Economic outlook following South Africa's 2024 election results

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For the first time since the end of apartheid, the African National Congress (ANC) lost its majority, securing only 40.18% of the vote.

This dramatic change has significant implications for the country's economic and political future, as the nation faces a period of uncertainty and potential market volatility until the political situation becomes clearer.

According to Old Mutual group chief economist, Johann Els, "The election results were within the risk spectrum of our expectations, albeit on the higher end.

"The probability of a coalition or minority government remains significant, which likely suggests a continuation of current policies. However, the possibility of a more populist coalition cannot be discounted," said Els.

Markets brace for volatility

He added, "Financial markets are expected to remain unsettled over the next week or two as coalition discussions progress. The rand may experience volatility, potentially seeing a sharp sell-off as risk premiums rise.

"This scenario mirrors the events of December 2015 when the former finance minister, Nhlanhla Nene, was replaced. A negative outcome, such as a leftist coalition, could lead to a substantial sell-off."

Despite the political upheaval, South Africa's democratic processes remain robust. The election results reflect the will of the people and have reshaped the political landscape but market volatility can be anticipated over the next while.

Els cautions investors against making hasty financial decisions in the wake of the election results. Sticking to established financial or investment plans and consulting financial advisors before taking action is recommended. During times of uncertainty, patience is often the best approach until the situation becomes more transparent.

South Africa's resilient strengths

"It is crucial to remember that South Africa has significant inherent strengths that will mitigate political risks," Els highlighted.

"These strengths include a strong constitution with entrenched rights, an independent judiciary, including a fiercely independent Constitutional Court, a free media, strong and independent institutions such as the South African Reserve Bank (Sarb), the Treasury and the South African Revenue Service (Sars), a well-regulated financial sector and deep capital markets.

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“The end of the state capture era, with society determined to prevent its recurrence, has also cultivated a healthy private sector that plays a vital role in the economy, especially in areas where the state and state-owned enterprises have faltered.”

Potential post-election governing scenarios range from an ANC, DA, and IFP coalition, which markets would favour due to the promise of more policy reform, stronger implementation, and a firm stance against corruption, to a Government of National Unity (GNU) involving the ANC, DA, MK, EFF, and IFP.

Coalition uncertainty hurts markets

While this option offers broad buy-in, it could be seen as detrimental to policy and growth due to potential conflicts. An ANC minority government supported by the DA and IFP might maintain current policies but could be viewed as less stable. An ANC, MK, and EFF coalition would be the least favourable outcome unless there is a strong consensus to continue current ANC policies, which is unlikely.

"The uncertain political climate has already impacted financial markets, with the rand and equity indices experiencing declines. The convening of the new parliament to elect the president will be pivotal in shaping South Africa's future political and economic direction " adds Johann.

"While there are concerns regarding the election outcomes, our strategy at Old Mutual remains steadfast. South Africa's robust economic institutions provide a stable foundation.

"The new political landscape presents opportunities for policy reform and economic growth, ensuring a positive outlook for the country's future. We remain committed to safeguarding our clients' wealth and providing expert guidance as we navigate these changes together,” he concludes.