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The last two weeks have been given over to overoptimistic outpourings of happiness. Here is the grumpy note I put out on April Fool’s Day as the aforementioned came out skipping into the park, hope reliably triumphing over experience:

JacobZuma

Do you feel lucky, punk? Well, do you?

 

The Constitutional Court ruling against Jacob Zuma yesterday is another significant blow to his credibility and will reflect negatively on the ANC. However he (Zuma) remains in control of his party (even if slightly weakened) and with a significant degree of electoral popularity, especially in rural areas and KwaZulu-Natal. For now I maintain the position that he is most likely not to be recalled before his terms of office ends in 2017 (as ANC President) and 2019 (as country President) – although a recall remains a reasonable possibility. I  outline the arguments for and against this view.

Does Jacob Zuma face a recall?

A flurry of speculation about a possible recall of Jacob Zuma has followed the ruling against him and the National Assembly by the Constitutional Court yesterday.

So what?

The Financial Times yesterday pointed out in an article sub-headed “Real and Ibovespa[1] shine as president’s prospects darken” that “Brazil’s left-leaning president, Dilma Rousseff, probably will not miss when she leaves office … the tendency of markets to loudly applaud her every misfortune” – FT online on March 31 2016 at 08h35.

A similar dynamic is emerging around the apparent fortunes of Jacob Zuma – at least since his unexpected and unexplained firing of widely respected Finance Minister Nhlanhla Nene on 09/12/2015.

So will Zuma be recalled before his terms of office expire?

As an ‘uncertain future event’ question, I am obliged not to give a ‘yes or no’ answer – after all, how can I know?

In the normal course of events Jacob Zuma would be replaced at the ANC’s National Conference in 2017 (probably in December of that year), and as country President after national elections in 2019.

However the damaging scandals that are accumulating around him – the Nkandla scandal and now the humiliating ConCourt ruling, his raid on the National Treasury that underlay his firing of Nene, the widespread criticism of his apparently crony relationship with the Gupta family businesses, the serious deterioration of the State Owned Enterprises and other areas of the state, partly as a result of corruption that directly implicates his (Zuma’s) patronage networks – must in turn be damaging his ANC party.

AGAINST RECALL

  • The ANC’s political history will favour an instinctive taking of a protective stance towards its leader and attempting to present a united external front.
  • The ANC is facing a major electoral challenge in national municipal elections in (probably) August this year. It would be extremely difficult for the party to deal with the recall of a still popular and powerful (however bizarre that might seem) president and fight an election at the same time.
  • The ANC was badly damaged and riven after the recall of Thabo Mbeki by the ANC’s National Executive Committee (NEC) in September 2008 and is likely to be cautious about undergoing a similar process against Zuma.
  • Zuma remains powerful within the ANC, having bound the majority of members of the NEC and many powerful provincial leaders into loyalty networks based primarily on patronage and the threat of the loss thereof. His power is slipping but my guestimate is that support is still comfortably above the 50% mark.
  • Zuma remains popular in large sections of the electorate, particularly in the majority province of KwaZulu-Natal and in most rural areas. He has lost significant support in urban areas and amongst the emerging black middle-classes, but this ‘loss’ is still a minority of the ANC’s electorate.
  • The ConCourt ruling essentially affirmed something Zuma’s counsel had already admitted to in the original hearing on Tuesday 9th of February and was surprising primarily for its clarity and depth, its additional criticism of the National Assembly for not holding Zuma to account and its clear list of corrective measures to be taken. This is to say it shouldn’t have come as a surprise to the markets or the public.
  • If Jacob Zuma loses control of the ANC and of the succession process the chances of him becoming swamped by serious corruption allegations after his term of offices ends increases significantly. His and his cronies’ backs are to the wall and they will fight vigorously – and with proven skill – to prevent a loss of control of the ANC.

