Sovereign Africa Ratings

As South Africa begins a new chapter under President Cyril Ramaphosa's Government of National Unity (GNU), business and socio-political stakeholders are closely monitoring the ramifications of this political arrangement. The coalition government – formed out of necessity after the African National Congress (ANC) received 40% of the vote and the Democratic Alliance (DA) 22%, with other various parties receiving smaller percentages in the most recent national and provincial elections – brings several political beliefs together under one roof. While this collaboration aims to consolidate governance, it also brings new uncertainties that could affect South Africa's creditworthiness.

The Economic Policy Landscape

Using a political lens, the GNU brings together the centre-right forces of the ANC and DA, despite their contrasting liberal traditions: the ANC's democratic enlightenment and the DA's corporate neoliberalism. This coalition may continue to pursue an economic agenda of privatisation, outsourcing, budget cuts, high interest rates, and deregulation. Since Ramaphosa's election in 2018, labour rights have encountered severe obstacles, indicating a neoliberal trajectory consistent with the DA's corporate mentality.

This economic approach, while potentially appealing to international investors, raises worries about societal stability. The promise of National Health Insurance and a Basic Income Grant, which were employed as vote-winning strategies, may be jeopardised by the DA's strong veto power in Cabinet, casting doubt on the government's commitment to social welfare.

Political Stability and Governance

The exclusion of former President Jacob Zuma's MK Party and Julius Malema's Economic Freedom Fighters (EFF) from the GNU may have left key political factions with unresolved grievances. The Progressive Caucus parties, which were previously part of the ANC's broader grouping, now find themselves outside of the power structure, potentially causing political instability.

The DA's strategic goals include shifting state policy to the right, winning control of key ministries to impose neoliberal policies, and positioning itself for future electoral victories. This might exacerbate internal divisions within the ANC and among coalition partners, particularly as they deal with critical issues like austerity measures, service delivery cuts, and labour disputes.

International Relations and Economic Implications

The GNU's foreign policy may be tested on multiple fronts. Ronald Lamola's selection as foreign minister signals that South Africa's support for Palestine may continue, despite internal differences and external pressures. However, the DA's more Western-orientated approach may spark disagreements over international alignment, particularly considering the BRICS+ alliance and its internal difficulties.

Participation in regional conflicts and resource extraction, particularly in Mozambique and the Democratic Republic of Congo, raises additional hazards. The presence of South African forces in these regions, motivated by economic interests in natural resources, highlights the country's sub-imperial ambition, which may draw international attention and undermine investor trust.

Credit Rating Considerations

The GNU's stability and ability to adopt consistent economic policies are critical aspects. The projected coalition's neoliberal policies may improve fiscal sustainability and attract foreign investment in the short run. However, the possibility of political instability, civil unrest, and policy reversals raises serious concerns.

The exclusion of progressive groups and the emphasis on austerity may cause societal unrest, hurting economic activity and reducing government revenue. Furthermore, foreign perceptions of South Africa's geopolitical affiliation, particularly within the BRICS+ framework, may influence investor sentiment and, as a result, the country's credit rating.

The GNU's success in navigating these challenges may determine whether credit ratings improve or are downgraded.

Key Takeaways: South Africa’s Government of National Unity

South Africa's Government of National Unity presents a complicated set of prospects and challenges. The coalition's market-orientated economic policies may provide short-term budgetary stability and investor appeal, but underlying political and social issues threaten long-term stability. Sovereign Africa Ratings will constantly watch the government's ability to retain cohesion, conduct its economic programme, and navigate domestic and international issues. South Africa's creditworthiness depends on the GNU's performance in these important areas.