History abounds with kingmakers – figures who didn’t have the outright power to take the crown for themselves – yet had the clout to determine who would wear it next. With the ANC’s hegemony slipping away, South African politics is likely to create new openings for smaller political parties to pull the strings after the general elections in May.
Though the numbers diverge considerably – and the methodology and veracity of some are open to question – the most recent polls indicate that the ANC’s majority will fall away. The most recent poll, conducted by Frans Cronje’s Social Research Foundation (SRF), found that the ANC may garner just 37% of the vote on May 29 – down from 57.5% in 2019.
The SRF poll is by no means an outlier – a Brenthurst Foundation poll in March estimated support for the ANC at 39% and an Ipsos poll in February foresaw ANC support plummeting to 40%. It seems almost certain that the ANC will dip below 50% in Parliament and lose its majority in Gauteng and KwaZulu-Natal: the uncertainty is just how far its support will fall.
That, in turn, will have a direct bearing on who the ANC chooses as its coalition partners and what compromises it may make to cobble national and provincial governments together. If the ANC scrapes together 45% or more of the vote, it may be able to consolidate a coalition with one or two smaller parties and continue more or less with “business as usual.”
This is our current base case scenario in which we would foresee smaller parties expecting positions and patronage to partner with the ANC, but where they would not seek to overturn its core policies. In this scenario, we would not expect governance to improve, but we would also not fear an outright acceleration of populist policies.
The power dynamics will become more fraught if the ANC needs to choose a larger political party to form national and provincial governments. The most market-friendly (but unlikely) outcome is the ANC working with the Democratic Alliance (DA), with the latter’s track record of clean, competent governance and centrist economics as a positive influence.
The other options are bleak! Jacob Zuma’s uMkhonto weSizwe (MK) Party seems likely to garner strong support in KwaZulu-Natal with the SRF polling its national support at 13%. This may put Zuma’s cabal in a strong negotiating position where demands may include ministerial posts and guarantees that the former president and other senior ANC members will not be prosecuted for state capture offences. This would be a stumbling block to rid South Africa of its grey-listing status. Journalist and political commentator, Hopewell Chin’ono, speculates that Zuma’s actual agenda is to get control of the lucre attached to the KwaZulu-Natal provincial government. Given the acrimony between President Cyril Ramaphosa and Zuma, any alliance with MK would introduce turbulence to the ANC’s internal factionalism as well as the wider political landscape.
The other potential partner is the Economic Freedom Fighters (EFF), which has already indicated it would require control of the finance ministry and adoption of policies such as nationalisation in return for its support.
In our view, the rand, local equities, and local bonds are not pricing in the risk of either MK or the EFF being able to close in on the controls of state power.
Whoever the kingmakers are in this “game of thrones”, South Africans will rightly be sceptical that they will wield their power for the greater good. As the country’s experience with municipal coalitions shows, these groupings are often put together for the benefit of parties and politicians rather than for the interests of their constituents.
With that in mind, we expect South Africa’s economy, currency, and stock market to continue underperforming relative to our offshore peers. That said, we believe that the strength of the dollar and the Fed’s interest rate moves will most likely have more bearing on the rand this year than the elections – unless a shock MK or EFF coalition becomes a reality.
“Thou setter-up and plucker-down of kings.”
– William Shakespeare, Henry VI
“If the ANC comes up at 46% or 47%, there may be a number of smaller 1% parties that they can use to stitch together a coalition in which they’re still the dominant force. But if they’re coming in the low 40s, it’s a kind of Rubicon mark.”
– David Everatt, Head of the University of Witwatersrand School of Governance
Global News
- Wednesday’s release of the Consumer Price Index showed that annual US inflation ticked up to 3.5% in March from 3.2% in February. That marked the largest annual gain in half a year. For the Fed, the first rate cut is now only fully priced for November, a stark departure from initial forecasts earlier this year. The next meeting is 1 May and, as always, the rate cut timeframe will be data dependent.
