(Bloomberg) -- South Africa’s 10-party unity government will work through its differences and endure, because its collapse would erode investor confidence and set back efforts to grow the economy, South African President Cyril Ramaphosa said.
“There is a lot that unites us and not much that divides us,” Ramaphosa told reporters in Pretoria, the capital, on Friday. “The collapse of the government would be “too ghastly to contemplate,” and all its members are well aware of that, he said.
A so-called government of national unity was established after Ramaphosa’s African National Congress lost its outright parliamentary majority in May elections for the first time since it took power when apartheid ended three decades ago. The business-friendly coalition has said it will prioritize growing the economy and tackling a 34% unemployment rate.
The establishment of the new administration, which appears to have been working well so far, has buoyed the rand and the share market, while a quarterly business confidence index compiled by Rand Merchant Bank and Stellenbosch University has risen to its highest level in almost two years.
South Africa’s foreign-currency bonds have delivered 8.9% returns since the elections, ranking them among the top 10 performers in Bloomberg’s sovereign frontier and emerging-market debt index. Local-currency bonds have fared even better, with 16.4% returns — more than three times the average of their peers in the Bloomberg Emerging Markets Local Currency Government Bond Index.
“We’re more excited about South Africa’s investment story than we’ve been in a long time,” said David Austerweil, deputy portfolio manager at VanEck in New York. Citigroup strategists, have also said they remain bullish on South African bonds.
Even so, the ruling alliance’s coherence will be tested. The Democratic Alliance, the country’s second-largest party, has objected to the government’s plans to institute an uncosted national health insurance program and implement a new education law it says will erode the rights to mother-tongue education and disenfranchise school-governing bodies.
Ramaphosa said he’s open to further negotiations on the NHI and plans to meet business groups to discuss it. He also agreed to suspend the implementation of two of the most contentious clauses in the education bill for three months to try and negotiate a compromise over its provisions, failing which it will be implemented in full.
The DA noted Ramaphosa’s concessions on the education law, but said it has still instructed its lawyers to prepare to challenge it in court on constitutional grounds.
“We regard his approach as contrary to the spirit of the statement of intent that formed the foundation of the GNU, which requires the participating parties to reach sufficient consensus on divisive issues,” party leader John Steenhuisen said in a statement on Friday. “There could hardly be a more divisive issue in South Africa than the right to mother-tongue instruction in schools where this right has been established for decades.”
RBC BlueBay’s emerging-market debt team are among those to highlight ongoing political risk, saying the NHI and Black Economic Empowerment are among the key challenges.
Such concerns are unfounded, according to Ramaphosa.
“Any relationship will never be smooth sailing,” he said. “We will always find solutions for whatever problems we may have.”
--With assistance from Ntando Thukwana.
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