President Cyril Ramaphosa&#8217;s second term begins with a historic Government of National Unity, sparking cautious market optimism. While the Rand rallies and JP Morgan upgrades South Africa’s rankings, some warn that deep-seated structural issues and potential policy conflicts could impede sustained economic growth.



Today marked the second-term swearing-in of South Africa’s President Cyril Ramaphosa of the African National Congress (ANC), which has for the first time since 1997 been forced to form a Government of National Unity (GNU). The ANC, having lost its parliamentary majority for the first time since the dawn of democracy in the country, has formed a coalition with the opposition Democratic Alliance (DA) among others, an odd set of bedfellows between the proclaimed socialist ANC and neoliberal DA, and a direct response to the more economically left-leaning established Economic Freedom Fighters (EFF) and newly-formed Umkhonto we Sizwe (MK) party led by South Africa’s former President Jacob Zuma.



The move has sparked cautious optimism as well as more deliberate takes from markets and economists. Following the announcement of the GNU, the South African rand rallied 0.44% against the dollar against its previous close. Yesterday, global bank JP Morgan upgraded South Africa’s rankings from underweight to overweight. As Ramaphosa took his oath of office on a crisp winter’s morning in the country’s capital Pretoria, the rand broke below R18 to 1USD for the first time in almost a year.



“We affirm our resolute quest to build a growing and inclusive economy that offers opportunities and livelihoods to all people,” said Ramaphosa in his inauguration speech. “They want a transformed, growing, and inclusive economy.”



Unmeasured optimism isn’t the only sentiment, however, despite the short-term reaction of the markets. While noting the positive response, economist Dawie Roodt makes clear that the underlying structural problems are not only to be fixed overnight but that even these short-term benefits are unlikely to be realized for the majority of the populace.



A Problem of Structure



“The recent market optimism, it’s really good news,” said Roodt, Chief Economist of the Efficient Group, to FORBES AFRICA. “But you have to remember that the financial markets are not going to spill over that much into the real economy.”



South Africa has long been grappling with long-term challenges that have hampered economic growth; a battling state-owned electrical utility has meant regular outages to both business and public for nearly two decades. Railways and basic service delivery have redoubled these challenges, and coupled with a shrinking tax base, the short-term economic response will not necessarily lead to any strong long-term economic gains.



“The basic problem in South Africa is service delivery. Unfortunately, the damage that has been done to all levels of government over the past couple of years is really extensive – fixing that is going to be a major issue,” says Roodt. “The GNU’s commitment to infrastructure development and basic service provision is a positive step, but the extent of its impact will depend on the government’s ability to implement these changes effectively.”



There Might Be a Will, But Not a Way



“The people of South Africa have spoken about the land they want to farm, about the businesses they want to run,” said Ramaphosa today. “&#8230; about the things and products they want to make, about the skills they want to learn.”



It&#8217;s unclear at this point politically from where these results will come.



Despite both the DA and ANC appearing to make strong commitments toward the GNU, it’s early days yet. Both parties compromised extensively to achieve the agreement, with the DA confirming it would not support a motion to re-investigate President Ramaphosa over the Phala Phala farm scandal, whilst the ANC is open to negotiating with the DA on top cabinet positions.



The free-market-leaning DA, and the ostensibly more left-leaning ANC are also joined by the Zulu nationalist Inkatha Freedom Party (IFP) and conservative but stated economically centrist Patriotic Alliance (PA) in the GNU, all of whom have crucially different stances on economic and social policy.



Long-Term Ramifications



Therein lies the challenge to long-term success, comments Roodt; not only are underlying structural problems unlikely to be solved easily, but what is likely is that a divergence of views could cause inaction and strife within the GNU.



“There are major challenges ahead. Both the DA and the ANC will try to prevent conflicts over policies and ideologies, but inevitably, conflicts will arise,” he comments. “What concerns me is that these conflicts could lead to the end of the coalition and even instability within the ANC itself… I doubt we will see a full five-year term for this new government due to these inevitable policy conflicts.”



In the most economically-unequal country in the world, the consequences of such a lack of action could be dire.



First Surety, Then Credit



As South Africa navigates this new political landscape, the long-term ramifications of the GNU’s policies are uncertain. President Ramaphosa&#8217;s commitment to economic reform is evident in his inauguration speech where he stated, &#8220;We affirm our resolute quest to build a growing and inclusive economy that offers opportunities and livelihoods to all people.&#8221; This commitment is crucial for addressing the country&#8217;s deep-rooted economic challenges, but it will require effective implementation and unwavering political will.



Roodt highlights the significant hurdles ahead, particularly the need for structural adjustments. &#8220;In order to fix the real economy, we need to make some structural adjustments,&#8221; Roodt emphasized. These adjustments, while necessary, are politically challenging and could lead to tensions within the coalition government. The ability of the GNU to navigate these challenges will be a key determinant of its success.



Delivering What The People Want



Ramaphosa&#8217;s vision for a more inclusive and just society also hinges on effective governance and anti-corruption measures. &#8220;The people have demanded an end to the theft of public funds and the capture of the state,&#8221; Ramaphosa asserted. Ensuring transparency and accountability in government operations will be essential for gaining public trust and fostering a conducive environment for economic growth.



As South Africa moves forward, the world watches closely. The GNU represents a bold step towards inclusive governance and economic reform, but the journey is fraught with challenges. The initial market optimism must be tempered with the reality of the structural issues that need to be addressed.



Roodt&#8217;s cautionary words serve as a reminder of the uphill battle that lies ahead. &#8220;This is not going to be an easy route. It is still a serious uphill battle ahead of us,&#8221; he warned. The coalition&#8217;s success will largely depend on its ability to navigate internal conflicts and make the tough structural adjustments needed to revive the economy.



Ramaphosa&#8217;s pledge to work with all sectors of society to address these challenges is a positive sign. &#8220;As the President of the Republic, I will work with everyone to reach out and work with every political party and sector that is willing to contribute to finding solutions to the challenges our country faces as we transition to a new decade of freedom,&#8221; he declared. In this pivotal moment, South Africa has the opportunity to forge a new path. The coming months and years will reveal whether the GNU can deliver on its promises and steer the nation towards sustainable economic growth and social justice. Only time will tell if this new era will truly bring about the transformative change that South Africans so desperately need.

Tag: GNU

FORBES AFRICA SOCIAL MEDIA

Ramaphosa Sworn In For Second Time: Can South Africa’s GNU Deliver On Economic Reforms?