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South African President Cyril Ramaphosa and Democratic Alliance leader John Steenhuisen have begun emergency talks to break an impasse after the pro-business party threatened to withdraw from the coalition government.
A tense dispute over the allocation of cabinet posts has hurt investor sentiment, which was buoyant after agreement was reached on the unity government two weeks ago.
The rand, which had risen sharply to R17.87 per dollar, fell to R18.46 on Thursday, while the Johannesburg Stock Exchange fell 0.6 percent at one point before closing 0.1 percent lower.
The impasse came after Ramaphosa backed out of an agreement to give the DA the powerful trade and industry ministry, part of a deal that would have given the DA six of its 30 cabinet positions. While that was fewer than the 12 it had originally requested, the offer included key posts such as deputy finance minister.
But Ramaphosa’s willingness to let the DA run the ministry of trade and industry angered the trade union federation Cosatu, which is affiliated with the president’s African National Congress. Ramaphosa subsequently withdrew the offer and instead proposed the much less important position of tourism minister.
“The ANC has not kept its word,” said a DA insider close to the talks. “The president must go back on the offer he made on Tuesday, otherwise we will not participate and he can form a government without us.”
After last month’s crucial elections, in which the ANC lost its majority for the first time since the end of apartheid, Ramaphosa’s re-election as president by parliament was only possible thanks to the support of the DA.
The ANC won 159 seats in the 400-seat chamber, ahead of the second-placed DA, which won 87. Under a so-called “letter of intent” to form a government of national unity, the DA expected to get a proportional share of cabinet seats.
ANC secretary-general Fikile Mblalula had called the DA’s initial demand for 12 seats, including the deputy presidency, “bizarre and outrageous”.
A senior businessman, who spoke on condition of anonymity, said discussions between the ANC and DA, even before the cabinet was formed, showed how “difficult” it would be to maintain a stable coalition.
There was an old guard of the ANC, he said, including Ramaphosa, who tried to “hold on to the vision” of a non-racial, centrist South Africa promoted by former President Nelson Mandela. But “fewer and fewer people believe that narrative of post-apartheid reconciliation,” the executive added.
He said many former ANC members, particularly those who defected to radical breakaway parties — the Economic Freedom Fighters and former president Jacob Zuma’s uMkhonto weSizwe — had little sympathy for the pro-market DA. It didn’t help that the DA acted as “kingmaker” despite its 22 percent vote share being little better than the previous election, he added.
The impasse has fuelled concerns that even if the row over cabinet positions can be resolved, there are still no mechanisms in place to resolve disputes within the coalition, increasing the risk of a policy impasse.
Azar Jammine, founder of South African consultancy Econometrix, said it would be disastrous for the economy if the DA were to withdraw from the unity government. The rand would “fall below R19, which would increase inflationary pressures and delay any growth-enhancing interest rate cuts,” he said.
“The markets have made it clear that the more the DA can participate in the new government, the better the chance of investor-friendly policies that will create jobs and higher economic growth.”