South Africa Main Opposition Sees Room for Optimism on Coalition

(Bloomberg) -- The leader of South Africa’s main opposition Democratic Alliance said that investor optimism about it reaching a coalition deal with the ANC to form the next government isn’t misplaced and that it is open to talks that put the country’s interests first.

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The African National Congress ceded its parliamentary majority in May 29 elections for the first time since it first took power under Nelson Mandela in 1994, winning just 40.2% of the votes cast and leaving the country in political flux.

Its binary choice is to ally with the business-friendly DA, its fiercest critic, or work with rivals who’ve demanded widespread nationalization — which would put the financial stability of Africa’s biggest economy at risk. Most investors are banking on the former option.

“I think the optimism is right to be there,” DA leader John Steenhuisen said in an interview in Johannesburg on Tuesday. “I wouldn’t be able to put a percentage on it now at this stage because, I don’t know, the ANC could come to us in three or four days time and say sorry, there’s no deal.”

Investors are focused on the stability that such a pact would bring to the country, he said. The rand and domestic bonds have strengthened this week on hopes that the DA will strike a deal with the ANC.

There are many obstacles to a tie-up, even though both parties’ economic policies are largely centrist. They have key differences over the creation of a national health insurance system and economic-empowerment programs. The DA wants both policies reworked, though details can be ironed out down the line if an overarching accord can be agreed, according to Steenhuisen.

The ANC may battle to sell a deal to its members, many of whom have balked at the idea of working with a party that is opposed to how the government has implemented its Black economic empowerment programs. The state-health and empowerment measures are key policies aimed at redressing the economic inequality wrought by apartheid.

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Both Steenhuisen and Helen Zille — the chairwoman of the DA’s top decision-making body — are White and a number of its high-profile Black members have quit. Still, Steenhuisen said, the party increased its share of the Black vote in last week’s election.

There is also some opposition within the DA to working with the ANC, which it has criticized over a series of corruption scandals and its inept service provision. Still, support for the DA has been stuck at just over 20% of the vote since 2014, lessening its chance of playing a role in guiding the future of the country if it goes it alone.

“We’re not going to be petty and partisan, we’re not going to be churlish, we’re going to go into this thing in a mature way that looks at putting the country’s interests first,” while the ANC has also signaled it’s open to talks, Steenhuisen said. “I think had the DA come out and said well, that’s it and the ANC is on their own, it would have been a different thing altogether.”

The DA will draw the line against participating in a government that includes the leftist Economic Freedom Fighters, the uMkhonto weSizwe Party, or MKP, which is led by former ANC and national president, Jacob Zuma, or the Patriotic Alliance, a small party with extreme positions.

The EFF and MKP have demanded the nationalization of banks and mines and back land expropriation, and could be potential partners for the ANC should a deal with the DA not materialize.

Earlier Steenhuisen told Bloomberg TV’s Jennifer Zabasajja that his party was prepared to help the ANC form a government if agreement can be reached on key principles, such as the need to uphold the constitution, and that it is open to President Cyril Ramaphosa being reappointed.

“We know who he is, we know what he is, he is the ANC’s president. He would be the presidential candidate, there’s no doubt about that,” he said. “We are very keen to talk because we want that stable government that provides a bulwark against the anti-constitutionalists.”

Among the options that could be considered are that the DA enter into a formal coalition with the ANC and take up some cabinet posts.

Alternatively a so-called supply-and-confidence arrangement could be agreed, whereby it would support the ANC to appoint a president and back it in crucial votes and in return it would expect to be given positions within parliament to allow it to hold the executive body of government to account. Other parties, such as the Inkatha Freedom Party and the Freedom Front Plus, may also be included in any arrangement.

Fitch Ratings said it sees a bigger likelihood of the DA supporting the ANC from outside the government than of the two parties entering into a formal coalition due to the strong divergences between their support bases. Support from the DA “would likely result in the least significant changes to key credit metrics, such as South Africa’s debt trajectory, over the medium term, although fiscal tightening might be enhanced,” it said in an emailed note.

“The DA is not desperate to get into government for government’s sake,” Steenhuisen said. “We will do it if it is the best way to prevent an anti-constitutional state, but we’re very comfortable sitting on the opposition benches” and it is not off the table for it to continue doing so if an acceptable deal can’t be reached, he said.

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--With assistance from Arijit Ghosh, Paul Richardson, Jennifer Zabasajja, Ana Monteiro, Julius Domoney and Adelaide Changole.

(Updates with comment from Fitch Ratings in penultimate paragraph.)

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