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(Bloomberg) — South Africa’s new government marks its 100th day in power on Sunday, and while the coalition has been credited with lifting market sentiment, it’s arguably President Cyril Ramaphosa’s earlier reforms that are driving the current optimism.

Since the so-called Government of National Unity was formed after May’s elections, investors have cheered the new political stability in Africa’s largest and most-industrialized economy. 

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Yet the government faces challenges in delivering on long-standing infrastructure and policy issues. 

Ramaphosa, who came into office in 2018, made fiscal stability, governance improvements and efforts to ease the nation’s energy crisis a focus. 

“The improvements we’re seeing now are largely the result of reforms introduced during Ramaphosa’s previous administration,” said Razia Khan, head of research at Standard Chartered Bank. “It’s too early to say whether the GNU itself has had any real impact, but the outlook for South Africa has certainly improved thanks to those earlier efforts.” 

The cabinet’s centrist composition has driven expectations that the government will focus on reforms. That’s helped boost the rand 5.8% against the US dollar in the past 100 days. Local-currency bonds have also surged, returning 17.8% — outpacing all peers in a Bloomberg EM index of sovereign debt. And hard currency sovereign debt has advanced 8.2%, beating the average of 5.9% for peers.

The GNU’s first 100 days have largely been a sentiment play for markets. Investors believe that if the coalition can maintain political stability in the nation of about 64 million people, it will buy time for deeper reforms to take hold.

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“This is a sentiment-driven rally,” said David Austerweil, deputy portfolio manager at VanEck, which holds an overweight position on South African bonds. “If the coalition holds, there could be substantial benefits down the road, but that will depend on whether the government can resolve the big structural issues.”

The coalition, led by the African National Congress and the Democratic Alliance, has managed to keep the peace for now. However, key ministries like finance, energy, and security remain under ANC control, and fundamental challenges – including debates over Black economic empowerment and national health insurance – have yet to be fully addressed. 

Despite the market rally, South Africa’s infrastructure backlog presents a significant hurdle to sustained growth. While the country has managed to avoid planned power cuts for over five months, easing some of the economic pressure, energy supplies remain just one part of a broader infrastructure crisis. South Africa’s logistics network – including rail, ports, and water supply – requires massive modernization efforts.

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The government’s Operation Vulindlela program is designed to fast-track these reforms, but it’s still in its early stages, and the backlog remains immense.

Business sentiment has surged to a nearly two-year high, fueled by political certainty and economic optimism, according to Rand Merchant Bank and Stellenbosch University’s quarterly confidence index. 

“The outlook for South Africa is promising,” said Mary Vilakazi, CEO of FirstRand Bank. “We want to ensure we have the resources to participate in the growth opportunities coming our way.”

For now, investors are cautiously optimistic but wary of the risks ahead. RBC BlueBay Asset Management’s Emerging Market Debt team highlighted the coalition’s fragility, citing the potential for internal disagreements to stymie progress.

“The market is giving Ramaphosa the benefit of the doubt for now,” they wrote, “but any instability in the coalition could quickly reverse the gains we’ve seen.”

From here, the ability of South Africa’s government to attract long-term investment in sectors like transport, water, and logistics will be critical to laying a foundation for sustainable economic growth.

“The key will be whether businesses are willing to invest in long-term projects, not just patching existing gaps,” said Austerweil. “If the GNU can deliver on infrastructure, it could be transformative for the South African economy.”   

—With assistance from Ntando Thukwana.

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