South Africa's Turning Point: Can Policy Momentum Outrun Global Headwinds?

South Africa stands at a pivotal moment as domestic policy momentum clashes with global uncertainties. Can domestic reform truly outpace external pressures?

GNU and reform are synonymous 

We participate in the monthly BofA South Africa Fund Manager Survey, which includes a question on the pace of reform: Do you expect it to accelerate, decelerate, or stay the same? On reading financial market headlines you would think significant progress is being made given the often-myopic focus on the big interventions in electricity and rail. However, if you live in one of the many dysfunctional municipalities, then you would have a vastly different point of view.

Domestic optimism surged in the wake of the formation of the Government of National Unity (GNU) based on the BofA survey (Figure 1). This optimism waned sharply in March when the government failed to table a budget due to tensions within the GNU around the proposed VAT rate hike. Since then, the net response has oscillated around 0% as investors have taken a more circumspect approach to the durability of the GNU and government’s commitment to reform. Foreign investors have also been paying particular attention to the GNU, given that the survival of the GNU is seen as a necessary (albeit not sufficient) condition for ongoing reform.

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