CAPE TOWN — Markets love stability, so even though Jacob Zuma narrowly survived a No Confidence vote, the rand slid by just over one percent before stabilising. Avoiding the tumult that would have followed a successful vote was a good short-term outcome for the economy, argues Econometrix Chief Economist, Azar Jammine. However, all eyes, including those of the credit rating agencies, are focused on the next major event horizon, the ANC’s electoral conference this December. Uncertainty, driven by the intraparty tensions, regardless of a Ramaphosa or Nkosazana Dlamini-Zuma victory, will continue for investors – but, a Ramaphosa victory will reduce the chances of a credit downgrade as his pro-private sector reformist stance restores hope. One cannot underestimate the white-anting of trust and disinvestment caused by the traditionalist Zuma camp’s suspicion of the private sector. A Ramaphosa presidency would begin to reverse that. However, should the ANC stick to its historic form, Nkosazana-Zuma may well be elected to head the party in four months’ time, meaning we’d have another 16-months of her ex-husband at the helm of the captured ship. Conversely, if the reformist Ramaphosa heads up the party, Zuma may be recalled before the 2019 national elections, just as his predecessor was. Brace yourself for a bumpy ride – our fortunes over the next 16 months are inextricably tied to the ANC’s. – Chris Bateman
— Justice Malala (@justicemalala) August 8, 2017
By Azar Jammine*
The Parliamentary rejection of the no-confidence vote to remove President Zuma is being interpreted by many as jeopardising the majority vote held by the ANC at a future general election by virtue of the narrowness of the margin through which the vote was rejected. From a business perspective, this means that even though Zuma remains President, chances of his faction maintaining their supremacy in the longer term has been dealt a blow.
In turn, this enhances the ability of the economy to work against state capture, corruption, deployment of inefficient ministers and officials and ultimately should be conducive to improved sustainable growth.
At the same time, the fact that Zuma was not ousted from his position has prevented a possibly tumultuous short-term future for the economy, with no permanent president and Cabinet in place, carrying with it the possibility of violent confrontation between pro-Zuma factions and those opposed to him, including other political parties.
Accordingly, from a short-term perspective, the outcome might be seen as being the optimal one, which provides hope whilst at the same time does not result in major destabilisation of the economy.
However, from a longer-term point of view, it still leaves the December electoral conference as a major event which will determine whether a leadership that can enhance economic growth is put into place.
This latter development also has a bearing on whether South Africa’s credit rating on its local currency debt by S&P and Moody’s will be retained at an investment grade level or be downgraded to junk, with debilitating effects on the Rand, inflation, interest rates and economic growth.
Even then, the uncertainty is likely to persist beyond the electoral conference as factions jostle amongst themselves.
Parliamentary vote outcome the optimal for now
The outcome of the Parliamentary vote of no-confidence in President Zuma called by the opposition parties could be interpreted as optimal from a business perspective. The business community was hoping for the vote to succeed as Zuma is associated with state capture, corruption and inefficiency within state-owned organisations. He has also been vocal against so-called “White Monopoly Capital”, essentially casting doubt on any spirit of trust in his relationship with the private sector. The depreciation of the Rand by more than 1% in response to the result is an indication of the market’s disappointment with the outcome. However, the fact that the currency did not depreciate by even more is an indication of the fact that it was not generally expected that the vote would succeed.
It has also been increasingly realised that such a vote at this time could elicit a lot of political and economic uncertainty and could have resulted in an escalation of violence between pro-Zuma and anti-Zuma factions. Already we see signs of this tension in the form of calls amongst some pro-Zuma faction members for a witch-hunt to discipline ANC members who voted for the motion. Besides, the country would have sat without a Cabinet for a month and there would have been much political jostling for the election of a new president by the warring factions within the ANC.
