South Africa — New coalition government bodes well for critical reforms

General elections on May 29 saw the African National Congress (ANC) lose its parliamentary majority for the first time since the end of white minority rule thirty years ago. The ANC won 40% of the vote, down from 57.5% in 2019 elections. ANC leader Cyril Ramaphosa has been re-elected as president by a ‘government of national unity’ including the main opposition party, the Democratic Alliance (DA), which came second with 21.8% of the vote, and two smaller opposition parties. 

The new government is likely to be welcomed by the business sector. Importantly, the coalition omits the Economic Freedom Fighters (EFF) and uMkhonto weSizwe (MK), which attracted nearly a quarter of votes, advocating for constitutional change and the expropriation of land, banks and large businesses. The coalition government could oversee vital reforms, and the DA have emphasised the importance of property rights, central-bank independence, fiscal prudence and Operation Vulindlela (a joint initiative of the Presidency and National Treasury to accelerate market-friendly reforms, such as improving electricity, water and transport infrastructure). Improved reform and economic prospects bode well for Australia’s largest export market in Africa (and 27th largest overall, with exports worth $2.2 billion in 2023).

While South Africa boasts the most advanced and diversified economy in sub-Saharan Africa, structural problems and governance risks remain. Serious crime, aging infrastructure and widespread unemployment (Chart), as well as worsening government effectiveness and control of corruption, have contributed to economic stagnation. Real GDP underperformed market expectations to contract 0.1% quarter-over-quarter in Q1 2024; as rolling blackouts intensified, manufacturing, mining and construction were worst affected. Prior to elections, the IMF forecast real GDP growth of 0.9% in 2024 and just 1.3% p.a. on average over the following five years.