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THE ELEVEN DAYS

05/06/2024 08:31:00 Sanele Sibiya

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As democracies mature, seismic shifts in voter preferences often present a new form of uncertainty in the socio-political and economic landscape of any country. South Africa has undergone a seismic shift in its political life, together with the region and the globe must prepare for a new dispensation.

At the present moment, we must be glad that there seems to be a smooth transfer of power or rather there is an acceptance that the status quo has changed. There haven’t been any forms of post electoral violence and markets have factored the peace factor into to pricing of assets. In Monday’s and Tuesday’s trading sessions the Rand-Dollar exchange rate had stabilised. Also, traders in the Johannesburg Stock exchange had reneged on their sell off strategy.

Markets were back on a positive trend, however, still below the 80 000 mark on the all share index. The next 11 days will be very crucial, markets are watching out for the final scenario or outcome of the negotiations, and markets are hopeful for a market- friendly scenario. We gather from the grape vine and through analysis of commentary that the following scenarios are being considered. I will weigh in on the likely impacts of each scenario on the economy of Eswatini and on markets in general.

ANC – DA + IFP
This would be the most suitable coalition for financial markets and asset managers. The DA is pro-markets just like the ANC and the IFP would only be seen as a stabilising factor to ensure that the ANC does not lose its base. If this coalition is to go through most of the policies would stay the same, with the DA infusing efficiency into the federal government and most likely contributing to engendering an economy that works for the people. The ANC would on the other hand ensure that social protections extended to the people are maintained and may likely push through NHI with proper concessions to the DA.

If one adopts Pareto thinking this arrangement would get the economy closer to the efficiency frontier. As a result the Rand might be stronger in the short to medium term and the region might attract new capital and markets will rally, these benefits will trickle into Eswatini through the CMA channel, the SACU conduit and the SADC power pool line. The main challenge is will the ANC and the DA find this coalition worth the risk within their respective support bases? That is the uncertainty that markets will always have to price in over the five years.

ANC – MK + EFF + IFP
I must state that given the manifestos of the MK and EFF, any coalition that has either of these parties would spook markets. These far left ideologies pushing for nationalisation of mines, land expropriation without compensation and nationalisation of the Reserve Bank of South Africa. This will be tantamount to a shift from a capitalist system to a more socialist market system.

The role of government in business would increase at the expense of market participation. Market fundamentals would crumble in the early stages of this coalition, the rand would weaken and the JSE would sell off while awaiting a policy paper to be issued by the coalition parties. Given these are splinter movements from the ANC the diametrically opposed views would present a very uncertain outlook for markets. As already stated in my opinion piece last week, any coalition with the EFF might not board well for Eswatini since the EFF has Eswatini and democracy at the top of their agenda.

A government of national unity
This would be an arrangement where all the parties agree to govern together and support each other and put South Africa First. This would be a very delicate scenario, however it would be an average picture that markets would be relatively comfortable with. At the onset, it will not have any clear directives on whether it will pursue left wing or right wing policies. Markets would have to proceed with caution under this scenario, as we study if indeed the parties are able to work in unison. On the other hand this would be a very delicate arrangement to manage as it would involve satisfising all the parties involved and fiscal policy decisions would be greatly delayed. It is likely that only a few laws would be passed under this arrangement and the budget may be held at ransom as a bargaining tool.

A minority government
Minority government is one in which all the parties field a candidate for president and the parliament elects a president. This would be very chaotic for markets; it would bring about a lot of uncertainty and at face value it would be an indication of failure among parties to agree on a government or at least on how to govern the country. The short to medium term outlook would prove very volatile, the exchange rate would weaken, growth prospects would also weaken, capital flight would also be a likely prospect. The next 11 days will be pivotal for The Republic of South Africa and the region.