North-West University: Coalition Governance- Balancing Risks and Opportunities
“Against the background of the interim results thus far of the country’s pivotal 2024 elections, South Africa is for now in uncharted and uncertain waters, which is reflected in the initial reaction of the financial markets and the rand.”
Prof Raymond Parsons, economist from the North-West University (NWU) Business School, says while the emergence of coalition government, both at national and provincial levels, is not unexpected, the exact configuration of coalition arrangements could have an important impact on South Africa’s economic performance.
“The challenge for new coalition governance at the national and provincial levels is to ensure that South Africa implements the reforms necessary to get it back on a good economic track after several years in which a great deal of economic ground has been lost.”
Prof Parsons says as the ANC will emerge as the biggest single party, it can still, through a wise selection of political partners, expedite the pace of growth-friendly economic reforms.
“Much will depend on which parties the ANC will enter into partnership with and what horse-trading may be necessary to create stable governance. The immediate prospects of coalition governance therefore embody both risks and opportunities. The challenge now is to create a framework of stable governance, which is needed to promote business and investor confidence.”
According to Prof Parsons, most of the post-election configurations with the ANC will find the updated National Development Plan (NDP) recommendations valuable for this purpose, assuming that there is a desire to create a favourable economic environment within which the private sector can flourish.
“However, if the existing ANC approach to the implementation of policy and projects does not improve and remains entirely unchanged, South Africa will not be able to break out of its current low-growth trap of 1% to 1,5% and build a bigger, stronger and better economy. The lack of effective implementation and service delivery is widely perceived as the biggest failure in South Africa’s economic performance. Future job-rich growth requires the pace of growth-orientated reforms to be expedited within a macroeconomic framework that offers efficiency, stability, consistency and certainty.”
Prof Parsons explains that keeping the debt trap at bay for South Africa will also now become more challenging, unless the promises made during the ANC’s election campaign on the NHI and the basic income grant (BIG) are revised by the time the Medium-Term Budget Policy Statement is due in October.
“Therefore, there remain serious risks to the fiscal outlook. South Africa’s risk premium will rise if the fiscal commitments made in the 2024/25 Budget in February are not met. Hence, the direction of South Africa’s economic and fiscal policies will also depend on who fills the vacancies in the Cabinet’s economic cluster, especially at the National Treasury.”
He says the sooner coalition configurations are finalised, the sooner the broader implications for the economy can be firmly identified and confirmed. “The quarterly NWU Business School Policy Uncertainty Index (PUI), due at the end of June, will calibrate any changes in the level of policy uncertainty in the aftermath of South Africa’s watershed 2024 elections.”