Rand surge opens era of coalitions
The day before the municipal election last Wednesday, it cost R14.06 to buy US$1. Once the results started flowing in, it started to become clear that SA was entering an era of coalition politics in the big cities. Almost immediately, the rand began strengthening. The following day, it had traced up to R13.96/$. On Monday this week, the rate climbed to R13.65/$, its strongest level in nine months.
Now, the experts constantly remind us that the currency is affected by many factors. But there is also general agreement that a single political event — the dismissal of finance minister Nhlanhla Nene in December 2015 — started a currency avalanche that tipped the rand from R14/$ at the end of November to R16.86/$ by January.
Now another political event, the municipal poll, has been largely responsible for a recovery to a level last seen in October 2015.
The market (allocators of capital, analysts, investors, fund managers, directors of companies, economists, commentators) understands very well that business and finance, and risk and reward are all closely linked to politics. Electoral politics cuts through the slogans and emotions and determines who will ultimately hold power, determining policy — good and bad.
What the rand’s rise illustrates is that the market is greatly heartened by SA’s 2016 election. It has seen an election that was free and fair. It also observed that South Africans aren’t a docile people, and that we have the gumption to rescue our country from empty or corrupt heads in government.
Notably, the market also saw that the ANC, despite being forced to deal with deep shock at the extent of its rejection in the urban areas, did not question the result or encourage rebellion against it. (It’s more than you could hope for from Donald Trump, it must be said.)
In every major city in Gauteng — Johannesburg, Tshwane/Pretoria, Ekurhuleni (East Rand), Mogale City (West Rand) — the ANC won less than 50% of the votes, producing hung councils. Tshwane and the Nelson Mandela Bay municipality fell to the DA, representing a new political fluidity.
Above all, the market will have noticed the performance of Julius Malema’s ragtag Economic Freedom Fighters (EFF).
The EFF produced something of a paradox: in one breath, it was the major reason for the ANC’s poor performance in the metros, yet nationally it did not really increase its support. Despite having an indisputably charismatic leader and the benefit of two years since it first contested the 2014 national election, the EFF’s share of the vote rose to just 8.2% from around 6%.
In the end, the EFF won a double-digit percentage in only three provinces. Even in Limpopo, home province of leader Julius Malema, the EFF got just 16%. The ANC’s control of the rural provinces was not even remotely threatened by the upstarts.
This is why ratings agency Fitch is almost certainly wrong when it says that because the ANC lost ground to the EFF, the ruling party may resort to populist policies to appease dissatisfied voters. True, there’s no guarantee that a Zuma-led ANC will behave rationally, but the fact is that the EFF’s radical, simplistic policies are not getting major traction among voters.
SA politics, it seems, is moving away from an emotional appeal solely to race, and back towards an ideological centre.
Which doesn’t mean to say the new era of coalitions will be easy. But it is possible that the DA and EFF will find they can cooperate on municipal practicalities, while setting aside their ideological differences.
You could even argue there is some synergy: the DA could easily live with some of Malema’s ideas, like wanting civil servants to work on Saturdays, and demanding that qualified people be appointed to work for municipalities.
For Malema’s part, he cannot afford to be seen to obstruct service delivery for the sake of an ideological stance that seems to have little resonance with most voters.
The market will have noted all this, filtered it, weighed it up — and rewarded SA with a stronger rand. But if the parties in hung councils cannot find a way to cooperate, and administration stagnates or collapses, we can be sure that we will be punished no less swiftly.