It has been just over a year since South Africa’s Government of National Unity (GNU) was formed.
The following research piece, penned on 3 July by Louw Nel and Jee-A van der Linde of Oxford Economics, explains that the GNU has struggled since its existence because it was formed in an ad hoc manner; the lenses through which the ANC and DA view the GNU are different; and there is no firm dispute resolution mechanism in place.
This reality means that South Africa’s progress is likely to remain stalled by incoherent policy and governmental logjam. The chances of major reforms remain slim as long as President Ramaphosa continues to appease ANC factions rather than boldly leading as the representative of a government comprising multiple parties.
Although we believe the GNU to be flawed and largely dysfunctional, it has importantly succeeded in keeping the hard-left MK and EFF parties out of government. Nonetheless, private sector investment remains depressed, with forecast real GDP growth now only at 0.8% for 2025.
This outlook has manifested itself in how ‘South Africa Inc’ sectors on the JSE have generally underperformed the resources sector and dual-listed companies for the year-to-date. (Refer to our article entitled Decoding a flying JSE versus a grounded South African economy, which offers a comprehensive analysis of the sectoral performances).
Because of this political uncertainty, the impact that it has on the South African GDP growth outlook, and the resultant effect on local businesses, we maintain a strong preference for offshore equities, where the opportunity set is both broader and superior – a strategy which has benefited our clients over many years.
A marriage of convenience, now flirting with divorce
On a political level, the GNU has struggled. The dysfunction in the coalition can be traced back to how it was established. The ANC’s dismal showing in the 2024 general election left it with only 159 seats in the 400-member National Assembly, forcing it to go in search of ‘major’ coalition partners. South Africa’s constitution dictates that the National Assembly must nominate a president within two weeks of the final election results being certified, leaving would-be coalition partners very little time to thrash out an agreement. In fact, we now know that the ANC and DA were still wrangling over the final details when MPs walked into the lower house on June 14. Nonetheless, the original three GNU partners collaborated to re-elect Cyril Ramaphosa as president.
What happened next also contributed to the current dysfunction. The ANC offered all represented parties the opportunity to sign up to the GNU, an invitation eight minority parties considered too good to pass up, and the GNU quickly swelled to an 11-party, broad-church coalition. The DA objected to the move, partly because it did not see eye-to-eye with some of the late entrants, like the Patriotic Alliance (PA) and GOOD parties, but also because the move watered down the DA’s negotiating power. In many ways, the raison d’être for the formation of the GNU was keeping the hard-left African nationalist uMkhonto we Sizwe Party (MKP) and Economic Freedom Fighters (EFF) out of government. As, such the GNU’s origin story is one of necessity and convenience.
Chart 1: The ANC suffered a steep decline in support in 2024, forcing it to search for coalition partners
On June 30 last year, Ramaphosa named his first cabinet under the GNU. The executive was not without problems: the ANC and IFP were over-represented, the DA was under-represented, and smaller parties were rewarded with ministerial or deputy ministerial positions. This was rich reward for parties, like GOOD, that secured fewer than 30,000 votes and earned only one seat in Parliament. The United Africans Transformation (35,700 votes) quit the coalition in a huff after missing out on a cabinet appointment. The DA once again postured and protested but had little leverage to push back. Looking back now, the ad hoc formation of the GNU and the failure to hammer out a comprehensive coalition agreement at the start is the coalition’s ‘original sin’ and the fault in its DNA. The GNU’s haphazard and often chaotic origins guaranteed the kind of disagreement and deadlock hobbling the coalition now.
What’s in a name?
At the heart of the GNU’s troubles lies a disagreement between its main protagonists about what the GNU is. The ANC believes the GNU is an ANC-led multiparty coalition and, accordingly, the party has the first and final words on crucial matters. Smaller coalition partners have been willing to accept this, but the DA has made it clear it cannot. In contrast, the former liberal opposition believes the GNU is a grand coalition whereby the ANC and DA make decisions through “sufficient consent”, a principle spelt out in the coalition’s founding document, the Statement of Intent, whereby decisions are made if, and only when, the coalition’s two largest constituent parties reach consensus. Disagreements are supposed to be referred to a dispute resolution mechanism, but the details were never worked out and no such platform currently exists. Ramaphosa tried to remedy the problem by asking his deputy, Paul Mashatile, to chair a so-called Clearing House Mechanism, but the forum has achieved very little, partly because the DA doesn’t want to work with Mashatile.
