The New Pact

Five scenarios for a new South African government and its economic consequences

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Political analysts now agree that the African National Congress, the party that has governed South Africa since 1994, will lose its majority when South Africans head to the polls on Wednesday, 29 May, for the seventh democratic election in our country’s history. The likely outcome of such a result is an alliance, a New Pact, akin to 1924, as I will write about on Monday.

But in contrast to the confidence that the ANC will lose its majority, there is little to no agreement between political analysts about what an alliance could look like – and what that might mean for economic policy.

So, despite my misgivings about forecasting, let me predict the five most likely alliance scenarios for South Africa. Although I use some descriptive polling numbers to help inform my scenario planning, most of this is based on crumbs of information gathered over countless conversations. (And, of course, a good dose of my own preferences and beliefs.)

Before we review the five scenarios, here are my baseline predictions for each party: ANC 44%, DA 21%, EFF 11%, MK 6%, IFP 4%, ActionSA 3%, FF+ 2%, PA 2% and all other parties at one or less than 1% (adding another 7%). This is based on IPSOS polling over the last few months and following that trend forward, but accounting for 1) a late ANC surge as their election campaign finally kicks into gear and 2) lower voter turnout than what is currently expected. And then there are unforeseen things that might sway voters in the coming week or even on election day; a rainy day can reduce (urban) voter turnout, benefiting the ANC.

But assuming these numbers are largely accurate, let’s review the five most likely scenarios for a post-election alliance.

5. ANC/EFF alliance

Many fear its consequences for the economy, but it is also the least likely scenario, in my opinion. (Though an ANC/MK alliance is even less likely, given the animosity between the two parties.)

Under what conditions might such an alliance make sense? A poor performance by the ANC relative to the baseline – 41%, say – and low demands by EFF leadership relative to the other opposition parties. (No insistence on selecting the Finance Minister, for example, as the commander-in-chief Julius Malema alluded to recently.)

What will be the likely consequences? In the short run, expect the financial markets to react strongly, as an ANC/EFF alliance would evidently entail a change towards populist economic policies: if not land redistribution and nationalisation, as the EFF hopes, then certainly bigger government spending, increasing debt levels. Even though a negative election outcome is probably already priced into the market, an ANC/EFF alliance will almost certainly increase uncertainty, depreciating the Rand, and cause (further) capital flight.

If the EFF election manifesto is anything to go by – it is incomplete, incoherent and absurdly naive – an ANC/EFF alliance is likely to be the worst possible outcome for all South Africans who hope for a better future.

4. ANC/DA alliance

The scenario many would like to see is equally unlikely, in my opinion, though stranger things have happened in politics. An alliance would make little sense for the DA in the long term; few DA voters would be willing to support them again five years from now if their alliance with the ANC did not immediately result in substantial policy changes with visible effects on growth. The only reason I can see them agreeing to this is if 1) an ANC/EFF alliance is the only alternative under consideration and 2) the ANC agrees to offer them substantial involvement in policy-making. From the ANC’s perspective, even in a scenario where their support plummets to 38% (highly unlikely), there are alternative options where they would need to give less policy space.

Were an ANC/DA alliance to materialise, however, expect to see many of the changes economists had hoped to see in the last decade. The DA’s focus on exposing cadre deployment will mean that state capacity is likely to improve, a crucial component of turning around the economy. Couple this with faster privatisation of those state-owned entities that continue to underperform, a reimagining of BEE, a new plan for higher education and even a pivot in foreign policy, this is likely the best scenario for a return to sustainable economic growth bar, perhaps, scenario 1. But don’t bet your house on it happening.