Posted on Tuesday, 23 February 2016 15:10

As Zuma sleeps at the wheel

By John Battersby and Patrick Smith

Photo©Christopher Moagi/Daily Sun/Gallo Images/Getty ImagesThe surprise sacking of finance minister Nhlanhla Nene shocked the markets in late December, underlining the high stakes of the May local elections and the economic difficulties the country faces in 2016.

Forebodings abound ahead of the opening of parliament on 11 February, when President Jacob Zuma is due to give his state of the nation address against a backdrop of political and financial turmoil. Opposition parties are threatening to disrupt proceedings in protest at Zuma's political record. Last year, militant members of parliament from the Economic Freedom Fighters (EFF) shouted down President Zuma until speaker Baleka Mbete ordered their removal by force.

Even staunch loyalists of the governing African National Congress (ANC) concede that this year will be the party's most difficult since the liberation elections of 1994. And some critics argue that the country's current political and economic problems will continue at least until national elections in 2019.

Eight years into Zuma's presidency, frustration about the pace of economic and social change is building, specifically over the lack of jobs and now a serious slowdown in growth, fuelled by falling trade with the biggest economies in Asia and Europe. The discontent is deepest in the towns and cities, where some 70% of South Africans live.

Just how deeply the dissatisfaction runs will be tested in May when South Africans are due to vote in local elections. The most critical contests will be in municipalities such as Johannesburg and Tshwane/Pretoria in Gauteng Province, and Port Elizabeth and Nelson Mandela Bay in Eastern Cape. If the ANC loses control of those cities, the party's internal rivalries will worsen. Next year, the party has to choose a successor to Zuma, and several candidates are already quietly campaigning for the job.

Triple whammy 

Triple shocks in late 2015 showed the gap between reality and the quest for effective policy and good governance. And so, expectations are modest over the next five years: stabilisation of the economy; a political succession that promotes development; and a return to growth above 2% a year. The first shock came in late November when ratings agencies Standard & Poor's and Fitch downgraded the country's credit rating to a notch above junk status, sharply raising the cost of capital and hitting big new power and transport projects.

Two weeks later came Zuma's shock sacking of finance minister Nhlanhla Nene, who had made clear his opposition to Zuma's plans for a 9,600MW nuclear power programme costed at almost $100bn. The announcement of Nene's replacement, a little-known backbencher named David van Rooyen, triggered panic in the markets: the rand hit an all-time low against the United States dollar and several billion dollars were wiped off the bond and equities markets.

Calm returned after four days when senior ANC and business figures pressured Zuma to back down and replace Van Rooyen with Pravin Gordhan, a trusted but independent-minded figure who had been finance minister in Zuma's first government.

The third shock a few days later was the decision of British-based bank Barclays to sell its 62% share in Absa, South Africa's largest retail bank. Barclays has not explained the reason for the sale, but the timing - in the middle of a national financial crisis - is an unfortunate signal to other foreign investors.

As those triple shocks reverberate in 2016, there are fresh doubts about the country's direction. An effort by President Zuma to downplay the significance of his sacking of finance minister Nene fell flat at the ANC's 104th birthday party on 9 January. Zuma told the party faithful that the markets had overreacted, and the rand hit new lows against the dollar two days later.

These swings in market sentiment are hitting the country's business hierarchy: that is the ANC grandees like Patrice Motsepe, as well as local and foreign mining companies that are already reeling from the fall in demand from China, and a slew of foreign investors who had been attracted to the country because of its effective regulatory institutions and sophisticated banking and financial sector.

Loyalty still strong

Those business barons had hoped that the push-back against Zuma's sacking of Nene would strengthen the chances of deputy president and former businessman Cyril Ramaphosa in the race to succeed Zuma. The trade union body Cosatu has also declared its support for Ramaphosa as the next president of the ANC. Yet in the cabinet and the ANC National Executive Committee, President Zuma retains the support of 60-70% of the membership, and Zuma's preferred candidate for the succession is his former wife, Nkosazana Dlamini-Zuma.

Dlamini-Zuma, who has never really left the political scene in South Africa, is due to step down as chair of the African Union Commission this year at the end of her first term in the job.
For now, a majority of the ANC's top officials seem to favour the 'after Zuma, another Zuma' option. But the mood could change quickly if the country's economic travails continue and the ANC gets poor results in the local elections in May.

If the ANC's share of the vote is closer to 50% than 60%, that would be very bad news for Zuma, according to party insiders. Some suggest it could prompt party leaders to negotiate a 'retirement and amnesty' deal with Zuma: that would mean him stepping down in favour of either his ex-wife or Ramaphosa. At the very least, President Zuma's authority would be much reduced.

Yet even with just 50% of the vote, the ANC would remain the country's leading political organisation and capable of a rapid rejuvenation with a change of leadership and policies. Certainly, the growing support for opposition parties will reinforce the pressure for change within the ANC.

The centre-right Democratic Alliance (DA), with its new black leader Mmusi Maimane, is forecast to get between 25% and 30% of the vote in May. Meanwhile, the radical left EFF, led by the irreverent Julius Malema, could get between 8% and 12% of the vote, according to various opinion polls. To what extent the DA could work with the leftist EFF is an open question: instead, one or other of them might wind up in coalition with the ANC.

A strategic thinker, finance minister Gordhan wants to focus policy on building an investment- and manufacturing-led economy rather than on public consumption. His team is looking at ways to promote the financing of the small and medium-scale enterprises that could generate the required jobs and make inroads into rising poverty. Yet how fast and how far South Africa can implement such a strategy will depend critically on the country's febrile political climate. ●

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