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For those who were tortured by my somnolently incoherent post last night, here is the follow up. Hopefully a little clearer.
- The flip-flops around the Minister of Finance leave Jacob Zuma looking weak and vulnerable. There are grounds to begin questioning whether he will see out his full term.
- The appointment of Pravin Gordhan is a victory on a number of different fronts and should be celebrated.
- We can expect the process of fiscal consolidation to continue on track.
- It really is the season to be jolly.
Gordhan’s shock reappointment as Finance Minister – positive
Jacob Zuma fired the increasingly widely respected Minister of Finance, Nhlanhla Nene, on Wednesday December the 9th. He gave no reasons but there had already been wide speculation that:
- Nene decisively blocked a nonsense SAA deal to lease some Airbus planes upon which Zuma associate SAA board chair Dudu Myeni had set her sights;
- That Nene was pushing important investigations into corruption or mismanagement at SABC that were getting uncomfortably close to Zuma’s close personal friend Hlaudi Motsoeneng and
- Most importantly Nene was blocking the (approximately) ZAR1-trillion nuclear deal that was the pet project of Jacob Zuma and his close business associates the Guptas – who had appeared to prepare for the deal by investing heavily through Oakbay investments in several uranium mines
Almost immediately the ZAR tanked, the bond yields spiked and everyone with a voice screamed blue murder at the irrationality of the axing.
Zuma then, perhaps more mysteriously, appointed the relatively unknown and unqualified David Van Rooyen to the post, despite there being many highly qualified candidates available (South Africa has made a point of putting its highest quality ministers into the National Treasury position.) The widespread assumption was that Nene was being replaced by someone who would be more compliant to the President’s wishes, and more importantly, to the wishes of those who are in business with the President.
Then, even more shockingly, late last night (13/12/2015) Jacob Zuma did an about turn, dropped Van Rooyen and reappointed Minister of Co-Operative Governance, Pravin Gordhan, as Finance Minister (a post he – Gordhan – held prior to Nene’s appointment 18 Months ago.)
Jacob Zuma has had his wings closely clipped – which is a good thing
The decision to axe Nene bordered on the criminal but most analysts thought that Zuma could get away with anything he wanted within the ANC – even as the ANC lost support amongst the electorate. Well it appears they were wrong. A powerful enough group of leaders have got together, sat Zuma down and forced him to make a humiliating climb down. The financial market response might have helped and the bleating of the opposition and the press would have given some support, but the ANC prides itself of being impervious to the shallow swings of public opinion (which is no bad thing). This was an internal leadership revolt against Zuma, the Holy Grail that many had been hoping for as the country went from the healthy constitutional democracy of 2007 to this damaged (in many of its most important institutions) country, almost overwhelmed by rent-seeking and corruption.
We out here in the public realm don’t know anything for sure, except Zuma was given a ‘warm klap’ (warm slap – colloquial Afrikaans) and we can hope that this might begin the unravelling of his negative influence on the country and its politics. The admonishment and humiliating climb-down must have been caused by ANC heavyweights who have finally found their voice and power enough to put Zuma in his place.
Pravin Gordhan will be a better Minister of Finance – even than he was before
Gordhan has all the credentials and had a close to faultless term as head of the National Treasury. (If memory serves, like all heads of the NT his slips concerned the public wage sector bill and desperate attempts to avoid public sector strikes.) His only weak point is he tends to run an unhappy office … it was widely speculated that the staff at the National Treasury were unhappy with his dictatorial style of leadership. This we can live with.
Of interest is that since Gordhan had left the Treasury a witch hunt has been conducted in Gordhan’s previous posting, the South African Revenue Service, SARS. The witch hunt has been against an alleged “rogue spy unit”. The fact is the special investigation units, established by Trevor Manuel and Pravin Gordhan were an essential part of investigating complicated tax avoidance and fraud cases, especially those involving heads of large criminal networks and powerful politicians. It is a small step to see who might have been the obvious targets of the special investigative units. And an even smaller step to see why and who has stimulated the witch hunts and slander against the loyal SARS investigators involved in these units – calling them rogues and criminals, and ensuring their dismissal or buyout.
Thus this is going to be a Finance Minister that nobody is going to push around – especially not Jacob Zuma and his cronies – against whom Gordhan has good reason to feel ill-disposed. It’s a win-win.
My only faint worry is I am not sure of Gordhan’s attitude to the nuclear programme. I am sure he will not do anything to threaten the process of fiscal consolidation, but as an old style ANC securocrat he might have an over-attachment to nuclear power (an affliction of those who grew up in the ANC in the 70’s mostly because of the USSR’s warm embrace of that technology).
Having been woken by my children to tell me we had a new, new finance minister I blundered out of bed and scribbled this for my paying clients – forgive the blurriness it is essentially the sleeping pill that’s doing most of the
There were 7 more errors in this paragraph. I just fixed the ones that jumped out and bit me on the nose – and left the crazier ones visible so you too can learn not to write when on sleeping medication.
There rest cans stay in the farmyard.
