April 4, 2016 By FTI Consulting
As quarter one of 2016 came to a close, the South African rand gained around 5.5% to the US Dollar on delivery of a unanimous judgement by the country’s Constitutional Court that President Jacob Zuma failed to “uphold, defend and respect” the Constitution. It related to the President’s failure to comply with the constitutionally empowered Public Protector’s finding that, amongst others, he was liable for non-security upgrades made by the state to his private homestead at Nkandla.
The market reaction can be attributed to the judgement addressing accountability in managing of the fiscus and, by extension, of the economy. This has become a serious concern to investors following what has become known as Nenegate or 9/12: when President Zuma eject ed former respected Finance Minister Nhlanhla Nene in favour of unknown backbencher, Minister Des van Rooyen on 9 December of last year. Then, the markets, which in times of macro-economic stability have tended rather to react to labour strife than any corrupt practises, stripped R500bn in value off South African assets in response. Within five days, the President was forced to capitulate and reappoint to Treasury Minister Nene’s respected predecessor, Minister Pravin Gordhan.
The conclusion is inescapable: Minister Nene’s removal was interpreted to expose in sharp relief the President’s perceived agenda of undue intervention in the procurement decisions of state-owned entities for the benefit of third parties close to him. Reappointing Minister Gordhan was also not the first surrender, but gave dynamic impetus to what preceded and followed it.
In October, he conceded to no fee increases for 2016 at the country’s public universities, after students of all races united in the nine day #FeesMustFall protest, which was heavily critical of the President and his government. In February followed the Nkandla U-turn: in apparent anticipation of the Constitutional Court finding him in contravention of the Constitution, the President declared himself willing to pay reasonable costs for non-security upgrades to his homestead, thereby embarrassing the Speaker of Parliament, numerous ministers and members of the ruling African National Congress (ANC) caucus who have risked their reputations to protect him.
These reversals demonstrate the dynamic nature of South Africa’s democratic consolidation in practise, but have also spelled the political weakening of the President in a manner that he might still be adjusting to. This is apparent no more than in the interplay between the efforts led by newly reinstated Finance Minister Pravin Gordhan to avert credit rating agencies downgrades of the South African economy to so-called junk status later this year, and President Zuma’s apparent efforts to retain influence over levers of the state.
Numerous current and former ANC-deployees led by Deputy Finance Minister Mncebisi Jonas have come forward to allege interference by the Gupta family (who has close business ties with President Zuma’s family and government) in the making of government appointments. As events unfolded, the President first displayed denial and isolation about the essential concerns emanating from Nenegate around accountability in his management of the economy. This was evidenced by a complete lack of consideration to related issues in his January 8 statement, his lacklustre performance in business consultations and participation in the January World Economic Forum event in Davos and, his State of the Nation address, which stopped short of recognising the need for more accountability and greater policy certainty and coherence.
By the time of the President’s response to the debate of his State of the Nation Address in Parliament on 14 February, the narrative of his alleged facilitation of state capture by the Gupta’s was already public. He struck a defiant tone. This was to continue with his defence of Minister Des van Rooyen (he was redeployed to the Ministry of Cooperative Government and Traditional Affairs) as the most qualified finance minister he ever appointed on the eve of Minister Gordhan unveiling his critical first budget since his reappointment.
The President sustained his defiance in three further instances:
There is, however, no question that the President will have to submit to negotiations around his future at the choosing of the collective, as is de rigueur for the ANC. The timing of such a discussion and its eventual result would depend on a number of factors:
The key aspect in considering succession is that the President for all intents and purposes no longer presides over the kind of powers of enjoinment that would enable him to anoint a successor. While it has been suggested that he prefers his ex-wife, outgoing African Union Commission Chairperson Nkosazana Dlamini-Zuma, to succeed him, the likelihood is that the race will have to be more about policy rather than opportunities for patronage that would come from an anointing predecessor that still has all of government beholden to him.
The other most likely contestant is Deputy President Cyril Ramaphosa. While he is often discounted for his lack of a constituency within the ANC, he could be the beneficiary of sentiment mounting against the politics of patronage in the wake of the state capture controversy around President Zuma. He already has the support of Secretary-General Gwede Mantashe in this regard. Both of them have in recent statements subtly tried to create separation between the ANC and President Zuma without mentioning the latter, when contending in the face of state capture accusations that the ANC “is not for sale”.
Growing support for the Deputy President in the Cabinet and in the ANC caucus in the National Assembly is likely. The Deputy President has been largely successful in building political capital in the handling of numerous poisoned chalices he has been handed during his tenure as Deputy President. These include:
It is likely that Deputy President Ramaphosa will also benefit from growing support amongst black professionals and the ANC’s Gauteng structure.
Since becoming President of South Africa, President Zuma’s leadership style on most policy matters has been to manage relationships and defer to the collective rather than to lead from the front. On other matters, he has relied heavily on key deployments for political expediency. It has had the effect of undermining joined-up policy execution and policy-making. Under such conditions, the best lobbying approach by business has been to try and promote consensus from the outside in, by trying to promote a dynamic understanding of the impact of regulation and legislation on business growth amongst a number of relevant cabinet members at the same time.
A competitiveness issue may for instance at the same time involve the ministers of finance, trade and industry, economic development and labour, and achieving consensus on a particular policy viewpoint may often involve leveraging statutory institutions with a modicum of independence and convening power, such as the Industrial Development Corporation, to enable the necessary multilateral conversation.
However, as intimated before, it is likely that as President Zuma’s grip on power weakens, open contestation of policy will become a greater feature of the political landscape. Such liberalisation of rational public discourse has already received some impetus as government, through the Ministry of Finance, has turned to the business community for ideas and support to avert further credit rating downgrades in the aftermath of Nenegate. Key markers in this trajectory will include the conclusion of the local government elections, which will serve as a starting point for role-players to position themselves for future leadership positions in a post-Zuma ANC. Other key moments will include the ANC policy conference and the run-up to the elective conference in 2017. However, such opportunity for open discussion to influence policy may remain most available at least until the next national general elections, currently expected in 2019, as the new leadership of the ANC seek support ahead of its first term in power.
This period will also be a great opportunity to close the trust deficit that exists between business and government, and in this regard, at least the following five strategic options present good prospects: