The Democratic Alliance (DA) and African National Congress (ANC) signed off a historic agreement to form a government of national unity (GNU) just as South Africa’s new cohort of parliamentarians took their oath in Cape Town. The development brings to fruition what we, a few weeks ago, outlined as one of the less likely but the most positive potential outcome for South Africa’s elections.
Once again (futhi), we have the promise of a New Dawn. There are echoes of President Cyril Ramaphosa’s speech in 2019, when he first became the sixth democratically elected President and asked South Africans to ‘send me’. He, and his incoming administration, have a rare second chance to build a South Africa that is guided by constitutional values, defined by equality, solidarity, and a shared humanity.
In addition to the DA, the GNU is expected to include the Inkatha Freedom Party (IFP), the Patriotic Alliance (PA), and most likely, smaller parties such as Rise Mzansi. Under the terms of the GNU agreement, GNU parties voted for Cyril Ramaphosa to return as president. ANC’s Thoko Didiza was voted speaker of the National Assembly and the deputy position is expected to go to the DA’s Annelie Lotrie.
The agreement stipulates that, although it is the president’s prerogative to appoint members of the Executive, he will also do so in consultation with the other members of the GNU.
In addition, the GNU parties agreed to work together to govern Kwa-Zulu Natal and Gauteng, two provinces where the ANC fell far short of securing a majority. Full terms of the DA and ANC agreement haven’t yet been disclosed and may still be subject to weeks of negotiations. But the agreement signed off earlier today by Fikile Mbalula and Helen Zilla, provided sufficient detail to boost bonds, shares, and, to a certain extent, the rand.
The agreement includes clauses to guide the composition of the Cabinet and the provincial governments in Gauteng and KwaZulu-Natal. Interestingly, a letter signed by ANC Secretary General Fikile Mbalula, outlines a broad commitment to developing a “professional, merit-based, non-partisan, developmental public service that puts people first”. There is also an agreement in principle to make decisions by consensus.
It will take weeks, if not months, for the parties to see how this will work in practice. (We referred previously to this as “the rules of engagement”). One major risk lies in the fact that parties with differing outlooks will seek to govern by consensus, which could tie policymaking and the legislative process up in long, protracted negotiations. Whether the parties can find common ground on contentious issues like B-BBEE, the National Minimum Wage, and National Health Insurance remains to be seen.
We regard it as extremely positive for South African assets that the far-left populist parties have been kept away from the levers of state power for now. But it is also, as Fitch, warns, important to note that the deal between the DA and the ANC isn’t universally supported by the ANC’s internal structures.
Today’s market gain upon the news of the conclusion of the GNU agreement is most welcome. But real value will only be unlocked if the GNU can drive through policies that catalyse economic growth, reduce government debt, and curtail corruption. The new government has a limited window to kickstart reforms that will revitalise the economy and prove it has legitimate answers to the country’s problems.
For this to happen we will require strong, visionary leadership by the President. He will need to call upon every ounce of the strength, diplomacy, integrity and judgment he showed as one of the Convention for a Democratic South Africa (CODESA) negotiators and architects of the constitution 30 years ago. If he gets that right, he could not only affirm the resilience of our Constitutional democracy but also usher in a new age of growth and prosperity.
“A genuine leader is not a searcher for consensus but a molder of consensus.”
– Martin Luther King Jr
Global News
- Inflation cooled more than expected in May to 3.3% from 3.4% in April, according to data released on Wednesday in the US. Falling gas prices kept inflation in check following a 0.3% gain in April. Economists were expecting a 0.1% monthly increase and an annual gain of 3.4%, according to FactSet consensus estimates. The “core” measure rose just 0.2% for the month (its slowest pace since October of last year), and its annual rate dropped to 3.4%, setting a fresh three-year low.
- With inflation moderating, the Fed held interest rates steady on Wednesday, pushing out the start of cuts to potentially as late as December, with Fed officials projecting only a single quarter-percentage-point reduction for the year amid rising estimates for what it will take to keep inflation in check. The Fed’s hesitation to cut rates was made despite the central bank’s acknowledgment in its new policy statement of “modest further progress” towards its 2% inflation target – an upgrade from its May 1 statement.
