On Wednesday 2 November, President Jacob Zuma dropped his court bid to delay the release of the Public Protector’s report over alleged influence peddling in government as thousands marched in the streets of Pretoria against the president. The rand strengthened more than 1% and bonds firmed in response to the withdrawal, which analysts said was another indication the country still had strong institutions. The release of the state capture report by the outgoing Public Protector was suspended on October 14 after Zuma’s application to the High Court. The hearing, which started on the Tuesday, was due to continue on Wednesday. Thousands of people had gathered at various points in Pretoria. Reuters reports that some carried “Zuma must go” placards outside the court that was to decide on Zuma’s bid to delay the report in allegations of political influence by his wealthy friends. Protesters also demanded that state prosecutor Shaun Abrahams be removed from office.
Abrahams had pressed charges of fraud against Finance Minister Pravin Gordhan, but then dropped them at the end of October after popular support from both the political and corporate realms for Gordhan. Supporters of Gordhan and sympathetic financial analysts say all the charges could be a ploy by Zuma and his allies to discredit the finance minister who has stood in the way of their securing lucrative government contracts. On the day before the fraud charges were announced, the rand was trading at R13.81 to the US dollar, having strengthened from close to R18 to the dollar in December last year when President Zuma initiated a finance minister turn-over debacle that instantly rattled local currency and bond markets. Under severe pressure and in an effort to unscramble the egg, Zuma then appointed Pravin Gordhan in that role. Since that appointment, the relationship between Zuma and Gordhan has been decidedly frosty even though the president has stated on a number of occasions that Gordhan has his full support.
In the last week of October, with these charges hovering over him, finance minister Gordhan delivered his Medium Term Budget Policy Statement (MTBPS) in what already was a very demanding environment as the threat of a sovereign ratings downgrade loomed on the horizon, and with the police firing stun grenades at protesting students outside the parliamentary precinct. The minister had told the media before his speech that the next two years in particular would be tough with low economic growth unable to generate sufficient tax revenue to support the government’s previously articulated plans. A tax shortfall of R23 billion was expected for the current fiscal year, Gordhan said. Government departments would be required to cut back on spending, particularly on personnel.
The 2016-17 year would be the toughest with spending growth of only 0.1% in real terms, increasing gradually over the next three years as growth prospects improved. Despite these difficulties,
Gordhan said that South Africa was not in a “hopeless” situation as long as it could take advantage of the “green shoots” in the economy that would emerge as constraints such as those affecting electricity supply receded.
Creating the appropriate conditions for private investment, which had collapsed, was critical to this project. In his speech to Parliament, Gordhan returned repeatedly to the theme of SA being at a crossroad and the need to take the right decisions to build an inclusive economy. He said that Treasury has adopted a “measured and balanced” fiscal consolidation approach, which did not cut government expenditure too drastically to kill growth but also reduced the budget deficit and stabilised debt. On the key metrics, the Treasury revised the fiscal deficit forecast from 3.2% to 3.4%, an indication that there had been some slippage. Gross loan debt as a percentage of GDP – which is also closely watched by credit ratings agencies – has crept up to 51.3% for 2016-17 from the budget forecast of 50.9% and is set to rise further to 52.5% in 2017-18 and 53% in 2018-19. The Treasury forecasts growth to slow to 0.5% in 2016 compared to the 0.9% projected in February. Growth is forecast to rise to 1.3% in 2017, 2% in 2018 and 2.2% in 2019.
During his speech, Gordhan alluded to the charges against him by the National Prosecuting Authority (NPA), saying that while “the legal challenges are unsettling” the greater problem was the rise of anger and violence in communities, signalling unresolved social and political problems.
