South Africa's new unity government, led by President Cyril Ramaphosa, is expected to deliver stable economic policies to revive growth. The African National Congress (ANC) has struck a deal with the Democratic Alliance (DA) and smaller parties after failing to win a parliamentary majority in national elections last month. This agreement marks a major political shift in the country and paves the way for a Government of National Unity under Ramaphosa to bring in reforms needed to create economic growth and tackle high levels of unemployment and inequality.
Investors and credit rating agencies see the two biggest parties in the unity government agreeing on more liberal economic policies, but they could struggle to overcome their ideological differences. The ANC has increased spending on welfare payments, but the DA had pushed to roll back some of them and scrap some ANC Black empowerment policies. The left-leaning Economic Freedom Fighters (EFF) and the party of former president Jacob Zuma, uMkhonto weSizwe (MK), will not join the unity government, choosing instead to be part of the opposition alliance.
The unity government is set to focus on rapid, inclusive, and sustainable economic growth, the promotion of fixed capital investment, job creation, land reform, and infrastructure development. S&P Global Ratings said the election outcome is broadly favourable for the economic and fiscal outlook, compared with the alternatives. However, significant ideological differences between the ANC and the DA on issues such as affirmative action and foreign policy could destabilize the government.
Smaller parties in the unity government include the socially conservative Inkatha Freedom Party and the right-wing Patriotic Alliance. Financial markets have welcomed the unity government, with South Africa's banking index opening a new tab, seen as a gauge of local economic recovery prospects, up 19% since June 7, when the ANC announced it would seek to form a unity government. The DA has endorsed a government programme code named "Operation Vulindlela," a Zulu term meaning clear the path, initiated in 2020 by the ANC-led government to speed up structural reforms.