Don’t call me stupid, stupid
- Pravin Gordhan appointed Minister of Finance – 5 days after the obscure Dave Rooyen’s appointment (It’s 10 p.m. on Sunday evening so this is a bit late and bit rushed).
- The only possible good side is that Zuma responded well to universal criticism from prices and the press and the commentariate.
- The truth is policy is in free-fall and Zuma clearly does not know what he is doing.
- This is a scary time and it would be appropriate to be as cautious as possible
Jacob Zuma has just announced that after ‘careful consideration’ he had decided that he was rescinding the appointment of David Van Rooyen as Minister of Finance and appointing instead, previous Minister of Finance Pravin Gordhan. It could be that with the ZAR falling out of bed, that condemnation of Nhlanhla Nene’s unexplained removal was almost universal and our bond and currency markets were in chaos … whatever it was, it was a deeply embarrassing and chaotic act redolent of uncertainty and panic.
Even though this is a “good” decision, from Zuma’s perspective it is “clutching” at straws, it looks weak, it look like the centre cannot hold. Expect serious political instability in the palace of power. Zuma must be back against the wall, making a decision that makes him look so weak, so foolish.
I will try and deal with this in more detail in the morning.
Business Day this morning published an article suggesting that Nhlanhla Nene was on the verge of being shuffled out of his Minister of Finance position to some face-saving backwater.
I wrote early last week in a client note: “It is widely held that the National Treasury and Minister Nhlanhla Nene have come under hostile pressure for investigating close Zuma allies and an axe in the form a threatened Cabinet shuffle hangs over Nene’s head to keep him compliant with Zuma’s own spending priorities and plans for SOE’s and nuclear power roll-out (to which Nene is widely believed to be opposed in its current ZAR1-trillion form).”
However I have repeated to several of my clients that I believe that while Zuma might axe Nene is might be a step too far, the moment the great leader overestimates his greatness and fails to understand his Ozymandian limitations.
Nene is the first black African Minister of Finance and he is at least as steely and technically competent as any of his post 1994 predecessors. Last week be brought the meat-clever down on the plan of SAA board chair Dudu Myeni (widely suggested to be an intimate of Jacob Zuma) to place a mock-up company in an already done leasing deal between the national carrier and Airbus. The company would have been nothing other than a rent extraction tool – and added hugely to the costs of the deal. Myeni’s reprehensible argument was that it was all for the purpose of transformation – proving that the political elite uses the practice to loot the SOE budgets as much as it ever does to promote real BEE.
Nene has also been going after the SABC’s Motsoeneng (another person who brags widely about his relationship with the President and his untouchable status) and he (Nene) has been widely assessed to be dragging his heals on Jacob Zuma’s pet nuclear deal that in its current form would beggar the country and state finance for many years to come.
So Nene has apparently got in Zuma’s face and he is facing the axe – according to various stories including the one linked above.
When Nene was first appointed on May 24 2014 I expressed concern about his seniority in the party and questioned whether he would be able to stand up to the fiscal pressures that would be placed on him – especially in relation to his predecessors in the position and especially in our declining growth environment.
I was wrong – if anything Nene has been both stronger and more tactical in his attempts to meet the increasingly difficult targets of fiscal consolidation – given the endlessly lower levels of growth. The rating agencies, those who grade South African government debt and have recently moved us closer to non-investment grade (i.e., junk) have come to rely on the dependability of the head of the National Treasury. We have a tradition of putting some of our best ministers in the position and Nene has risen to the challenge.
The Business Day story quoted above (which might be rubbish, but chimes with several of our initial views) suggests that some “malleable” nobody by the name of Des van Rooyen from the Parliament’s finance committee could replace Nene (the closest information I could find on a web search for this character was this smarmy speech on the ANC website).
I have no idea if this is true, but have concluded elsewhere for a range of reasons and from a range of sources that Nene is vulnerable and that ‘an axe hovers over his neck’ because he has stood up to Zuma.
If Zuma gets rid of Nene, because the head of the NT has offended Zuma’s friends and he is showing opposition to Zuma’s nuclear retirement plan or legacy project he (Zuma) would be making a grave mistake – a mistake leaders who have come to overestimate their power often make.
Axing Nene will be read by the capital markets and rating agencies in exactly the terms I have described above – Nene has been exemplary in his job except when forced to concede to political pressure from the top – and even then he has skilfully manoeuvred to lessen the damage.
If Nene is axed I will be unsurprised to see us downgraded to junk by the end of 2016.
I will also be unsurprised to see political shifts against the leader (Zuma) who has finally overstepped the mark, who has heaped damage upon damage on the South African political economy, especially as regards to its reputation for probity, but who has especially damaged the reputation of the ANC.
I see from the Business Day story that the rumour is the Guptas “let the cat out of the bag” (read “announced”) the impending Cabinet reshuffle. Excuse me! This more than anything suggests (if it is true), not for the first time, that Zuma has sold our sovereignty to these shady interlopers for something a lot more than a mess of pottage.
My underlying point is that Zuma’s power is becoming more brittle and his lines of support stretched thinner and thinner. He is engaging in actions that parts of his party find repulsive and there is a point beyond which a system under stress can quickly unravel as the connections snap and the nodes pop.