Chart 2: The GNU’s majority will disappear if the DA leaves the coalition
Top: The current GNU (yellow) has a healthy 287-seat majority in the 400-member National Assembly, across the aisle from the combined 100 seats (green) of the MKP-EFF.
Bottom: The picture if the 87-seat DA (blue) quits the coalition, with the GNU now having exactly 200 seats.
The GNU has threatened to run aground on several occasions, with most disagreements centred on contentious legislation passed by the previous parliament when the ANC still had a majority. These include the National Health Insurance (NHI) Act, signed into law on the eve of the election; the Basic Education Laws Amendment Act (the ‘Bela Act’), enacted last September; and the amended Expropriation Act, signed into law in January. The ANC insists the laws have been duly passed by parliament and that it’s the president’s prerogative to sign them into law. The DA argues that the legislation, which it opposed during the Sixth Parliament, should have been renegotiated with its objections in mind. Disagreements have also centred on foreign policy – South Africa’s commitment to the Palestinian cause and the country’s relationship with Russia being two cases in point.
The biggest wobble yet centred, almost inevitably, on the 2025 budget and, specifically, plans to hike the value-added tax rate. Here, the ANC tried to circumvent the objecting DA and Freedom Front Plus (VF+) by looking for support outside the coalition, and found willing partners in ActionSA and Build One South Africa (Bosa) parties. However, plans to reconfigure the coalition were ultimately abandoned in favour of finding a compromise on the budget that allowed all parties to save face. The drama of late June (see below) has threatened the budget’s progress through parliament, but the DA has made it clear it remains committed to passing it and avoiding a funding crisis.
The GNU’s primary success has been avoiding collapse – sometimes by the skin of its teeth – but there have been few achievements beyond that. Indeed, the optimism that followed the establishment of the GNU has largely disappeared and, with it, confidence in the new government. The administration’s survival has been helped, in no small measure, by an ineffective opposition. The MKP has been disorganised and crippled by infighting, and its promised cooperation with the EFF as part of a ‘progressive caucus’ has simply not materialised. Instead, the two parties have been waging a low-level war against each other and everybody else, putting very little pressure on the GNU.
Latest Developments
On Thursday, June 26, the DA’s Andrew Whitfield, deputy minister of trade, industry, and competition, was axed. Presidency spokesperson Vincent Magwenya confirmed Whitfield’s sacking without elaborating on the reasons. It was later confirmed that Whitfield was fired because he undertook a week-long trip to the US in February and March as part of a DA delegation without first getting permission from the president.
The news broke hours before the National Assembly was set to debate and adopt the Division of Revenue Act (Dora), a crucial money bill required to move the 2025 budget forward. Delivering a furious speech in the House, DA leader John Steenhuisen called the move “a calculated assault on the governing coalition” and, later, issued an ultimatum demanding that Ramaphosa reinstate Whitfield or fire “corruption-accused ANC ministers” within 48 hours. He did, however, say the DA would still vote to pass Dora. Ramaphosa responded in a statement, explaining his reason for firing Whitfield and admonishing Steenhuisen, his agriculture minister, for his “intemperate” reaction and said that it was “unprecedented” for a member of the executive to issue the president with “irresponsible and unjustifiable threats and ultimatums”.
On June 28, Steenhuisen addressed an expectant press conference but, instead of announcing that the DA was quitting the GNU, said his party was quitting the National Dialogue, something the party disparaged as an “obscene waste of R740mn”. Ramaphosa announced the initiative in his inaugural address and it started to gain momentum. The DA also said it would be voting against the departmental budgets of Minister of Human Settlements Thembi Simelane and Minister of Higher Education Nobuhle Nkabane. The president didn’t respond to the announcement, but the ANC issued a statement. Although it said it reaffirmed its “commitment to dialogue and stability in the GNU”, it warned that it was “imperative for the DA to clarify its stance: is it a genuine and principled partner in the GNU, or is it positioning itself as a quasi-opposition within the executive?”
The latest spat wasn’t a huge surprise and leaves South Africa in familiar territory. The DA is daring the ANC to fire it; the ANC is daring the DA to walk away. Meanwhile, the dysfunction is only getting worse and the trust deficit between the GNU’s two largest parties is growing. Weary South Africans looking at the coalition from the outside are left wondering, what will the ANC and DA fight over next? Increasingly, people are no longer asking if the GNU will fail but rather when. And what will precipitate the split.
