Zuma absolved of blame as ANC turns to ‘fiscal populism’

The ANC is signalling its intent to lure more unemployed people to vote for it in the next elections through what analysts refer to as “fiscal populism” – effectively policies aimed at short-term political gain at the expense of entrepreneurs and investors. President Jacob Zuma isn’t going anywhere yet, it seems. Bloomberg reports that he has been absolved of blame for the ANC’s dwindling support in local elections. Meanwhile, analysts caution that it looks like South Africa is edging back towards downgrade territory after reading statements by ANC Secretary General Gwede Mantashe about the party’s leaning towards fiscal populism. After a brief surge of strength against major currencies, the rand is showing signs of weakening again. The South African elections were viewed by many as a referendum of sorts on how the ANC is performing as the controlling political party. Many voters were casting their ballots for sweeping change. A shift towards more populist economics is not what many business leaders will have been hoping for, with Zumxit – the ejection of Zuma – the ultimate desire. – Jackie Cameron

By Arabile Gumede

South Africa’s ruling African National Congress is leaning toward more populist economic policies to win back support after its worst performance in an election since Nelson Mandela led the party to victory in a vote that ended apartheid in 1994.

South Africa's President Jacob Zuma. REUTERS/Siphiwe Sibeko
South Africa’s President Jacob Zuma. REUTERS/Siphiwe Sibeko

The ANC will press the government to prioritize creating jobs and alleviating poverty in the national budget at the four-day cabinet meeting that started Tuesday, Secretary General Gwede Mantashe said after the party’s top decision-making body met last weekend. The party also mandated the government to speed up the process of implementing a national minimum wage and said the nation’s universities shouldn’t announce any fee increases.

Read also: Out of touch Ramaphosa stacks minimum wage deck – another job killer coming

The shift in policy is an attempt to secure support from the 27 percent of the workforce without jobs and to dim the appeal of the leftist Economic Freedom Fighters party that’s winning voters over in traditional ANC strongholds. To pay for it, the government may need to boost debt and risk a credit-rating downgrade to junk or raise taxes again and further alienate the urban middle class that shunned the ruling party in the Aug. 3 municipal election.

“It sounds to me like they want to enact a greater degree of what I would call, fiscal populism,” Russell Lamberti, chief strategist at ETM Analytics, said by phone from Cape Town on Monday. “We potentially are heading down the scenario here where they respond to election defeat by using fiscal policy in a more activist way, and that leads us down downgrade territory.”

Voter Dissatisfaction

There is a risk that the 104 year-old ANC could turn to more populist measures, including breaching expenditure ceilings or “redistributive regulatory policies” that might undermine economic growth, to address rising voter dissatisfaction, Fitch Ratings Ltd. said on Aug. 5. While Fitch and S&P Global Ratings affirmed South Africa’s credit rating at BBB-, one level above junk, in June, they said the government must take decisive steps to bolster growth, quell policy uncertainty and end political turmoil to avoid a future downgrade.

Finance Minister Pravin Gordhan pledged in his February budget to narrow the fiscal deficit to 2.4 percent of gross domestic product by 2019, from 3.9 percent last year, and limit gross debt to 50.5 percent of GDP in three years by reining in spending and increasing taxes. The government will stick to the fiscal consolidation targets and objectives set out in the budget, the Treasury said last week.

“I would not, at the moment, blame ratings agencies for reading into this statement a shift towards not just populism, but more extraction from public resources,” Iraj Abedian, chief executive officer at Pan-African Investments and Research Services in Johannesburg, said by phone on Monday.

The ANC’s senior leaders absolved President Jacob Zuma of blame for the party’s election performance even as a series of scandals surrounding him contributed to voter discontent. Zuma was forced to name Gordhan as finance minister, a position he held between 2009 and 2014, in December when business and political leaders persuaded him to backtrack on a decision to appoint a little-known lawmaker to the position, after the rand and bonds plunged.

The rand weakened for a second day, slipping 0.2 percent to 13.4457 per dollar by 7:35 a.m. in Johannesburg on Wednesday, paring the gain in 2016 to 15 percent.

South African Finance Minister Pravin Gordhan. REUTERS/Siphiwe Sibeko/File photo
South African Finance Minister Pravin Gordhan. REUTERS/Siphiwe Sibeko/File photo

Gordhan is leading efforts to avoid a credit-rating downgrade and has met with business and labor leaders and investors to come up with measures to boost confidence in an economy that the central bank projects won’t expand this year. The ANC’s statement could put renewed strain on the relationship between the finance minister, who has said he will maintain the spending ceiling, and Zuma and his party, according to George Herman, head of South African investments at Cape Town-based Citadel Investment Services.

The decisions in the ruling party’s statement are a way to “score very quick, easy, short-term goals” with voters, Herman said by phone. If the government announces new spending plans “financial markets and the ratings agencies will be very concerned.”