Marcus Rautenbach, Principal Investment Consultant, Simeka
A voluntary Government of National Unity (GNU) was formed after South Africa’s general election in 2024. The political parties included in the GNU are all aligned to supporting the Constitution of the Republic of South Africa, 1996. The political parties not included in the GNU often refer to themselves as progressive forces and in the past these parties mostly supported a Radical Economic Transformation agenda.
A broad range of parties have been included in the GNU, each with its own agenda. These agendas aren’t always aligned with each other. It will require a great deal of goodwill and wisdom for the GNU to govern successfully until the next general election which must take place before 2029. Presently, the GNU’s important policies have not yet been fleshed out.
A government that adheres to the Constitution and supports the rule of law is an important requisite for inclusive economic growth. It is unlikely to ipso facto generate economic expansion, but importantly it creates the conditions necessary in which the economy can expand and the number of jobs can grow.
At this early stage some political commentators are framing their assessment of recent developments along the broad line of “the markets versus the people”. This is disingenuous and should be resisted. The true issue at stake is the sound management of the economy versus a possible economic implosion. The markets to which these pundits refer merely reflect how events unfold, the economic scoreboard if you will.
What the markets (scoreboard) are saying is that South Africa’s economy is still in a position, with the necessary policy reforms, to meet the expectations of its population. The state of the markets could have reflected very differently had we seen a progressive government (radical economic transformation).
As it stands, the JSE reports that non-residents sold-off exposure of R39.5 billion of shares listed on the JSE after the election until the announcement of the GNU was made.
National Treasury’s monthly report shows that non-residents increased their exposure to South Africa’s government debt from 24.6% of the outstanding domestic debt by April 2024 to 25.3% of outstanding domestic debt by May 2024. We estimate the increased exposure to amount to approximately R26 billion. The most significant increase was in non-resident’s exposure to nominal bonds.
Domestic bonds have continued to rally after GNU announcement and more so as GNU has taken shape.
It is possible that both domestic shares, where excellent counters are trading at reasonable prices and domestic bonds may benefit from stability in a GNU environment.
The exchange rate of the rand is often seen as proxy for how well the South African economy is being run. Over the longer term, factors such as differences in economic growth rates, inflation differentials, terms of trade etc. determine the exchange rate of the rand, but sentiment plays a key role in the short-term and the graph reflects positive expectations of the rand.
It is important for the GNU to agree on major government policies going forward. One such issue is the National Health Insurance Act that has been signed into law mere days before the 2024 general election. It remains unclear how this ambitious project will be funded by government. Other policy issues include South Africa’s national budget annually, its labour policy, and its trade and industry policies.
Many South Africans who queued up at the polls on 29 May 2024 believe the crucial issue facing our country remains unemployment and more so unemployment amongst the youth. The graph below reflects the close relationship between economic growth and number of jobs created in the economy.
Ultimately jobs cannot be created by legislation. Sustained growth in employment depends on economic growth. It is only when the variables shown in this graph improve that the GNU will truly be a success!
ENDS
