A broad rally in South African markets signaled investor relief after President Cyril Ramaphosa ended weeks of uncertainty by announcing a new cabinet focused on economic growth.
In a televised address on Sunday night, Ramaphosa appointed business-friendly opposition politicians to key ministerial positions while retaining his close ally, Enoch Godongwana, as finance minister. This move is seen as a commitment to fiscal policies aimed at curbing debt. The announcement followed the African National Congress losing its parliamentary majority in the May 29 elections, leading to the formation of a broad coalition government with nearly a dozen parties, excluding the two main left-wing parties.
The inclusion of opposition parties is expected to help the new administration address state inefficiency, power shortages, and logistical issues that have hampered economic growth and investment. South Africa’s GDP has grown by less than 1% annually over the past decade, insufficient to maintain living standards for the growing population.
“The rand rallied post the announcement as investors have been sitting on the sidelines waiting to see what the new cabinet looks like,” said Matete Thulare, head of foreign-exchange execution at FirstRand in Johannesburg. “The new cabinet will hit the ground running as they need to accelerate economic reforms to get the ailing economy back on track.” Early Monday, the rand reached R17.9478 to the dollar, trading at R18.0752 by lunchtime.
The yield on benchmark 2035 government bonds fell 17 basis points to 11.23%, nearing an April 2023 low. Analysts at Rand Merchant Bank highlighted the significance of retaining Godongwana as finance minister for domestic markets, signaling a continuation of prudent fiscal policies as outlined in the February budget and medium-term expenditure framework. They also predicted further rand appreciation this week, with the currency potentially moving toward R17.90/$.
Ramaphosa also appointed members of the Democratic Alliance, seen as business-friendly by investors, to his cabinet, including leader John Steenhuisen as agriculture minister.
Political developments have significantly influenced the rand over the past month. The currency weakened towards 19 when it became clear that the ANC would lose more support than initially expected in the May 29 vote. It rallied below 18 in mid-June after a government of national unity was announced, excluding left-leaning parties whose policy proposals had worried investors. The rand weakened again as investors awaited news on cabinet appointments.
“Given the multi-party arrangement in the new government, we see some upside potential for reforms, which could accelerate given greater accountability/oversight,” noted Goldman Sachs International economist Andrew Matheny on Sunday. “That said, the coalition might ultimately prove fragile.”