FROM THE DESK OF THE CEO

Who GNU? The shifting investment landscape in South Africa

What is a GNU?

Well, most South Africans will tell you that it's both a large South African antelope and now a much- overused play on words following South Africa's recent national elections. What it stands for is a government of national unity, something that has come to fruition following South Africa's recent national elections, where the ANC, which has held power since 1994, lost its majority rule. This is not South Africa's first experience with a GNU. In 1994, during the country's transition to democracy, a government of national unity was formed to ensure a peaceful transformation from Apartheid rule. The recent GNU formed after the May 2024 elections includes the ANC, the DA, and several mostly centrist parties. All parties were invited, but the large populist parties declined to join.

Did we expect a GNU?

While it was anticipated that the ANC would fall below the 50% majority, the extent of their loss surprised many. A key shift was the emergence of the MK Party, formed by breakaway politicians from the ANC. Concerns abounded prior to and after the election about coalition politics and potential bedfellows. A peaceful transition of power cannot be taken for granted and it was possible that the ANC would do what it needed to retain political control, including partnering with populist elements and politicians with a long track record of corruption and poor governance. Instead, the ANC accepted the outcome and moved swiftly to communicate its intent to form a GNU.

Why did the centre hold?

Despite global trends of political polarization, South Africa's centre held firm. This stability can in large part be attributed to the growing middle class, which emerged from poverty through civil service and private sector opportunities over the years. This demographic now has a vested interest in ensuring effective governance. Our people want the same things: a good education and access to opportunity, a way to care for and protect loved ones, dignity. The election results, while not indicating a growth in the centre, showed enough support for the unity government and its nation- building agenda.

What is good about the GNU?

So much can and has been said about this very momentous development. When I returned to South Africa from the United States in 2006, South Africa's GDP was growing at 5.6% p.a. From that point South Africa entered a period of stagnation which has persisted through the global cycles for the past 17 years, with population growth exceeding GDP growth. We have missed out on much opportunity, suffered many "own goals", mired in corruption.

When I was asked my views on the prospects for South Africa prior to these recent developments, my response was that on the current trajectory we were heading to a problematic place, but that the future was not yet written for South Africa. I have always believed that it is all about leadership, and with better leadership the downward trend could be stayed and reversed. I believe we now find ourselves at a new juncture.

The formation of the GNU signifies a commitment by various political parties to set aside ideological differences and work in the interests of South Africa and its people. This cooperation led to the appointment of opposition members to cabinet positions, indicating a willingness to form a functional partnership with the ANC despite significant challenges. This brings fresh hope for economic growth and inclusion.

What does this mean for Sanari's investment strategy?

Sanari Capital's investment strategy focuses on thematic growth drivers disconnected from GDP growth, such as technology and innovation, and demand for quality social services exceeding supply. This approach has yielded positive results, with portfolio company revenues significantly outpacing GDP growth (see page 7 of our Sustainability Report below). But that does not mean that GDP growth would not further benefit our investments. We are cautiously optimistic that continued structural reforms and higher business and consumer confidence will translate into enhanced financial performance. The renewed ability for government to deliver on social upliftment through effective governance also aligns with Sanari's emphasis on impact and developmental outcomes. Therefore, our investment focus areas remain unchanged as does our commitment to investment in South Africa.

Are we seeing broad-based investor confidence on the back of these changes in the political landscape?

Not quite yet. There is optimism that can be felt but not yet seen. In 2018, when Cyril Ramaphosa became President of South Africa, the country experienced a wave of optimism dubbed "Ramaphoria." Many expected a "New Dawn" but were disappointed. Although certain structural reforms have been implemented, progress has been slow and was hampered by competing interests. Investors are unlikely to be easily swayed this time. However, as and when the unity government delivers evidence of real and sustained change, we can expect substantial, long-term capital to be committed in the country.

Key Takeaway

Ten years ago, on the 20th anniversary of South Africa's democracy, I attended a lecture by Nick Binedell, the then longstanding dean of the Gordon Institute of Business Science (GIBS). During his lecture, Binedell reflected on South Africa's history and the progress made despite the many challenges visible on the ground. At the end of the session, an audience member asked, "After listening to all that you have said, I still can't tell whether you are an optimist or a pessimist when it comes to South Africa." Binedell paused before responding, "I'm neither; I'm an activist."

This statement encapsulates the spirit and purpose of the Sanari Capital team. We are responsible individual and corporate citizens, committed to making the world around us a better place. Amidst the blend of opportunity and challenge, we see enormous potential for both attractive investment returns and broader positive social impact.

The downward trend has been halted, and we stand now in a time of possibility. This includes the potential to reverse the decline, foster growth, and work together in the interest of all South Africans. There is hope for better leadership, with President Ramaphosa's proven skills in negotiation and consensus-building, exemplified during the end of Apartheid when he negotiated South Africa's globally renowned constitution, being a key success factor. Other political parties now have an opportunity to demonstrate their capabilities, having previously served only as the opposition.

It is still early days, and our leaders face a significant challenge to course-correct and work together. However, it is an exciting time to invest in South Africa as we dare to hope that the country's immense potential can still be fulfilled.