 

FOR RECALL

  • Jacob Zuma has brought much scandal to the Presidency that we believe has damaged the party’s support – although not yet to a degree that puts the ANC in danger of getting below 50% in a national election. (Again a thumbsuck – Ed.)
  • The growing scandals have finally led to the emergence of an internal opposition (internal to the ruling ANC) that showed itself with Jacob Zuma being forced into an almost immediate recall of Des van Rooyen as the replacement finance minister after the Nene firing and the appointment of a previous finance minister, Pravin Gordhan. Since then significant cracks have begun appearing in Zuma’s previously impervious hold on the party, particularly around his apparently corrupt relationship with the Gupta family, whereby he may have handed his exclusive obligation to appoint cabinet ministers to the Gupta brothers. Again, these are setbacks, but have not yet left Zuma isolated. (A lot has happened since I wrote that … amazing that it was only 14 days ago).
  • If the ANC does particularly badly in the coming municipal elections it is likely that pressure for some kind of recall will increase in the party.
  • As Zuma moves closer to the end of his term – and the end of his ability to dispense patronage – it is likely that more distasteful aspects of his support will begin to dissipate, leaving him more vulnerable to an early recall.

On balance …

I think it is most likely that Jacob Zuma serves out his full term of office in both the ANC and the country. Additionally I think it is most likely that as we move closer to the end of his terms of office he will agree to take a step back and play more of a ceremonial role – probably in exchange for some form of promise of immunity. (We are not confident that such a “promise” has any value, but will examine this in later posts – Ed).

A recall is not impossible – or a resignation due to ill health, for example – but I consider this a lower probability than the alternative. It is important to point out I am not ‘married’ to this view and we will change it if and when circumstances and the facts change.

Lame duck – or at least limping slightly

What is clear, and should be considered good news, is that Zuma and his allies are fully taken up with fighting a defensive action. This significantly will lower their confidence and ability to engage in untoward activity with regard to state expenditure, also in the expenditure of State Owned Enterprises, or in undertaking any major cabinet reshuffles to achieve these ends. This may also apply to the proposed nuclear programme.

For example any form of follow-through on the December 2015 raid on the National Treasury or attempts to undermine Pravin Gordhan in his role as National Treasurer are likely to retreat (or at least be deprioritised) in the agenda of the Zuma clan and its business allies.

Thus the impunity with which Zuma and his allies have acted in ransacking aspects of the state is collapsing through hubris and overreach. His support is, as I have argued previously, brittle: hard, unyielding but likely to shatter when it breaks.

[1] Ibovespa is the benchmark stock index of the São Paulo Stock Exchange (Bolsa de Valores, Mercadorias & Futuros de São Paulo).

You might be surprised at how carefully some people who’ve never set foot on these shores, people who are mostly blindingly clever at maths and informed to a scarily deep level about our politics and history and whose job includes trading our currency and bonds, have asked me that headline question in the last week.

I have a stock answer that is true to myself but provides cold comfort to those whose fingers must hit one or other button to ‘short‘ SA relative to Russia, or vice versa, or Turkey or Brazil or the Philippines or offer up a financial instrument more exotic than I, for one, can understand, an indecipherable instrument that hedges all the angles but still takes a bet that has within its algorithms a call as to whether South Africa sucks completely or sucks less than the market has priced.

That answer begins: “well it’s complicated …”

Zuma as a president and the various cabals and gangsters that have kept him in place have had free policy and patronage range since 2008.

Nhlanhla Nene’s axing was the worst and most damaging – and exposing – decision Zuma and his cronies have taken since Zuma was elected ANC president in late 2007 (and I would include Mbeki’s recall in that comparison.)

Nene’s summary and unexplained axing and Van Rooyen’s appointment showed astonishing depths of either ignorance, cronyism or hubris – but I am tending towards ignorance, seasoned by the other two.

Only an extremely ignorant man, advised by people whose basic stupidity or grandiosity (undoubtedly a perfect combination of the two ) could have shat on the doorstep of global capital markets, of the people, countries and institutions that lend us money, those who own our banks and those who rate the quality of our government debt – and thought they could walk away from their malodorous mess.

We hear all this blather in ANC discussion documents about the crisis of capitalism, the unstable ‘casino economy’ and the glorious rise of China and Russia (India is occasionally mentioned) and this self-serving internal jabbering has left Zuma surrounded by coterie of people who think sentiment and a rain of Chinese dollars has relieved us of the brutal disciplines of global capital markets? Are these not lessons we learned in 1994 – 1996?

