TCS Editorial: What South Africans could face if the GNU collapses

This article was first published by The Common Sense.Key topics:ANC-EFF-MK coalition could trigger economic recession and rand collapse.Household incomes and living standards would sharply decline.Political unrest may rise, threatening media freedom and rule of law..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox every morning on weekdays. Register here.Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..By The Common Sense Editorial Board.The break-up of South Africa’s GNU will have four distinct effects on the lives and livelihoods of all South Africans. In this article, The Common Sense sets out the six questions South Africans need to be able to answer, if they are to survive such a doomsday apocalypse..The African National Congress (ANC) in Gauteng has taken a firm position to stay away from the national Democratic Alliance (DA)-ANC Government of National Unity (GNU) scenario, preferring a provincial arrangement with the Economic Freedom Fighters (EFF) and the uMkhonto weSizwe party (MK). Earlier this month, it consolidated that position by installing an EFF candidate as finance MEC in Gauteng, and is working towards bringing MK into the provincial government.That Gauteng has held out for so long in resisting the national DA-ANC deal, and has continued to deepen its links to the EFF and MK, raises a larger question. What would occur if that sentiment were to take hold in the national ANC and result in the break-up of the GNU in favour of an ANC-EFF-MK coalition?Should that occur, the consequences would probably unfold across several connected areas.The first would be macroeconomic. Investor sentiment would deteriorate because of fears that a new coalition would press ahead with populist policies around National Health Insurance, expropriation, nationalised pensions, and the like. Investment levels would stagnate or fall. As a result, economic growth would decline from already low levels, and the country would very likely slip into recession. As a consequence, business would come under pressure, company earnings would slip, and tax receipts would decline..Read more:.South Africa’s fragile GNU is fracturing, and the consequences could be dire .That would lead to the second set of consequences, which would be fiscal. The new administration, seeing tax receipts fall, would be tempted to move away from inflation targeting and instead cut interest rates while borrowing heavily, expanding both the national debt rate of the government and the budget deficit.The immediate effect would be a sharp weakening of the rand as investors exited government bonds. Bond prices would fall as demand fell, driving up yields, and therefore government borrowing costs, which would in turn deepen the debt and deficit crises and thereby further weaken the rand.The administration would then turn to printing money, causing the currency to weaken further, and inflation would rise rapidly. The value of the assets, savings, and pensions of South Africans could be very rapidly eroded.Economists consulted by The Common Sense suggest that, depending on how far down this fiscal road the new government might be prepared to go, the rand could devalue to 30, 40, 50, and even 100, to the American dollar.The third set of effects would be on living standards. Employment levels would fall, earned income would fall, and the real value of welfare grants would decline as the cost of goods and services increased. The combined effect would be a sharp deterioration in household conditions. Poverty levels would increase, and lower-middle-class, and aspirant middle-class, households would fall into poverty. Only the most well-established upper-middle-class households, with hedged assets, high levels of domestic debt, offshore incomes, and resident in state-proof enclaves, would sustain their standard of living.The fourth set of consequences would be political. Falling living standards would lead to a rise in violent protest action. Historically, rising protests have coincided with declining support for governing administrations, as happened to the ANC between 2004 and 2024. Support for an ANC-led coalition would therefore probably fall further, particularly among aspirant and established middle-class voters.Unchecked, that dynamic could open space for a more centrist coalition, probably organised around the DA, to fight for power, although whether it could command a 50%-plus majority is not assured. The best strategy open to the ANC-EFF-MK government to mitigate that threat would be to undermine free speech, the free media, political activity, and the rule of law, which would in turn accelerate the country’s economic decline.How serious is the threat of flipping the current GNU on its head?The case of Gauteng is a live example that the inclination to do this exists within the ranks of the ANC, although whether that inclination will spread is unknown. The answer must therefore be that it is plausible, but not probable, at this time.And what can a household or business do to hedge against it?While each family and entity needs to source their own investment advice, the right questions to ask include:•Do you have sufficient hedging against currency collapse and inflation?•Is your debt-to-equity profile correct in the event of such a collapse?•Are your assets diversified appropriately across the world?•Are your career and business able to shift to earning in a foreign currency or jurisdiction?•Do your children have offshore options?•Do you reside in a hardened enclave with security, water, electricity, medical, and educational institutions that are independent of those provided by the state?Frans Cronje told The Common Sense, “The more of these questions you are able to answer 'yes' to, the more secure your position in South Africa will be in the event that the GNU does flip to an ANC-EFF-MK deal. Answer ‘yes' to all of these, and such a deal will likely have a minimal effect on your life. Answer ‘yes’ to very few of these and you are running a high degree of risk against how a future South African government may evolve.”.This article was first published by The Common Sense and is republished with permission.

TCS Editorial: What South Africans could face if the GNU collapses

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