- On the back of the Fed’s announcement, stocks gained, while bond yields were down. The latest rally brought the Magnificent Seven to a new record 32.3% proportion of the S&P 500, which reached an all-time high on Thursday, bringing its year-to-date gain to 14.2%.
- OPEC may lose its monopoly over oil prices after the International Energy Agency said that growth in global oil production, led by the United States and other countries in the Americas, will lead to an oversupply of 8 million barrels per day by 2030, according to forecasts published by the agency in its medium-term oil market report released on Wednesday.
- On the global political stage, following a crushing defeat in the European Parliament election on Sunday, President Emmanuel Macron has thrown France into political uncertainty by calling a snap legislative election. This move reignites his ongoing struggle with far-right rival Marine Le Pen. Although Macron’s role as president won’t be directly impacted by the forthcoming vote, his capacity to enact legislation, his authority to appoint a like-minded prime minister, and the legitimacy of his political agenda are all at stake in an election that Sunday’s results indicate he may likely lose.
- Europe risks a trade war with China after it hiked tariffs on electric cars imported from China, adding additional tariffs of between 17.4% and 38.1% that will be applied on top of the existing duty of 10%. That takes the highest overall rate to close to 50%. The provisional decision follows an investigation into China’s state support for electric vehicle makers.
- Forced into a coalition government, India’s prime minister Narendra Modi faces the challenge of governing differently than he has so far in two decades in elected office. He has been sworn in for a third term, only the second prime minister to be elected for a third consecutive term in the seven decades of India’s republic.
- Investors in Mexico are worried after a final count of votes released last weekend suggested Mexico’s leftist governing party and its allies would capture large majorities in Congress, potentially enabling the coalition to pass sweeping changes to the Constitution. Mexico’s peso sank after President-elect Claudia Sheinbaum said a proposed reform of the nation’s judicial system would be among the first to be discussed in Congress.
- A new survey by the Pew Research Center and the John S. and James L. Knight Foundation shows that US politicians are using TikTok to attract young voters. Donald Trump joined TikTok last week and got 6 million followers in days. President Joe Biden’s campaign launched on TikTok in February, but his following is only 373,000. The decree that China-based ByteDance to divest TikTok’s US assets by 19 January or face a ban is before the courts.
- On day one of the G7 summit in Italy, leaders reached an agreement on unlocking a $50 billion loan for Ukraine by using frozen Russian assets. However, there are risks to effectively confiscating Russian assets, with European countries worrying about Russian retaliation targeting European assets, and the potential impact on financial stability and the dollar’s status as a reserve currency.
- In company news, Apple shares rose to a record high after it unveiled long-awaited new AI features, betting that a personalised and understated approach to the technology will win over customers. The new platform, called Apple Intelligence, was the highlight of the company’s Worldwide Developers Conference presentation on Monday, which also included updates to the iPhone maker’s operating systems.
- Samsung Electronics said its contract manufacturing business plans to offer a one-stop shop for clients to get their AI chips made faster, integrating its global No. 1 memory chip, foundry, and chip packaging services, to harness the AI boom. Samsung expects global chip industry revenue to grow to $778 billion by 2028, boosted by AI chips.
- As at Thursday’s close the S&P 500 was 1.6% up for the week
Local News
- Cyril Ramaphosa, is set to be re-elected as South Africa’ President for a second term on Friday and is being seen as the “right man, at the right time” by ANC insiders. The DA will join the new administration as will the IFP and the Patriotic Alliance. This means that should there be an agreement between parties comprising at least 60% of seats in the National Assembly, a consensus decision can be made.
- The GNU will see parties consulted on ministerial appointments, broadly based on the number of seats each party has in the National Assembly. This means minister or deputy minister roles for several opposition politicians. The DA voted alongside the ANC in support of Thoko Didiza as speaker in exchange for ANC backing for the nomination of the DA’s Annelie Lotriet as deputy speaker. The IFP is to be given the role of chair of chairs. The GNU could be expanded to include other parties beyond the ANC, IFP, DA, and PA.