- Noteworthy is that the S&P 500 index, although falling by 0.95% on Wednesday, looks set to end the week in positive territory. This is in sharp contrast to last year when announced inflation overshot consensus forecasts and US equity indices declined markedly in response. This would indicate that market participants have shifted their focus to the positive trajectory of earnings growth in preference to inflation data, yet with an implicit understanding that the rate hiking cycle has indeed peaked.
- The gold price has reached an all-time high, notwithstanding the deferral of rate cuts by the Fed, trading at $2,395.10 an ounce this morning. The precious metal price has climbed 16% so far this year, exceeding the 13% gain registered in all of 2023 despite no obvious drivers. Gold’s rally to successive all-time highs isn’t over, according to macro fund managers interviewed by Bloomberg.
- The European Central Bank has strongly indicated that it may cut interest rates at its next meeting in June after holding them at all-time highs on Thursday. It said that the rate would remain at 4% until rate-setters were sure price pressures had stabilised.
- US Secretary Janet Yellen has implored Beijing’s top leaders to fundamentally rethink their economic growth strategy. China’s consumer prices barely increased, up 0.1% in March, year-on-year, showing that deflationary pressures remain a key threat to the economy’s recovery. Fitch Ratings has revised China’s outlook to negative from stable, saying the government is likely to pile on debt as it seeks to pull the economy out of a real estate-driven slowdown. There is growing uncertainty about the economy’s outlook.
- Australia’s consumer confidence dropped 2.4% to 82.4 points in April as persistent inflation and interest rates at a 12-year high continued to squeeze households, leaving them gloomy about the economic outlook. The index has held below the dividing line of 100 for more than two years according to the data from Westpac. Consumer price rises have outstripped wage growth by 6 percentage points over the last three years.
- Spain is joining Portugal, Ireland, and Greece with plans to end its so-called golden visa programme for foreign property buyers in a bid to increase the amount of affordable housing available to locals. The programme grants residence permits to non-European Union citizens who invest at least $543,000 in a house in Spain.
- Amazon.com has joined fellow technology giants Meta Platforms, Nvidia, and Microsoft in setting a fresh record as the e-commerce and cloud computing giant’s shares extended gains, rising 1.7% to close at $189.05 on Thursday. This surpassed its previous closing high of $186.57 set in July 2021, according to data compiled by Bloomberg. Amazon is the last of the five biggest US tech firms to reach an all-time high in the rebound from the post-pandemic selloff.
- ByteDance’s profit has gained 60% in 2023, according to sources. The company has now outpaced the growth of online peers Tencent Holdings and Alibaba Group in a sign of the TikTok owner’s resilience in the face of an economic downturn. While ByteDance’s internal figures haven’t been independently audited, they suggest the ad-churning social media juggernaut became one of the world’s fastest-growing tech giants in 2023.
- The US plans to award Taiwan Semiconductor Manufacturing Company (TSMC) $6.6 billion in grants and as much as $5 billion in loans to help the world’s top chipmaker build factories in Arizona, expanding Biden’s effort to boost domestic production of critical technology. TSMC’s shares gained 3.7% on the news, announced on Monday.
- In line with a broader earnings rally outside of Big Tech, Delta Air Lines reported vastly improved earnings in the first quarter, and the company said results should remain strong for the rest of the year. Adjusted earnings came in at $380 million, or 45 cents a share, up 75% from a year earlier. It topped Wall Street analysts’ consensus forecast of 36 cents a share. Revenue of $12.6 billion was up 6% and a record for the first three months of the year.
- As at Thursday’s close the S&P 500 was 1% up for the week.
Local News
- The Social Research Foundation polled 1,835 registered voters in April and found that support for the ANC had plummeted to 37%. This seems to have benefited the MK Party, which could now be the third largest in South Africa. MK was polling at 13%, ahead of the EFF, which showed only slight growth to 11%. The EFF garnered 10.8% of the vote in the 2019 general elections.