Accordingly, it is possibly just as well that the vote did not succeed. At the same time, encouragement can be drawn by the business community from the fact that the vote certainly shows that there is considerable disquiet within the ANC with the quality of the country’s leadership. Hopefully, this might be interpreted as enhancing the chances of a new style of leadership in the future. It also casts questions on the ANC’s ability to succeed in garnering majority support at the next general election, due in 2019. The fact is that fewer than half of Parliament (198 out of a total of 400 members of parliament) voted against the removal of Zuma.
Instead, it has become apparent that between 30 and 40 ANC MPs either voted in favour of the motion, or deliberately abstained, or may have deliberately not turned up to vote. The fact that the process went ahead relatively smoothly can be seen as a positive reflection of the strength of South Africa’s political institutions, notwithstanding attempts at disrupting them, even by government leaders themselves. This contrasts starkly with, for example, the current problems in the general election in Kenya, which has seen contestation by the opposition of the election results.
However, considerable uncertainty still remains
Notwithstanding new attempts underway by the Democratic Alliance to force an early general election, thoughts are undoubtedly going to turn firmly to the ANC’s electoral conference in December as the pivotal development with regard to any change in the leadership of the country such as to improve economic prospects and deal a blow to corruption. Although seven politicians have thrown their interest in the presidency either directly or indirectly into the pot, it is generally accepted that the presidential race is essentially one between Zuma’s former wife Dr Nkosazana Dlamini-Zuma and Deputy President Cyril Ramaphosa. Some will argue that either of these two candidates will usher in an improved economic climate. Both have significant experience in the political realm. Dr Nkosazana Dlamini-Zuma is looked upon relatively favourably in terms of her ministry at various times of the Health, Foreign Affairs and Home Affairs portfolios. Ramaphosa is unique in having been a leading trade union figure, heading up the Codesa negotiations in 1993 to form a new government and becoming a top line businessman.
Well done to the opposition parties. You all united to stop Guptas and Zuma. Don't let it stop here, you are close. Aluta continua #ZumaVote
— Kabelo Lebyane (@LebyaneKabelo) August 8, 2017
However, Dlamini-Zuma is seen, rightly or wrongly, negatively by the business sector as being President Zuma’s own preferred candidate on the suspicion that in this way the current President hopes to be able to perpetuate a regime which can sustain his enrichment through state capture. Ratings agencies are also likely to see her election as president as enhancing the chances of the environment of state capture and corruption being perpetuated under new leadership. Furthermore, whilst President Zuma is likely to remain head of state under a party led by his ex-wife through until his term of office expires in 2019, the election of Ramaphosa as President of the ANC, would in all likelihood see the party recalling President Zuma prior to the expiration of his term as president, much as it did after Zuma himself became leader of the ANC. At the time, the party felt that there was a disjuncture between having Zuma as president of the party and Mbeki as president of the country and so the latter was recalled and replaced temporarily by a standing president in the form of Motlanthe.
Even after December there is likely to be much uncertainty
Without much doubt, the election of Ramaphosa as President would be the favoured outcome from a market and business point of view. Even then, beyond December, there is likely to be considerable uncertainty regarding the political outcomes.
The tensions within the ruling party would continue to run strongly. In particular, one must realise that many of the poorer sections of the population do not identify weak economic outcomes and credit ratings downgrades with the nature of the Zuma presidency and its capture by certain forces such as the Gupta family.
Instead, they identify economic weakness with the fact that the economy is still dominated by mainly White-owned business. Therefore, even though the business community might see a Ramaphosa presidency as being potentially far more conducive towards private sector investment in the economy than a Dlamini-Zuma presidency, there would probably be some continued apprehension to commit to the country’s long-term future even if Ramaphosa were to win. Ironically, a Ramaphosa victory in the presidential election could well see a recapture of some of the ground lost by the ANC as some of its erstwhile supporters returned to voting for the party at the 2019 elections.
At the same time, one cannot but believe that chances of a further credit rating downgrade to junk status would be diminished were Ramaphosa to be elected. The one important probable change that such an outcome would bring about is the potential for improved cooperation between public and private sectors under his leadership.
- Azar Jammine is the chief economist at Econometrix.