- The parties that will make up the new administration have given themselves a six-week deadline to develop a policy agenda. The draft statement of intent for the government of national unity says the policy agenda should include policy priorities and policy compromises. The policy, which will be made a public document, seeks to ensure an all-inclusive National Dialogue process – with parties, civil society, labour, business, and other sectors – to discuss other critical challenges facing the nation.
- The KwaZulu-Natal government of unity govt has defeated the MK Party to have ANC MPL Nontembeko Boyce elected as speaker. The National Freedom Party along with the DA and ANC make up the coalition in the province.
- Dr Thami Mazwai, a researcher on grassroots entrepreneurship, writes for BusinessLIVE that the government of national unity is a “moment of truth for South Africa’s fractured political environment” and a mature decision from the ANC. South Africa needs a steady centre that is not a centrist, but a social democrat centre, to expand energy, logistics, crime, and corruption reforms to rebuild the economy and get employment going.
- Rand strength of 2% against the dollar this week is not only attributable to a more positive political outlook based around the centrist parties that have expressed interest in participating in a government of national unity but also on the back of a weaker dollar. The rand strengthened by 1.2 % against the greenback on Wednesday at the time the US inflation number was announced.
- Standard Bank has seen a 121% increase in the number of people opening accounts overseas since June last year. Diversification was the main motivator for clients’ desire to externalise funds offshore.
- Transnet has questioned the accuracy of the World Bank’s 2023 container port performance index, which ranked Durban and Cape Town among the world’s poorest-performing ports. It also queried the method the World Bank used to arrive at its findings. It decried the World Bank’s failure to consult during the performance assessment, calling for an inclusive evaluation to ensure the accuracy of the results.
- ArcelorMittal SA has seen its share price drop 70% over the past year, valuing it at R1.15 billion. The company’s recent woes were compounded by a loss of R1.9 billion in the year to end December from a profit of R2.6 billion in 2022. It is faced with several headwinds, including dwindling local steel demand and Transnet’s efficiency bottlenecks.
- The Naspers stable expects to report a sharp increase in full-year earnings to end-March, with headline earnings per share expected to be 645-653 US cents for the period, compared with 143 cents previously, for continuing operations. This translates to an increase of up to 456.64%. The company’s good financials are partly due to the rise in profitability of its e-commerce businesses. The group had set itself the ambitious target of showing a profit in its non-Tencent businesses in the period under review.
- Johann Rupert-controlled luxury goods maker Richemont has experienced a R282 billion surge (equating to more than 20%), in its share price since January, thanks to increased shopping demand, which was boosted by an uptick in its key market, China. The Swiss-based company’s market cap is now R1.664 trillion.
- Sun International and Tsogo Sun are currently outsiders in a fast-changing gaming sector that attracted bets of more than R800 billion in South Africa last year. Online gaming is growing in leaps and bounds and contenders such as Hollywoodbets, LottoStar, and Betway might command as much as 70%-80% of a R25 billion market.
- Pick n Pay is seeing R1 million a month in sales from shoppers buying groceries, data, airtime, and paying their municipal bills with Bitcoin. Although this is insignificant in terms of its overall sales, South Africa’s second-largest retailer says its innovation in terms of its pay stack allows customers to use a variety of payment methods.
- The Mr Price Group showed strong profit growth in its telecoms segment for the year to March. It also expanded the footprint of its standalone Mr Price Cellular stores, bringing its total network of brick-and-mortar locations to 804. The segment’s profit grew 55% year-on-year, from R85 million for the 2022/23 financial year to R133 million in this fiscal year before stripping out finance costs and finance income.
- Several mining companies, including Petra Diamonds, Harmony, Pan African, and Sibanye-Stillwater have signed five-year wage agreements, bringing about stability in the sector with a history of hostile industrial relations.
- As at the time of writing the rand was 2% stronger and the ALSI was 0.3% up for the week.
Sources: Dynasty, BusinessLIVE, Business Report, Bloomberg, MyBroadband, CNN, Reuters, Daily Maverick, New York Times, Economist, News24, etc.
