Jammine: ANC supporting Zuma may be final S&P straw – SA “junk” on Friday?

Azar Jammine, chief economist, Econometrix
Azar Jammine, chief economist, Econometrix

On the face of it, President Jacob Zuma had a pretty good week. He survived the biggest threat yet to his hold on power when 104 members of the ANC’s National Executive Committee declined a vote on his “recall”. Then he jetted off to Havana, rubbing shoulders with soulmates like Robert Mugabe and Nicolas Maduro and getting to read a eulogy at the funeral of his hero Fidel Castro who ruled Cuba for 47 years. Zuma also ensured the ANC once again committed itself to turning SA into a massive construction site, promising huge infrastructural spending to spark a stagnant economy back to life. But as independent economist Azar Jammine unpacks in this excellent contribution, beneath the surface seismic shifts are happening. Jammine says Zuma’s confidence will have been shaken by the weekend challenge to his position which, for the first time, came from within. He also frets that this fresh evidence of political turmoil may trigger the last of the three ratings agencies to report, S&P, to drop the country’s debt to junk on Friday. S&P, he opines, may conclude with the status quo rolling on, SA’s shockingly managed and heavily borrowed SOEs will fall even deeper into debt. Jammine also addresses the “construction site” narrative which has been mouthed many times before without much actually happening. The pressure is continuing to build on the ANC’s deeply flawed leader. Expect the unexpected. – Alec Hogg

By Azar Jammine*

Following its NEC meeting over the past three days, the ANC’s Secretary-General Gwede Mantashe released a statement in which the most important message was that the NEC had rejected the vote of no confidence in President Zuma and a call on him to resign put forward by a member of his Cabinet, Tourism Minister Derek Hanekom.

Derek Hanekom
SA Tourism minister Derek Hanekom

Pointedly, as a means of downplaying the significance of the meeting, the statement introduced the meeting as being an “ordinary meeting” rather than an extraordinary one held to discuss the position of the President.

Mantashe tried to convey a sense in which the meeting was held to strengthen the unity of the party, aided by allowing members of the NEC to speak their mind freely. In particular, he went out of his way to explain how attempts were made at appeasing the movement constituted by stalwarts from the ANC’s struggle against apartheid, who have been outspoken in recent times about the manner in which the President is destroying the party and its chances of remaining in power.

Specifically, the NEC has decided to add an extra day to its National Policy Conference to be held at the beginning of July next year in order to allow for another debate on the leadership of the movement.

NEC decision on Zuma unlikely to stabilise political environment

Essentially, when taken in conjunction with the statement that the NEC rejected calls for Zuma to step down, the establishment of a forum for discussion of this only in seven months’ time effectively means that it is unlikely that Zuma will step down before then.

In all likelihood it also means that Zuma will see out his term of office as President of the ANC when that term ends at the National Conference of the party to be held between 16th and 20th December next year, at which the election of a new leader of the party falls due.

Jacob Zuma, South Africa's president. Photographer: Waldo Swiegers/Bloomberg
Jacob Zuma, South Africa’s president. Photographer: Waldo Swiegers/Bloomberg

The problem with such a scenario is that one questions how Cabinet Ministers, who might have called for their leader to step down, can retain their positions within the Cabinet. Specifically, there are rumoured to be at least four such ministers, including Hanekom. These include Minister of Health Aaron Motsoaledi, Minister of Science and Technology Naledi Pandor and Minister of Public Works Tulas Nxesi.

The problem is that the above-mentioned Ministers have frequently been cited as being the most effective and capable members of Cabinet, additional to the Minister of Finance Pravin Gordhan and his deputy Mcebisi Jonas. There is no rule which says that they must resign, nor is it absolutely certain that President Zuma will undertake a Cabinet reshuffle as a means of dropping these persons from Cabinet.

After all, there had been a risk that Jonas might be forced out of Cabinet following his declaration that he had been offered the position of Minister of Finance, with monies attached to it, by the Gupta family in late 2015, an announcement which severely damaged President Zuma’s image and integrity. Nonetheless, there must be a significant chance of such resignations or of a Cabinet reshuffle.