- Political scientist RW Johnson has highlighted the meteoric rise of MK and its potential to disrupt the political landscape, leaving the ANC scrambling for coalition partners. He noted that smaller parties are gaining traction and youth apathy is looming. Watch the video here.
- Leftist EFF, South Africa’s third-largest party, expects no outright winner to emerge from next month’s elections and is positioning itself as a kingmaker to determine who next runs the country. The EFF, which wants land to be expropriated without compensation and for all mines to be nationalised, will partner with any rival that backs its policies.
- Justice Malala’s latest BusinessLIVE column warns that the concept of a finance ministry headed by EFF’s Floyd Shivambu should not be dismissed as his name has been cropping up in Gauteng ANC circles for months now. However, he says, “you don’t need an economics degree to know that a finance ministry led by the EFF’s Floyd Shivambu is a bonkers idea,” and the rand would collapse overnight.
- DA leader John Steenhuisen’s comments on being prepared to form a coalition with the ANC after the elections should this be necessary has annoyed some parties in the multiparty charter, which includes the IFP, Freedom Front Plus, and African Christian Democratic Party. The agreement signed by the parties bars its members from working with the ANC, EFF, or any “rival formations”.
- Jacob Zuma, who was sentenced to 15 months in jail in 2021, will be allowed to run for parliament. This is despite the Constitution barring anyone sentenced to more than a year in jail without the option of a fine becoming an MP. An FM editorial says the situation reflects badly on the ANC, which should have removed him some time ago. The decision is another setback to the ruling ANC’s efforts to stifle support for the MK.
- The Rand’s weakening from R18.48/US dollar on 9 April to R18.79 / USD on Wednesday was – in our view – solely attributable to the US inflation figures as announced on Wednesday and not in any way related to the statement by the EFF that it would be open to entering into a coalition government with the ANC, as put forward by various media outlets.
- US senators across the board have dropped plans for a legislative requirement that South Africa’s eligibility for the African Growth and Opportunity trade preference programme should immediately be reviewed. However, senators are still worried that South Africa is a concern over seemingly its pro-Russia and Hamas stances.
- South Africa has spent more than a year frustrating its biggest trade partner and largest foreign investor, the European Union, by failing to respond to requests for the EU-South Africa Summit, according to sources. The delay is fuelling concern among Western powers that South Africa is turning increasingly toward Russia and China and neglecting relations with the US and European nations.
- The South African Reserve Bank is likely to cut rates in September, as opposed to the initially expected cut in June. In addition, the cutting cycle may be shallower than most had hoped. This is due to underlining global inflation remaining elevated, which also pushes out the timeframe for rate cuts, while South Africa’s return of inflation to the target has also been truculent.
- Gauteng faces five years of water disruptions, and water supply will periodically fall lower than demand until the Lesotho Highlands Water Project Phase 2, which is 9 years behind target, comes on stream. The postponements are due to delays by government authorities and political interference.
- SA Asset managers Coronation and Allan Gray have stated their aversion to invest in “SA Inc stocks” that are susceptible to structural weaknesses in the local economy. Such shares may be trading at low multiples and appear cheap but may represent value traps. This view is supportive of Dynasty’s longstanding approach where offshore equities have been our preferred “growth engine” for clients’ portfolios. (Circa 85% of our aggregated client asset base has been either directly or indirectly externalised.)
- WeBuyCars’ debut on the JSE on Thursday was more than successful as its shares opened at R20, eclipsing the initial public offering price of R18.75. The show of investor confidence reflects its growth trajectory from a local start-up to a major player in the used car market. WeBuyCars was recently spun out of Transaction Capital.
- At the time of writing the rand was 1.25% weaker and the ALSI was flat for the week.
Sources: Dynasty, News24, Bloomberg, AFP, BusinessLIVE, FM, CNN, BizNews.com, Daily Maverick, NYT, Moneyweb, FT, Analytics Consulting FX Solutions, etc.