While a number of economists appreciate the severe constraints the Treasury is facing, they are not confident that its projections for economic growth will materialise. This would push out the budget deficit, worsen the government’s debt metrics and give the ratings agencies the jitters. More concrete plans to ignite growth were needed, some economists said. The day after the MTBPS, two global ratings agencies commended the government for its commitment to fiscal consolidation but raised concern over SA’s low economic growth. Poor economic performance remained the main impediment to debt stabilisation, but government measures to boost trend growth performance constituted fine-tuning rather than meaningful reform, Fitch Ratings senior director Jan Friederich said. Fiscal consolidation in the medium-term budget was mostly on track but would continue to be challenged by slow progress and uncertainty around structural reforms to support growth, Moody’s vice-president and senior analyst Zuzana Brixiova said. Various organisations keep highlighting the need for structural reforms in SA, not only to boost economic growth but to also lift confidence. Proposed reforms include those in the fields of labour, education and mining. Higher confidence tends to lead to an increase in investment and job creation. Structural reform measures highlighted in the medium-term budget, such as efforts to reduce legal uncertainty in the mining sector or to improve visa processing, would not be sufficient to raise business confidence substantially in the near term. But progress had been made with regard to alleviating electricity shortages, a key factor that had held back growth in recent years, Friederich said.
While noting government plans to raise taxes of R28 billion and reduce the spending ceiling by R10 billion in the coming year, Fitch and Moody’s flagged elections as a risk to the implementation of higher taxes and spending cuts. “The ANC electoral conference at the end of 2017 will choose the presidential candidate for the 2019 national election. Positioning by potential candidates and concerns following the poor showing of the ANC in local elections … may make unpopular tax measures politically difficult and heighten pressure for additional spending”, Friederich said. Fitch and Moody’s are scheduled to review South Africa’s credit ratings in early December.
While Pravin Gordhan and his team continue to work overtime to ward off a ratings downgrade in December, the Zuma camp is coming under increasingly widespread pressure. In September, AngloGold Ashanti chairman Sipho Pityana called on business leaders to take a political stand, saying it was time to act to force the government to change course.
“My view is business should be part of a discussion about the president. We are at the same point now as we were when, during apartheid, business told the government that a different course was required,” he said.
Earlier, Pityana had sent shock waves through the ANC when he pleaded in a speech at the funeral of prominent ANC leader Arnold Stofile for Zuma to step down.
As October unfolded, it also emerged that an internal report, which had been commissioned by the ruling party’s leadership after the ANC’s humiliating local government performance, had been handed to its national working committee – and that this report, which canvassed the party’s 53 regions nationwide, called on the president and the entire national executive committee (NEC) to resign. Business Day reported that the document indicates the party leadership papered over the cracks to deal with a deepening crisis in the party, rather than exploring ways to heed its membership’s calls. It also shows a party in which the voice and actions of its leadership are at war with public sentiment. The regions suggested that President Jacob Zuma should be disciplined and raised questions as to why the Constitutional Court judgement on Nkandla and allegations of state capture were not referred to the party’s integrity committee.
These pressures followed on the heels of a Cosatu (Congress of South African Trade Unions) central executive committee meeting in August, during which it emerged that internal discussions had led to a convergence of opinion within Cosatu that Zuma had lost the confidence of workers and should step down as president of the country after the ANC national conference in 2017, or earlier. Now it has emerged that the National Education, Health and Allied Workers Union (Nehawu), once President Zuma’s strongest labour movement ally, has dumped him. As Nehawu represents a large section of the public service, the call by its national executive committee for the president to resign cannot be taken lightly. According to sources in Cosatu, three other vociferous affiliates – the South African Democratic Teachers Union, the National Union of Mineworkers and the police union Popcru – are set to follow suit. Nehawu said the situation in the country had become untenable. It wants Deputy President Cyril Ramaphosa to take over immediately and succeed Zuma as president at the ANC’s next conference in 2017.
As this newsletter goes to print, certain contents of the Public Protector’s state capture report have just been made public. It is reported that former public protector Thuli Madonsela observes that Zuma may have violated the Executive Ethics Code, infringed the provisions of the Prevention of Corrupt Activities Act and failed to comply with section 195 of the Constitution – and there may be a possible conflict of interest due to the relationship between his son and his friends, the Gupta family. The document also provides a glimpse into the manner in which state-owned entities favoured the Gupta family – Eskom in particular.
Her remedial action – which will take forward the investigation – is a judicial commission of enquiry to be established within 30 days to be headed by a judge selected by Chief Justice Mogoeng Mogoeng. The panel should be properly funded by the Treasury and the judge shall have powers to collect evidence no less than the public protector’s. It has 180 days to do its work.
Sipho Pityana, who is also the convenor of Save SA, summed it up nicely as he reiterated his call for Zuma to resign: “South Africans are tired of a leader who is handled by people who have no respect for the Constitution”.