South Africa – President Zuma’s economic (mis)management

January has provided no reprieve for South Africa’s embattled President, Jacob Zuma. Anti-Zuma protests continue apace, the most recent headline-grabber being a giant ‘Zuma must fall’ banner erected by activists in Cape Town.  Economic indicators meanwhile continue to spiral downward, heralding further political unrest ahead. The IMF recently revised South Africa’s growth projection for 2016, nearly halving its original estimate to a mere 0.7%. This poor outlook is in part due to external factors—notably falling commodity prices and rising borrowing costs. Yet much of this decline is also self-inflicted. It is a testament to Zuma’s dangerous politicking, which in turn, speaks to a more fundamental malaise within the ruling ANC, a party at the mercy of competing patronage-seeking factions.

Zuma has had to fight off a succession of political scandals throughout his career. Since assuming office in 2009, criticism over corruption and policy uncertainty has continually dogged Zuma personally, as well as his government. And yet, in December of last year Zuma managed to outdo himself, unleashing market chaos after changing his Finance Minister three times over five days.

On December 9, he shocked South Africans and foreign investors alike when he replaced his respected minister, Nhlanhla Nene, with a little known ANC backbencher, David van Rooyen. Rumors quickly spread that Nene was fired due to his unwillingness to sacrifice fiscal discipline in order to satisfy Zuma’s personal political interests. Nene had opposed a bid by the lossmaking state-owned company, South African Airlines (SAA), to renegotiate an aircraft deal with Airbus. The chair of SAA who was in favor of the renegotiation, Dudu Myeni, is a close Zuma ally. What’s more, the President also felt compelled to issue a highly unusual statement, denying allegations that he is romantically involved with Myeni.

The apparent sidelining of Nene for political reasons raised serious questions regarding the credibility of the Treasury, long seen as one of South Africa’s strongest institutions. Zuma’s decision sent the rand tumbling to all-time lows against major global currencies. It wiped R169bn of equities listed on the Johannesburg Stock Exchange and R52bn off the local bond market. Protests also broke out across the country as South Africans called for Zuma’s ouster. Facing pressure from within his own party, Zuma finally acquiesced. Four days after he fired Nene, the President announced the return of respected former Finance Minister Pravin Gordhan to head the Treasury.

Gordhan has gone some way towards reassuring markets. He has reaffirmed the Treasury’s commitment to fiscal discipline at a time when the cost of repaying South Africa’s public debt has become the single greatest drain on the national budget. He also successfully upheld Nene’s original position, rejecting the SAA bid to renegotiate its deal with Airbus.

Nevertheless, observers and financial commentators in particular underscore the lasting damage incurred as a result of Zuma’s gamble. Recent credit rating downgrades have brought South African bonds close to junk status while investors increasingly question the lack of policy direction and the uncertain prospects for South Africa’s commodity-dependent economy.

More worrying still is the reigning political uncertainty. Zuma’s own future is on the rocks, with many citing this year’s local government elections as a key test. A poor showing for the ANC could trigger Zuma’s early removal from office.  But Zuma’s immediate future aside, a succession battle is already underway for the ANC top post. Next year’s leadership congress is likely to pit Zuma’s former wife and current head of the AU Commission, Nkosazana Dlamini-Zuma, against current Deputy President Cyril Ramaphosa. Zuma’s own preference would be to retain his current position as party leader and to see Dlamini-Zuma becomes presidential nominee. The dynastic quality of such an arrangement is problematic in and of itself, but it would also contravene ANC precedent, which dictates that one person should hold both the position of presidential nominee and party leader so as to prevent competing power centres from emerging. Ramaphosa’s potential candidacy is hardly a reassuring alternative, though, given his own checkered record. Corruption allegations abound while South Africans will not have forgotten Ramaphosa’s alleged implication in the 2012 Marikana massacres and subsequent cover up.

For now, the ANC has remained outwardly united in defending its President. However, intra-party tensions abound as competing ANC heavyweights jockey for positions. Against this troubled backdrop, it is unclear how South Africa’s ruling party can prevent what some interpret as the weaknesses of Zuma’s personal leadership style from remaining a fixed element of the ANC status quo. Indeed, Zuma is not alone in his willingness to indulge political cronies; any successor will have his or her own patronage network to satisfy. This situation means it will only become more difficult for the ANC to convince South Africans, as well as foreign investors, of the government’s political (and economic) credibility.

 

 

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