What? China will lend/give us money to bail us out as our currency crashes and the bond yields spike? Dream on morons. The markets aren’t everything you know, I hear him bleat, and this is what I have learned, Zuma proudly asserts, from my week at Focac and the visit of Premier Zi Jinping, my new best friend. The rise of China means ‘western’ markets have lost their power to take away our sovereignty.” Yay! Lets fire that neo-liberal sell-out Nene and get along with the business of taking back what is ours.

… and the awful retribution of the implacable, cold and thoughtless ‘markets’ crushed us under its heel, without even noticing.

Okay so a group of ANC leaders managed to slap him (Zuma) and his handlers down and have appointed Gordhan (again) who is going to deliver up some brutal lessons to this crew (I cannot wait!) … you will see in previous posts why I think that Gordhan’s appointment is not only a good idea, but leaves us in a position even better (politically) than when Zuma fired Nene (although it is a close call) – that is the answer I finally give to those who ask the question in the first paragraph … but only after long and probably boring but stern admonishments that complex systems do not yield up easy, dualistic answers.

But I want you to think about our core political leadership … or rather think about what they think about. Who are they? I assume it’s Zuma and his myriad sons and daughters and cousins and wives, it’s obviously the Guptas, the increasingly awful Lindiwe Zulu and others scattered about the differentially abled ANC Youth League, the Woman’s League and the Premier League with Ace Magashule neck and neck with Zulu in the running dog, protect-the-President-at-all-costs, Joseph Goebbels’ cup.

Jacob Zuma gave a perfect explanation (in terms of his logic) and defence of why he axed Nene in the speech he gave after the announcement. Rian Malan, journalist and author, nailed the problem by closely examining the unscripted words Zuma delivered after announcing that Nene was out and Van Rooyen was in.

You must read Malan’s article (here) but the long and the short of it is Zuma said “I am rebelling against (the idea that) what determines the value of a commodity is the law of supply and demand … The value of a commodity is the labour time taken in production …”

Do you know what that means? Do you realise how dire the consequences that flow from this being the view of our President?

Having been in reading groups in the early 80’s where we poured over and over “Capital: Critique of Political Economy” and several of Karl Marx’s other texts, I know exactly what Zuma thinks he means when he incoherently refers to Marx’s  Labour Theory of Value.

In the intellectual vacuum that Zuma and whatever advisers he used when he fired Nene and appointed Van Rooyen there could only have been a complete absence of the knowledge that most of those who lend us money, buy our financial equities or trade our currency base their decisions on the reliability, predictability and respect of the Minister of Finance. It doesn’t  matter if the traders and fund-managers are wrong or right in using this Cabinet Minister as the touchstone of policy credibility, it only matters that they do and the actions and inactions of the head of the National Treasury are scrutinised and combed with ruthless thoroughness by those who sell or buy our currency or debt (and in this case our bank’s equity as well).

We have a President surrounded by a coterie of what I am tempted to describe as imbeciles – and I don’t mean the Cabinet. Do they really think that  (the interrupted) rise of China will free us from the dictates of markets? Our debt, equity and currency are traded on markets where prices are set by how many buyers or sellers there are, not some sentimental, half baked understanding of Marxist theories from the mid-to-late 1800s. When those markets ‘think’ the politicians are clearing obstacles (Nene) so they (those politicians) and their clients can loot the public purse they (the traders) will unsentimentally sell the financial instruments that are the backbone of our economy and we will crumble. And this time we came that close.

We have a steely new Finance Minister who I believe has more reason than ever to stand up to the ignorant and incoherent policy coming from the centre – although growth and our place in the world will make his job intolerably hard.

We have seen that the centre can be countermanded when its decisions are so bad that they could have a real chance of pushing the country into penury.

However the centre is still the centre, and it is still strong and dominant in the ruling party anyway. We are not home and free while Jacob Zuma occupies the driving seat. It doesn’t really matter if he is a crook or a fool -he has shown unequivocally poor judgement, and this looms over us as an ever present risk.

 

 

I am an independent political analyst focusing on Southern Africa and I specialise in examining political and policy risks for financial markets.

A significant portion of my income is currently derived from BNP Paribas Securities South Africa (Pty) Ltd.

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