Decoding the Economic Impact of South Africa’s 2024 Election

The African National Congress (ANC), which received only 40.18% of the vote, lost its majority for the first time since apartheid ended in South Africa.

The results of the 2024 general elections in South Africa have sent shockwaves across the nation and caused a seismic shift in the political landscape.

The African National Congress (ANC), which received only 40.18% of the vote, lost its majority for the first time since apartheid ended.

The nation confronts a time of uncertainty and perhaps market volatility until the political situation becomes clearer, which has important ramifications for the country’s economic and political destiny.

Johann Els, chief economist at Old Mutual Group, stated: “The election results were on the higher end of the risk spectrum of our expectations.”

“There is still a good chance of a minority or coalition administration, which implies that the current course of action will probably continue. But it’s impossible to rule out the prospect of a more populist coalition,” Els stated.

“As coalition talks move forward, financial markets are anticipated to stay unsettled for the next week or two,” he continued. There could be volatility in the rand, including a possible strong sell-off when risk premiums rise.

“This situation is similar to what happened in December 2015 when Nhlanhla Nene, the previous finance minister, was replaced. A significant sell-off might result from a bad outcome, such a socialist coalition.”

The democratic procedures in South Africa are still strong in spite of the political unrest. The outcome of the election represents the will of the electorate and has changed the political landscape, although short-term market volatility is to be expected.

Els warns investors not to react hastily to the election results while making financial decisions. It is advised to follow set financial or investment strategies and to speak with financial consultants before making any decisions. Being patient is usually the best course of action when things are unclear until they clear up.

“It is crucial to remember that South Africa has significant inherent strengths that will mitigate political risks,” Els said.

Strong and independent institutions like the South African Reserve Bank (Sarb), the Treasury, and the South African Revenue Service (Sars), a well-regulated financial sector, and deep capital markets are some of these strengths. An independent judiciary, which includes the fiercely independent Constitutional Court, is another.

“The state capture era’s end, along with society’s resolve to stop it from happening again, has also fostered a robust private sector that is essential to the economy, particularly in sectors where the state and state-owned businesses have failed.”

A Government of National Unity (GNU) involving the ANC, DA, MK, EFF, and IFP is one possible post-election governing scenario. Markets would favor an ANC, DA, and IFP alliance since it promises more policy reform, stronger implementation, and a robust stance against corruption.

Although there is widespread support for this choice, because of the possible conflicts, it may be viewed as harmful to growth and policy. Although it might keep the status quo, an ANC minority administration backed by the DA and IFP might be seen as less stable. The least desirable result would be a coalition of the ANC, MK, and EFF, unless there is a clear agreement to uphold the ANC’s current policies, which is improbable.

Financial markets have already been affected by the erratic political situation; the rand and equity indices have declined. Johann continues, “The new parliament’s meeting to choose a president will be crucial in determining the political and economic course of South Africa in the future.

“Although there are worries about the results of the election, Old Mutual’s approach is unwavering. Strong economic institutions in South Africa offer a solid base.

“With prospects for economic expansion and policy reform brought about by the current political climate, the future of the nation appears bright. He ends, “We are still dedicated to protecting our clients’ money and offering knowledgeable counsel as we navigate these developments together.