Markets to welcome Government of National Unity on conditions

Reading Time: 3 minutes

The markets will welcome a Government of National Unity (GNU) as long as it results in economic growth and increased employment, according to Old Mutual Investment. The investment group says while the ANC government offered policy certainty, it failed to deliver economic growth.

Old Mutual says while this period demonstrates a change in the country’s political landscape, it has the potential to address some of the structural issues facing South Africa.

Old Mutual Investment says a Government of National Unity that can balance the pursuit of the social reform agenda while driving economic growth will garner market support. The asset management group says investors and the electorate essentially want the same things particularly as it relates to energy security, growth and employment.

“We are hopeful that the Government of National Unity will bring about a bit more accountability, also some stability and shared responsibility across different parties that are going to co-govern and that they focus on the right things like uplifting long-term growth, that they focus on fixing Eskom and Transnet, and obviously, not give up some of the more socially oriented programs. So, to find some sort of compromise. But the clock is, obviously, ticking and we’re going to find out soon, but there is some optimism around it,” says Jason Swart, Portfolio Manager at Old Mutual Investment.

GNU | Dr Frederich Kirsten weighs in on SA economy under the GNU:

Swart says labour unions should be supportive of a coalition government that ensures the protection of their members’ pensions and a stable business environment. This as the South African Communist Party (SACP) and the Congress of South African Trade Unions (Cosatu) reject the possibility of a coalition government that includes the Democratic Alliance.

“For Cosatu, for example, one of the priorities should be the value of the pension funds as well as some stability and confidence in the business environment and both of those would be conditional to a more centre right government. But this is the political space. So, there’s a lot of allegiance, but we are hopeful that they reach a compromise that promotes both skills development, and entrepreneurial small businesses,” says Swart.

Portfolio Manager at Old Mutual Investment, Meryl Pick says companies doing business directly with the state face risk from political uncertainty.

“I found three criteria for companies that are more sensitive to the direction that coalitions take. The one criteria is the company doing directly with government and examples cited is the construction companies. The other example is Exarro which is a big supplier of Eskom. We see for example in construction, when Sanral stops issuing tenders, so any stalling in tender issuing, slowdown in infrastructure spend or any interference in the scrutiny of contracts,” says Pick.

GNU | We need a stable coalition government: Solly Mapaila