The problem with this scenario is that it appears to be a no-win situation for government and for the management of the country.

If these Ministers were to leave, it would severely damage confidence in the government. Conversely, if they stay on in the Cabinet, it raises questions about the likely unity of purpose of the Cabinet going forward. The cohesion of government in running the country effectively under such circumstances has to be called into question.

Fears of State Capture and lack of leadership heightened

Furthermore, there can be no doubt that the mere fact that the NEC came to discuss Zuma’s departure at all, must have reduced his standing within the party. It will surely reduce his perceived power.

Hitherto, amidst calls from opposition parties, the media and even certain ANC stalwarts, for Zuma to resign, support garnered from the NEC for him had been a major source of reassurance for the President. It is almost as if the rug has been pulled out of the confidence carpet of the President following these recent developments.

Whilst he has deflected blame for the situation on third parties driven by “White Monopoly capital”, deep down some of the President’s confidence will have been shattered.

On the other hand, the very fact that he is staying on is likely to intensify speculation that state capture remains on the agenda to the detriment of South Africa’s economic performance. Perceptions are likely to gain even more ground that his determination to remain in office is driven by a desire to avoid prison on the basis of corruption charges already laid upon him.

Unfortunately, such an environment is not conducive to a perception of leadership that can help address the country’s economic problems and in particular find solutions to overcoming structural impediments to economic growth.

Increased risk of credit rating downgrade to junk

Image courtesy of Twitter
Image courtesy of Twitter

In its review on Friday of its downward revision of the outlook on its credit rating, Fitch credit rating agency highlighted political infighting as a likely factor which might deflect attention of the government away from attending to the structural challenges of the economy.

In turn, this was seen as potentially impeding the ability of the government to lift economic growth on a sustainable basis.

It was also seen as heightening the possibility of poor governance and mismanagement of state-owned enterprises (SOEs), rendering them more vulnerable to having to call on government to bail them out at the expense of an increase in government debt. Both these factors were cited as potentially compelling the rating agency to downgrade the country’s credit rating to junk status in due course.

Also read: SA avoids credit downgrade to junk as Fitch, Moody’sgrant respite

The NEC outcome would appear to enhance the perpetuation of political infighting that is conducive towards a move to junk status, certainly on the part of Fitch when it reviews its credit rating again in June.

Yesterday’s events might even have persuaded S&P Global Ratings, who are due to pronounce on their credit rating this Friday, to downgrade the country’s credit rating to junk status.

It should be recalled that S&P’s rating outlook is currently already “negative”, representing a heightened probability that the next move will be a downgrade.

Standard & Poor's HQ.
Standard & Poor’s HQ.

Given that its current rating is already just one notch above junk status, this explains the inherent risks of a decline to junk at the end of this week. In turn, such a move could knock the Rand off its recent perch of strong performance.

Commitment to infrastructural investment drive like Trump

It is also interesting to note the NEC’s statement incorporated a commitment to implement a “massive 10 year socio-economic infrastructure build program”. It is as if such a call to “turn South Africa into a construction site” will unite the country behind the ANC and overcome the impediments to economic growth under its current leadership.

The problem is that we have been living for many years with promises of huge infrastructural investment programmes and yet these have not come to fruition due to inept provincial and municipal management. One questions how this situation can be reversed any time soon to make such an infrastructural investment dream a reality.

In many ways one concedes that the concept of pushing infrastructural investment in this way in this statement is an attempt to replicate the positive mood engulfing the United States since precisely such a promise was made by President-elect Donald Trump when he delivered his acceptance speech after winning the election.

In both instances, the question one also needs to pose is whether or not the fiscal framework can accommodate such huge expenditure.

Especially in South Africa, the only two ways in which such spending can be accommodated if it is indeed undertaken, is either through large-scale cutbacks in the size of the public service to facilitate spending on capital projects instead or alternatively to increase taxes to an almost prohibitive extent.

Either way, negative impulses could well turn out to be the order of the day despite the noble intentions of infrastructural spending as a means of promoting social upliftment.

  • Azar Jammine is the chief economist of Econometrix
(Visited 12 times, 1 visits today)