Moody’s Investors Service has issued a cautious warning that South Africa may encounter significant hurdles in addressing its longstanding challenges if a coalition government emerges following the upcoming elections. The country has been grappling with sluggish economic growth, chronic power shortages, and high unemployment rates, issues that have persisted despite incremental progress made by the current administration.
Opinion polls indicate that the ruling African National Congress (ANC) could lose its national majority for the first time since it came to power in 1994. While still expected to be the largest party, falling below 50% of the vote would compel the ANC to form a coalition government.
Over the past decade, South Africa’s gross domestic product (GDP) growth has averaged a mere 0.8%, insufficient to tackle rampant unemployment and poverty. Factors such as deteriorating port and rail networks, high crime rates, and the struggling state-owned utility Eskom Holdings SOC Ltd., which has been unable to meet electricity demand due to poor maintenance and aging power plants, have hampered economic progress.
Aurelien Mali, vice president and senior credit officer at Moody’s, expressed concerns that the emergence of policies from more radical parties, potentially unfriendly to investors, could complicate matters. However, Mali believes that the ANC will likely remain the dominant political force, even within a coalition government, limiting the risks of a sudden shift from current economic and financial policies.
While Mali’s perspective reflects concerns about potential policy shifts, other experts argue that a coalition government could offer opportunities for more diverse policy approaches and increased accountability. Critics of the ANC argue that its dominance has led to complacency and a lack of effective governance, contributing to the country’s economic challenges.
According to an Ipsos poll released on April 26, ANC support stands at 40.2%, down from the 57.5% it won in the 2019 election. The poll also suggests that the newly formed uMkhonto weSizwe Party, backed by former President Jacob Zuma, is drawing support away from the leftist Economic Freedom Fighters (EFF). The EFF’s support has dropped to 11.5%, down from 19.6% in February, while the uMkhonto weSizwe Party has garnered 8.4% of voters.
Moody’s maintains a stable sovereign credit rating for South Africa at Ba2. However, Mali highlights the complexities that may arise in managing fiscal, economic, and social policies under a new administration, particularly if concessions to minor parties are necessary to secure support.
The outcome of the elections and the subsequent formation of a government will play a crucial role in determining South Africa’s path forward. As the country grapples with its economic and social challenges, investors and observers alike will closely monitor developments to gauge the direction of policy and its implications for the nation’s future.