What does the future hold?
We’ve often said that the DA isn’t keen on quitting the GNU as its voters will question the party’s leadership decision to rescue the ANC when it was on its knees after the election, only to walk away now. Similarly, the ANC wants to keep the DA within the coalition – notwithstanding calls by some within the party to terminate the arrangement – because of the practical limitations of running a minority government. As illustrated in May, on a good day, the ANC is able to rally enough votes in parliament to push through legislation, even if the DA dissents. Yet, the ANC knows that a 200-seat coalition (which is what it would have without the DA) would render every parliamentary vote a gamble and require constant management of, and concessions to, smaller parties. This is likely why, despite a lot of sabre-rattling, the ANC ultimately decided against a reconfiguration of the coalition. Partnering with the MKP or EFF would be even more challenging as those parties would demand even greater concessions, and would simultaneously spook the markets.
A squabbling GNU and precarious minority government both make it difficult to pursue any kind of policy agenda, and the absence of any major policy breakthroughs over the past 12 months is evidence that too much energy and political capital are being expended merely to keep the GNU functioning at even a basic level. Expectations of major reforms should be moderated as long as Ramaphosa continues an appeasement strategy. The National Dialogue offers an opportunity to tackle important issues, but the DA’s non-participation sets it back. Overall, political parties and civil society have been lukewarm on the initiative and progress, if any, is only likely over the medium term. A more immediate concern is the local government elections, expected in 2026 or early 2027. The intensification of the election campaign will weigh on the fragile equilibrium within the GNU as constituent parties look to distinguish themselves from their rivals, drive wedge issues, and, at an extreme, consider quitting the coalition to strengthen their positions ahead of the election.
The DA has scheduled its next elective conference for April 2026, and a leadership challenge will weigh on the GNU. Similarly, the ANC’s next elective conference is in 2027 – likely after the local elections – and speculation about Ramaphosa’s successor has already started.
Are businesses buying into the GNU?
We’ve lowered our 2025 real GDP growth forecast to 0.8% (from 1.0%) after the economy barely grew during the first quarter (Chart 1). It was not our first downward revision: since the start of 2025, we have nearly halved South Africa’s economic growth forecast for this year in response to US tariffs and political infighting. Considering the uncertainty stemming from domestic politics and US tariffs during the second quarter, we anticipate private sector investment will remain depressed in the near term. The impact of US tariffs will start to be reflected in the Q2 data, with exports likely to show strain heading into H2.
The slump in second-quarter business confidence is particularly concerning, following the 1.7% q/q drop in gross fixed capital formation in Q1. Businesses aren’t investing, and the uncertainty pervasive throughout Q2 would have dampened investment appetite further. Fixed investment declined by about 4% in 2024, and we forecast a contraction of roughly 2% this year, before investment growth turns positive next year. We attribute the dismal investment performance to incoherent government policy, while acknowledging that the latest data might not yet reflect large infrastructure projects that are entering the investment pipeline.
Chart 3: Dismal private sector investment is a concern, considering its size in proportion to government investment
A positive takeaway from the 2025 budget is that an estimated R1.03tn will be spent on public infrastructure projects over the next three fiscal years. Most of the spending will go to energy (R219.2bn), water & sanitation (R156.3bn), and transport & logistics (R402.0bn) – areas that are considered catalysts for economic growth. Cumulative spending on these three areas over this period, amounting to R777.5bn, is nearly equal to the total public-sector infrastructure spend of R799.4bn between 2022/23 and 2024/25. State-owned entities (40%), other public entities (13%), and provincial (21%) and local government (20%) entities will spend most of the money, with national government (4%) and public-private partnerships (PPPs, 2%) representing the smallest share of project spending.
As part of the government’s infrastructure reforms, including cutting unnecessary red tape and boosting PPPs, the National Treasury noted that from June 2025, projects below R2bn will no longer face onerous approval processes designed for large projects. In addition, the government also plans to launch a credit guarantee vehicle in 2026 to mobilise private sector capital by derisking projects. Although these measures all look good on paper, we maintain the view that the government’s infrastructure investment allocation on its own is insubstantial from an economic growth perspective and that increased private-sector funding and expedited cooperation are also needed.
Source: Louw Nel – Senior Political Analyst and Jee-A van der Linde – Senior Economist from Oxford Economics https://www.oxfordeconomics.com/
