The ANC's dominance has been eroded by the fragmentation of South Africa's political landscape

The ANC must choose between the opposing compromises required to form a coalition with either the hard-left EFF and MK parties, or the pro-business DA party

The vote share for the African National Congress (ANC) slumped to 40% in the May 2024 general election, which is the first time it has failed to secure a majority since 1994. The ANC remains the largest in parliament, but forming a coalition government will involve compromises that the party would find unsavory. Specifically, backlash from the ANC’s supporters could be triggered by a partnership with the Democratic Alliance (DA)—the second-largest party and the ANC’s main opposition—because it is widely perceived as a “white” party. Meanwhile, the leaders of the next largest parties, the uMkhonto weSizwe (MK) and the Economic Freedom Fighters (EFF), are both former ANC members who fell out with its leadership and have a fraught relationship with President Cyril Ramaphosa.

Base case (55%): Ramaphosa remains at the helm of ANC, which forms a “government of national unity” with the DA and several small centrist parties such as the Inkhata Freedom Party (IFP), and Rise Mzansi. This would likely be a loose arrangement, whereby the DA is not included in the cabinet but is able to choose the speaker of the national assembly and receives commitments from the ANC on specific legislation. A diluted version of the DA’s pro-business economic reforms would make progress through 2025, such as privatization of state-owned enterprises, the break-up of electricity utility Eskom, and a clampdown on corruption. Investor confidence would improve, and the rand would strengthen in Q3 and stabilize thereafter. However, the disgruntled MK party would likely agitate for violent protests in KwaZulu-Natal because of its exclusion from a national government. 

Downside (45%): Ramaphosa loses support within the ANC and resigns. A new leader from the left wing of the ANC reaches a coalition agreement in one of the following forms: solely with the MK party; with the EFF plus a handful of small parties; or with the EFF and MK parties in combination. The MK and EFF parties would insist on securing key cabinet positions. Economic policy lurches leftward, including reversing electricity industry reforms, nationalization of certain private sector industries such as mining, introduction of tighter capital controls, and tax hikes. An outflow of speculative capital would be followed by a deep slump in FDI. The rand would sharply lose value in Q3 and continue depreciating thereafter.

Business implications: Firms must accept that South Africa’s political landscape will remain volatile in the coming years, adding a layer of complexity to commercial planning. Under both political scenarios, a coalition government is expected to collapse well before the end of the parliament—currently scheduled for 2029—which would trigger a fresh round of elections. South Africa’s constitution, while hitherto robust, has not been tested in terms of its capacity to contend with coalition governments at a national level, which increases the risks of political tensions and localized social unrest. Multinationals should develop currency and economic growth scenarios, and ensure their distributors are resilient enough to handle periods of unrest and muted customer sentiment. Firms should also closely monitor new legislation introduced by a coalition government and carefully assess the impact of economic reforms on their businesses.

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