Why a near perfect election outcome?
The ANC won 57.5% (2014 – 62.2%) but up from 54% in the 2016 municipal election. The DA declined to 20.8% (2014 – 22.2) and the EFF increased to 10.8% (2014 – 6.4%).
With little viable alternative to the ANC, we are reliant on new leadership in the ANC to make meaningful changes to turn the country around. The 57.5% vote has shown a recovery from the dark days of Zuma in 2016 (54%), which is being attributed to the new leadership, Ramaphosa. This should give him the much-needed support in the party to start making meaningful changes and clean out corruption.
A vote of +60% could have led to the ANC being arrogant and complacent. A low majority of less than 55% would have pointed to a lack of leadership and a strong case for Ramaphosa’s detractors to oust him. At 57.5%, there is improvement from 2016, albeit not high enough to ignore that the ANC majority could still be at risk.
The DA remained the official opposition at a reasonable level and the EFF, although improving significantly, remains a relative minnow.
A low voter turnout down to 66% from 73% in 2014. This number excludes the 10m eligible voters that did not register, which means around 20m adults did not vote. Although a lower turnout comes with a maturing democracy, analysis suggests that the electorate is disenchanted and, in some quarters, filled with hopelessness, which was accompanied by 1.3% spoiled votes. Overall, we see this as having had a far more negative effect on the ANC than other parties.
A low youth turnout. Of the 9m eligible youth (below 30-yrs old), only 3m voted. This is partly due to only 6m being registered and a likely disapproval of political choice. This demographic could change the vote significantly in five years’ time.
6.5% of ANC voters did not vote for the party at provincial level. This shows more support for Ramaphosa at the national level and less for the party at the provinces – a key statistic and indicator of voters’ potential faith in him.
A weak ANC showing in Gauteng (the engine of the economy). ANC 50.2%, DA 27.5% and EFF 14.7%. Although the ANC is up from 44% in 2016, which helps Ramaphosa, it points to a significant vulnerability of the ANC in the biggest district of the country. This is a major concern for the ANC.
The EFF increased its vote 500% in KwaZulu-Natal to 9.7% showing strategically, that it can get traction and should not be ignored as just a minor party.
What happens next ?
Ramaphosa needs to solidify himself as the unequivocal leader of the party. Friction in the leadership is out in the public domain and that can mean that a final show-down is imminent within the top six.
Ramaphosa has been politically astute leading up to the election, but now he needs to be bold and implement meaningful change.
A new cabinet should be announced by 27 May, which is likely to be significantly reduced to 40 from 72 members and may include many new faces.
The removal of corrupt ANC leaders and government members will need to increase and be followed by the prosecution of some high-profile officials.
What the election outcome means for the investment market?
The market was hoping for this result, with a +50% probability prediction. This is being reflected in a firmer Rand/Dollar and stronger government bonds.
“Ramaphoria” is likely to return in the short term, which would support SA equities, a firmer Rand and Bonds.
However, meaningful political and government structural change must take place in SA over the next six months, or investment markets will lose faith that economic growth will be restored.
There is optimism for a positive outcome
Barring any offshore calamities, the Rand/Dollar should firm to the lower end of our forecast range of 13.5 to 14.5 this year.
SA Inc. (direct SA-related shares, such as Banks) should rise. Overall, this segment of our market (around 50% of the JSE All Share Index) is inexpensive and offers significant upside with a positive political outcome.
Despite SA dealing with its own challenges, international investment markets remain vulnerable to US / China trade talks, slowing global growth, and relatively high valuations. Selective areas offshore need to be considered carefully.