delivery unit, Operation Vulindlela, to expedite major reform and infrastructure projects and, second, by ensuring that South Africa keeps a debt trap at bay — two priorities to which the DA is strongly committed.
Parsons is also hopeful that the GNU will expand collaboration between business and government in the priority areas of energy security, logistics, and security, eventually helping South Africa to become more of a “delivery state”.
Business Leadership South Africa CEO Busisiwe Mavuso is hoping for the same thing.
“The business community has been very clear and collaborative,” she says. “For South Africa to thrive it needs responsive economic policy, regulatory certainty, efficient network industries, a capable state, effective public services, safety and security, the rule of law and social stability.”
The primary task now, she says, is for government to build on the progress made by the “remarkably successful” Operation Vulindlela and accelerate the initiatives and reforms designed to get the economy out of the low-growth, low-employment trap it has been stuck in for more than a decade.
No reinventing the wheel
According to the Bureau for Economic Research (BER), South Africa doesn’t at this stage need new initiatives to lift the growth rate above 2%. What it does need is the successful implementation of the remaining structural reforms in the four network areas of energy, railways, ports and infrastructure.
If this is achieved, the BER estimates that the improvement in the business environment, confidence and private sector investment would boost real GDP growth to 3.5% by 2029 (vs 2% in its base case), while also strengthening the rand and allowing inflation and interest rates to fall faster and further than expected.
All told, real GDP would be R399.6bn (7.7%) higher by 2029 than the BER’s baseline estimates, and investment would be up by R196.7bn (22.3%).
Momentum Investments economist Sanisha Packirisamy highlights several other aspects of the GNU agreement that could positively affect the economy:
- Leading roles in various parliamentary portfolio committees will be allocated to the ANC’s GNU partners, thereby boosting parliamentary oversight;
- With the GNU alliance extending to Gauteng and KwaZulu-Natal, macroeconomic stability can be expected in provinces which make up nearly half of the country’s GDP; and
- With the GNU partners committing to collaborate in hung metros, there could be a significant improvement in their governance, accountability and service delivery.
All these developments suggest the economy could perform better than Momentum’s base case, which had real GDP growth averaging only 1.8% over the next five years (nearly reaching 2.5% in the outer year). Packirisamy thinks it could now perform somewhat closer to its bull case of 2.4% average growth (reaching 3.2% in the outer year).
However, she remains cautious given the many potential pitfalls of multiparty governance. These include the potential for parliamentary disruptions by the EFF and MK and related threats of violence; a philosophical clash between the DA and ANC; the impact of competition between GNU partners in the 2026 local government elections; and how well the mechanisms to reach consensus within the GNU will work when a major policy disagreement arises.
Despite these reservations, Packirisamy says the GNU agreement is more detailed than she expected, demonstrating substantial consensus on critical aspects, including on the allocation of government and parliamentary positions, on the mechanisms for resolving disputes, and on the GNU’s decision-making framework.
This bodes well for the longevity of the GNU despite the parties’ differing ideological backgrounds.
No silver bullet
Krutham MD Peter Attard Montalto was already above consensus with a growth forecast of 1.4% for 2024 and 2.1% next year. After the formation of the GNU, he is “quite happy” to remain there, feeling that the market always underestimated the upside potential of South Africa’s reform path.
He doesn’t think his forecasts are too bullish given the potential for some revival of animal spirits on the formation of the GNU as well as the opening of credit taps on the end of load-shedding, and the prospect that the country will, in time, turn the corner on the logistics crisis. While conceding that the new government will initially be hamstrung by a lack of state capacity, he says it will also be building on the “solid foundation” of the Treasury’s public-private partnership reforms, as well as the work already under way on the electricity and logistics crises.
Though the new GNU partners are unlikely to alter the trajectory on those crisis interventions significantly, he does feel that the GNU reinforces the positive prospect of reform. “The more interesting thing is if the new partners can inject new thinking particularly into trade, industry & competition policy where the unions and the ANC are internally very unhappy with the moribund corpse of policy in that area,” he says.
“This is where new upside to growth can start to happen over the coming five years,” he adds. “However, it will take time to shift an [ossified] department and for microeconomic reforms to translate into growth, given the depth of damage that [former trade, industry & competition minister] Ebrahim Patel has done.”
Despite Attard Montalto’s relatively constructive forecasts, he still expects growth to average 1.9% over the medium term, implying only modest per capita income growth. He certainly doesn’t believe the economy could rebound to 3% growth by the end of 2027 in time for the ANC’s next elective conference, which will be a stern test of the GNU’s longevity.
Citi economist Gina Schoeman is not yet adjusting her baseline view that economic growth will average only 1% this year, rising to 1.6% in 2025, since much will depend on the quality of cabinet appointments, details on how the GNU will function, and evidence of its stability.
While she expects natural competition between the GNU parties to spur improved government performance as new ministers try to show how capable they are, she also expects more complexities and uncertainties to arise as parties begin to assert their individual agendas over time, especially as the country heads into the 2026 municipal elections.
What it means: South Africa could grow faster than 3% by 2029 if the new government can expedite reforms in energy, railways and ports, and deliver infrastructure
— What it means:
This remains the real worry: that the GNU could unravel at any point. Key to preventing this will be showing real progress in reviving growth and jobs prior to the big upcoming events on the political calendar, including the ANC’s policy conference next year and its elective conference in 2027.
“Populists and ideologues always reach for silver bullets, but there are none,” warns Old Mutual Wealth strategist Izak Odendaal. “Fixing South Africa requires the hard and tedious work of getting the basics right every day.”
And even then, it will take years to shift the dial on inequality, poverty and structural unemployment convincingly. For these deeper shifts, profoundly challenging educational and labour market reforms are going to be needed — areas that remain off the table for now.
But that doesn’t mean the GNU can’t be a powerful uniting force that sets the country firmly on an upward trajectory. It deserves the nation’s immense gratitude and support.
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