"The future is never clear; you pay a very high price in the stock market for cheery consensus. Uncertainty actually is the friend of the buyer of long-term values." – Warren Buffett
The much anticipated and hotly-contested South African General Election has come and gone. With the results in and the elections officially declared free and fair, all eyes now turn to Parliament where the seventh administration will be constituted in the coming days. Unlike previous election cycles since the dawn of South Africa's democracy, the seventh administration will be tasked with forming a national government in circumstances where no single political party has secured a majority of the vote. Consequently, the first order of business will be for political parties to select an appropriate means of enabling the government to commence its important work. This requires a degree of consensus amongst the political parties on the way forward – something that may prove extremely difficult to achieve when many of the parties have such diametrically opposing ideals and views.
This tectonic shift in South Africa's political landscape has given rise to immense uncertainty, perhaps best evidenced by the volatility of the markets in recent days. South Africans in certain municipalities can attest to the uncertainty caused by no single party having secured the majority of votes at local government level. Now the issue has reached national proportions and concepts such as "coalitions", "minority government", Government of National Unity (GNU) and Confidence and Supply Agreements (C&S Agreements) are frantically doing the rounds. What exactly does this all mean and what are the likely implications for the South African economy? This article aims to demystify the post-election lingo and comment on the impact that a GNU, with or without a C&S Agreement, could have on the business community.
The differences between coalitions and minority governments with "confidence and supply agreements"
President Cyril Ramaphosa, in his capacity as leader of the African National Congress (ANC), has announced that the party's preferred approach is to form a GNU. A GNU entails the coming together of any number of represented political parties and is likely to be preceded by a series of negotiations to determine the precise contours of the power-sharing regime. President Ramaphosa's announcement of a potential GNU may be mildly comforting to South Africans who may have been concerned about a "minority government" outcome. This is an inherently unstable regime where the party that secured most of the vote, albeit not a majority (i.e., the ANC) forms a government that can only function and carry out its duties to the extent that it has support to do so from at least some of the other political parties. In the ANC's case, they may be inclined to this option, knowing that if any Parliamentary decision is supported by the Democratic Alliance (DA), it will be passed; and if opposed by the DA, it will likely get support from sufficient other political parties for the resolution to be passed.
On the other hand, a GNU may entail a formal coalition arrangement among any number of political parties with a view to them achieving a shared or mutually‑agreed majority. In exchange for securing this majority status, parties to the coalition agree to share certain powers and functions in both the Executive and the Legislature. This option necessarily requires compromises, even at a policy level.
Another possible element of the proposed GNU may be a C&S Agreement. Here, political parties agree to support the ANC but only in two crucial respects: motions of no confidence (ie, Confidence) and budget appropriations and related financial matters (ie, Supply). When it comes to just about everything else, including in relation to key policies, the parties may remain opposed. A C&S Agreement is effectively a species of a minority government, but which carves out those aspects that are crucial for a country's stability (being matters related to its confidence and financing). However, depending on the nature and extent of what is agreed to, a C&S Agreement could also more closely resemble a GNU – for example, where the parties agree to allocate positions within portfolio committees or even in the Cabinet.
How have C&S Agreements been used in other jurisdictions?
A commonly cited example of a country which is governed by a C&S agreement is Canada. In 2022, the Liberal Party (46%) teamed up with the smaller New Democratic Party (NDP) (7%) and reached an agreement titled "Delivering for Canadians Now, A Supply and Confidence Agreement".
The agreement acknowledges that the government will pursue elements of its agenda that the NDP – as the "junior" partner – may oppose. The purpose of the agreement is not to compromise either party's core ideals or deny their political differences. It is rather about ensuring that those differences do not impede service delivery. To this end, the NDP agreed to support the government on confidence and budgetary matters based on the guiding principle of "no surprises". In addition, the parties agreed to certain key policy-related priorities which ventured beyond the confines of a traditional C&S Agreement, such as ensuring a better healthcare system, reducing the cost of living and tackling the climate crisis. Interestingly, the NDP did not take up any executive powers in exchange for its support (which would be more akin to a coalition).
Where to from here?
Before President Ramaphosa's announcement that the ANC was exploring a GNU, international investors and big business seemed to be cozying up to the idea of an ANC‑DA coalition as the least disruptive option from an economic perspective. A GNU coupled with a C&S Agreement may find favour with markets depending on the content of the agreement and would certainly be preferred over a minority government without a C&S Agreement as far as potential stability is concerned. Of course, a GNU does not even get out the door if the other parties do not agree to it.
A GNU is reminiscent of what occurred in South Africa's first democratic government. The GNU was led by President Nelson Mandela of the ANC, with FW De Klerk of the National Party as one of the Deputy Presidents. Pik Botha (National Party) and Mangosuthu Buthelezi (Inkatha Freedom Party) served as the first Ministers of Minerals and Energy and Home Affairs, respectively. The first two Finance Ministers came from outside Parliament (Derek Keys and Chris Liebenberg). In subsequent election cycles, it has not been uncommon for Cabinet members to hail from other parties, even when the ANC enjoyed an outright majority. A recent example is the inclusion of Patricia de Lille of the Good Party in President Ramaphosa's Cabinet. So, it will not be surprising if the new Cabinet has representatives from other parties, irrespective of the power-sharing regime that is ultimately decided upon. That could enhance the expertise and performance of the Cabinet, provided new members are appointed on that basis, and not simply on the basis of their political loyalty.
The bottom line is that there is no one-size-fits-all approach. The ANC's preferred approach of a GNU depends entirely on sufficient buy-in from the other political parties and could also involve the conclusion of a C&S Agreement. In the absence of sufficient support, the alternative options remain on the table. Despite the prevailing uncertainties, one thing is for certain: the first sitting of Parliament must take place no more than 14 days after the election results were declared. Political parties are therefore confronted with a narrow window of opportunity over the next week within which to determine the way forward for the next five years.
Written by Lubumba Kamukwamba, Partner, Michael Evans, Consultant & Thomas Greig, Trainee Attorney at Webber Wentzel