Heavy economic price for a possible political solution in SA

In an ironic twist, the decision by S&P Global Ratings to downgrade South Africa’s sovereign credit rating to junk status, may have done the country a favour…at least politically speaking.

The announcement by S&P – in which it blamed President Jacob Zuma for its decision – gave renewed impetus to the multi-organisation civil movement to have Mr Zuma removed from office at a time when the movement was in danger of running out of steam. This could possibly have left Mr Zuma victorious and even untouchable. With S&P’s announcement, all of that changed overnight.

The S&P announcement was immediately followed by a renewed flurry of political mobilisation, denouncements of Mr Zuma and more calls for him to step down, also from the governing ANC’s two formal allies, the SA Communist Party and the Congress of SA Trade Unions (COSATU).

Prior to S&P’s announcement, the civil movement against Mr Zuma that grew after he fired Finance Minister Pravin Gordhan and Deputy Finance Minister Mcebisi Jonas, faced being stymied by:

• attempts in the ANC to silence three of the ANC’s top six leaders who had spoken out against Mr Zuma;
• delaying or even disallowing a vote of no confidence in Mr Zuma in Parliament that, if successful, could have led to him and his cabinet being removed;
• thus buying time to dissuade members of the ANC’s parliamentary caucus from voting with opposition parties against Mr Zuma; and
• the civil movement against Mr Zuma being too fragmented and disorganised to be effective, which could have led to a loss of vital public and high-profile support.

Had that been allowed to happen, Mr Zuma’s gamble would possibly have paid off and he would have remained in power, possibly in a stronger position than before. And in a position, along with some of his dubious associates, to do more harm to South Africa and its economy.

Now S&P’s announcement, however, may have strengthened the resolve of those ANC MPs who perhaps considered voting with opposition parties for Mr Zuma’s removal but who would have faced pressure from the pro-Zuma faction in the ANC not to do so. It may also have persuaded more members of the ANC’s parliamentary caucus and its powerful national executive committee (NEC) that the time has come to remove Mr Zuma. A vote of no confidence in Parliament or Mr Zuma’s recall by the NEC, are the only two effective options to remove him.

The ANC is heavily divided and the atmosphere is toxic in the party following Mr Zuma’s widely criticised cabinet reshuffle that saw Gordhan, Jonas and seven other ministers and deputy ministers being fired. The ANC’s top six leaders met on Monday in an attempt by Mr Zuma’s supporters to unite them and prevent three of them – Cyril Ramaphosa, Gwede Mantashe and Zweli Mkhize – from further speaking out against Mr Zuma in public. As news of the S&P decision reached them, the meeting was extended and the divisions among the six leaders appear to remain unresolved.

The crisis in the ANC was further underlined when an extended meeting of the party’s national working committee (NWC) was called on Tuesday to discuss the latest developments. The meeting appears to have been used by Zuma supporters in the party to fight back as, in an unusual step, the ANC’s provincial chairmen and secretaries were also called to the meeting. Mr Zuma enjoys the support of the majority of the provincial chairmen and secretaries. Mr Zuma also asked for a meeting with COSATU’s leadership to discuss their call for him to resign.

The ANC will probably issue a statement at the end of all these meetings. We expect one of three positions to emerge in such a statement: (1) the party may close ranks and the leadership may express its continued support for Mr Zuma; (2) the leadership may announce that proceedings will start to recall Mr Zuma with Deputy President Ramaphosa stepping in as acting president; or (3) the party may opt for a more neutral middle position stating something to the effect that while the cabinet reshuffle and the S&P rating decision was unfortunate and will be further discussed and dealt with in the party, they still support Mr Zuma as president.

Meanwhile, in the wake of the S&P decision, activists are mobilising with renewed urgency to work for Mr Zuma’s removal. A massive day of action involving multiple political parties, organisations and movements is planned for next week Wednesday where more pressure will be put on the ANC to remove Mr Zuma from office.

So the situation remains very fluid, but a major fight is underway in the ANC with much pressure from outside. The S&P decision has certainly put the political cat among the pigeons.

In the final analysis, Mr Zuma may have shot himself in the foot: his actions led directly to the S&P downgrade, which in turn may just cause his downfall. Any further downgrades by the other rating agencies, Moody’s and Fitch, will add to the pressure. Moody’s has already placed South Africa on review for a downgrade.

However, as can already be seen from developments in the ANC and the tripartite alliance, attempts from within to remove Mr Zuma are likely to be accompanied by considerably more political instability – one of the major factors being watched by the rating agencies. Those ANC factions that support Mr Zuma will not allow him to be removed without a fight.

The removal of Mr Zuma as a result of these developments would go a long way to solving the country’s political problems and putting the economy back on a growth path, but unfortunately there will first be a heavy economic price to pay for this.

The downgrade to junk status will put more pressure on the economy and adversely affect many things, including the cost of living for ordinary consumers. Investment will be adversely affected and wealth is likely to leave the country. The rand remains under pressure.  Volatility in bank stocks continues.  Further rating downgrades, if they do happen, will add to all these pressures.

In the meantime the political uncertainty prevailing at present, is not making anything easier.

Craig Featherby

Chief Executive Officer