S. African President’s Allies Want Democratic Alliance Deal

(Bloomberg) -- South African President Cyril Ramaphosa is under pressure from his closest party allies to form a coalition with the opposition Democratic Alliance after this week’s crushing election blow, according to people familiar with the matter.

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The difficulty he’s facing is that there’s also a push by his detractors within the African National Congress to form an alliance with former President Jacob Zuma’s new party and the populist Economic Freedom Fighters, the people said, asking not to be identified because they’re not authorized to comment. It would be untenable for Ramaphosa to remain in office in such a scenario, they said.

Investors favor a tie-up with the Democratic Alliance. Which way the party goes will be partly determined by whether the ANC increases its share of the vote as final election results are announced this weekend. That will inform talks on the shape of the next government that are expected to intensify in the coming days.

The rand strengthened as much as 0.6% and traded 0.2% stronger at 18.7194 per dollar by 1:22 p.m. in Johannesburg.

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The ANC is poised to win about 41% of the vote, an extrapolation of the latest tally shows, after hemorrhaging support across the country. Compared with the 57.5% it obtained five years ago, that would mark a humbling of a party that led the fight against apartheid and has dominated South African politics since it took power in the country’s first democratic elections in 1994.

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Uncertainty about which way things are headed has undermined South African assets. The rand has weakened 2.5% since initial projections showed the ANC would lose its parliamentary majority. There’s also been a selloff of bonds and stocks.

Investor Anxiety

“Coalition talks as well as the speed at which a government is formed will be watched carefully by investors,” said Shamaila Khan head of emerging markets at UBS Asset Management in New York. “A coalition with less market-friendly parties will lead to a repricing of South Africa risk.”

Investors favor an alliance with the Democratic Alliance, which looks set to retain its position as the main opposition with about 23% of the vote, because it espouses free-market principles. Any ANC deal with the DA may prove tricky because the two parties have long had an adversarial relationship, clashing over everything from health and education policy to the management of the national budget.

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Still, such a tie-up makes the most sense as both parties are “economically conservative,” said Lukhona Mnguni, an independent political analyst. To ensure the stability of a future government, an ANC-DA alliance would likely include the Inkatha Freedom Party, a business-friendly party that’s set to secure about 3%.

In unsanctioned informal talks, Ramaphosa’s allies raised concerns about the DA’s opposition to his government’s foreign policy position. Under Ramaphosa, South Africa’s government resisted US pressure to condemn Russia’s invasion of Ukraine and led a successful case against Israel’s war with Hamas at the International Court of Justice.

The DA would likely compromise on the foreign-policy position and it is unlikely to be an obstacle to an alliance, the people said. The party’s top leaders will meet this weekend to unpack the election results and chart a way forward on a potential coalition, said Solly Malatsi, a DA spokesman.

ANC Chairman Gwede Mantashe said it’s too soon to talk about coalitions and declined to comment further. The party had been banking on forming a government with the IFP on its own, but that plan has been obliterated because Zuma’s uMkhonto weSizwe Party, or MKP, has eroded its share of the vote.

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The alternative of joining forces with the MKP and the EFF would be a bitter pill for Ramaphosa to swallow: Zuma has criticized his successor at every turn. The MKP drew substantial support from Zuma’s home province of KwaZulu-Natal and has been the biggest contributor to the ANC’s decline.

Any support that Zuma gives to forming an alliance with the ANC would be contingent on Ramaphosa being removed as the head of government, the people said.

Such a scenario wouldn’t be unprecedented — the ANC removed Thabo Mbeki as president in 2008 after Zuma replaced him as its leader. And Zuma himself was forced to quit in 2018, two months after Ramaphosa took control of the party.

Populist Concessions

Complicating matters is the fact that while Zuma heads the MKP, he insists he remains a member of the ANC — which in turn has said it plans to discipline him for campaigning for a rival.

“The ANC would have to justify how it’s in a coalition with the party of a leader they are still here to discipline in their own structures,” Mnguni said. “Do they keep him a member of the ANC? And I think it just opens up a really, really a lot of unknowns politically.”

A third pillar in an ANC-MKP alliance would be the EFF, led by Julius Malema. He was previously expelled from the ANC and also has an acrimonious relationship with the president. Malema has indicated he’d be open to such a tie-up, but would likely try and extract a number of concessions, including trying to ensure that all land is placed under state custodianship.

Ramaphosa is unlikely to agree to any deal with the EFF and the MKP, according to two of his close allies. He would likely offer to resign should his fellow party leaders opt to go that route, they said.

Presidency spokesman Sibongile Besani didn’t respond to a request for comment.

The ANC’s top leadership is set to meet in the coming days to discuss a course of action. A resolution is expected soon — under South African law, a government needs to be formed within 14 days of the election results being announced.

If Ramaphosa did step down, the ANC is expected to try and replace him with his deputy, Paul Mashatile.

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--With assistance from Thomas Hall.

(Updates with rand reaction in fourth paragraph.)

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