CONTRIBUTORS
Kim Catechis
Investment Strategist,
Franklin Templeton Institute
“Shosholoza! (Go forward)
Shosholoza, (Go forward)
Kulezo ntaba, (From the mountains)
Stimela siphume South Africa” (on this train from South Africa)
“Shosholoza” is a Nguni1 song miners traditionally sung as they worked, in a call-and-response style, with one man singing a line solo and the group responding. The mix of miners is reflected in the mix of languages used—part Zulu, part Ndebele—and sometimes with different words included, depending on the singers. The meaning of Shosholoza is often considered to mean “Go forward or make way for the next man” in the context of a work gang, and it is universally recognized across the country and sung by supporters of the South African sports teams.
Momentous election results raise questions for investors
The 2024 election results2 are in, and they are groundbreaking. The turnout was 58.64%, down from 66% in 2019. The African National Congress (ANC), which has dominated the country for three decades, has finally lost its majority, reduced to 40.18% of the votes. A combination of its failure to deliver basic services like electricity and water, and the poor economic performance that has resulted in one of the highest unemployment rates in the world, led to the ANC’s defeat.
But the damage was also done by factions that used to be inside the ANC. Jacob Zuma, the disgraced ex-president who was forced to resign in 2018 after a string of corruption scandals, won an unprecedented 14.58% of the votes via his new party, “uMkhonto weSizwe” (MK).3 Predictably enough, these votes came almost exclusively in KwaZulu-Natal, his home province and the second-most populous in the country. MK also hurt Julius Malema’s Economic Freedom Fighters (EFF), which obtained 9.52%.
In second place with 21.8% was the Democratic Alliance (DA). The DA has been governing in the Western Cape since 2009 and is broadly considered competent, but in the context of South Africa’s tragic history of apartheid, is widely viewed as a “white party,” especially after the departure of Mmusi Maimane, the previous leader. However, in a country with a gross domestic product per capita of US$6,766,4 the racial element is less important than the DA’s policy platform of loosening labour laws, opposing the minimum wage and ending the Black Economic Empowerment5 (BEE) program introduced by the ANC, to redress decades of apartheid discrimination and economic exclusion.
What are the ANC’s options?
In our view, the obvious thing to do would be to forge a coalition with the Democratic Alliance, as together the two parties would have 62% of the seats. But that is unlikely, partly because of a sizeable portion of the ANC for whom doing a deal with a party with predominantly white leadership is unacceptable, and partly because of the DA’s economic liberalism.
For the ANC, a deal with Zuma’s6 MK would deliver a working majority, but it would be humiliating and costly. Humiliating because he was thrown out of the ANC for corruption, and costly because he will demand more influence than his 15% suggests. Next year, Zuma is due to stand trial for corruption in a 1999 arms deal. Against that, excluding MK could foment unrest as KwaZulu-Natal’s preference would be ignored.
A pact with the EFF is not enough for a majority, and investors would consider it as negative, as the party’s platform is Marxist-Leninist—pushing for nationalization and compulsory expropriation without compensation of land and wealth from white South Africans.
A coalition with both MK and EFF would reach 64% but would probably cost Cyril Ramaphosa his job and result in a realignment of the ANC away from fiscal and economic orthodoxy.
What does this mean for policy direction? And for international investors?
The outcome is binary. Investors recognize that any coalition with MK or EFF or with both will mean populism and a departure from economic orthodoxy, increasing the country risk premium.
It is worth noting that these parties require a two-thirds majority to change the constitution. Although they would fall short with 64%, they could get over the line by getting agreement from several of the 14 other parties that won seats, if they wanted to. Were that to happen, logically, capital would probably flow out rapidly.
A coalition with DA could provide investors comfort in terms of economic policy, but we think it would be prudent to assume that there is a low probability of that happening.
A hybrid solution that could interest both the ANC and the DA might be to maintain a separation between these parties by having the ANC keep all the executive roles in a minority government and sign a “confidence and supply” agreement7 which would guarantee support for confidence votes and budgets.
In the eyes of foreign investors, that could appear to be a way of putting a check on the next ANC government by controlling the legislative agenda and supporting the ANC on a case-by-case basis.
So, for the ANC, it is now time for “Shosholoza”.
Endnotes
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The Nguni are a linguistic group present in South Africa and neighboring countries of Zimbabwe and Eswatini.
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Source for all figures: The Independent Electoral Commission (IEC) Election Results Portal. As of June 1, 2024.
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This is the name of the defunct military wing of the old ANC, which fought the apartheid government. The name means “Spear of the Nation” in Zulu. The 81-year-old is a veteran of the original “uMkhonto weSizwe” in the bush war against Apartheid, and by claiming the name MK, he is claiming the ANC’s freedom fighter credentials, which was very damaging to the governing party.
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Source: World Bank. As of December 2022.
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The BEE program was written into law in 2003, as an attempt to give non-white South Africans, who had been excluded under apartheid, a chance to participate fully in the economy. It is a variation of the template provided by Malaysia’s Bumiputera Empowerment Regime (in place since 1971), which uses affirmative action to achieve the economic empowerment of the Malays, who are the majority.
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Before the election, South Africa’s Supreme Court cited a section of the country’s constitution which bars people from standing for public office if they have been sentenced to more than 12 months in prison, disqualifying Zuma for five years after the completion of his sentence, but there is no doubt that he is pulling strings in his party.
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In parliamentary democracies based on the UK’s Westminster system, a confidence and supply agreement is an agreement by parties to support the (minority) government in confidence votes and budget related votes. Otherwise, the signatories are free to vote with their objectives or conscience.
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