/ 4 February 2016

Zuma’s end is in sight. So what now?

Zuma’s End Is In Sight. So What Now?

“This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”

In general, one prefers to avoid Winston Churchill quotes, but this one seems especially apt in the current circumstances and in response to the question: Is President Jacob Zuma’s time up?

The answer is: not quite yet. There will be a final struggle to hold on to power for as long as necessary, but the balance of forces in the ANC has shifted significantly against him. Attention is increasingly turning to the interesting question of who or what will follow – to which there are many credible answers.

It has reached that unfortunate moment when the people around the principal have almost as much, and in some cases more, interest or need for the principal to remain in power than the principal himself.

This finds expression in the over-arching theme for the start of the political year: Who really runs government? Is it the president (and his cronies) or the treasury?

This is probably settled already. For entirely perverse reasons, South Africa ended 2015 with a politically powerful minister of finance, strong enough to stand up to Zuma and to populist colleagues who would like to throw money at the problem.

What Zuma’s extraordinary miscalculation in firing Nhlanhla Nene as finance minister in December has done is to enable pretty much everyone who matters in the wider ANC family to see the need for responsible stewardship of the finance ministry and, in tandem with that, its relationship to market sentiment and South Africa’s global reputation.

Hence, Finance Minister Pravin Gordhan can do what needs to be done in terms of presenting what everyone accepts will be a tough budget.

In discussions with a seasoned group of fund managers and emerging market analysts in London, I was struck by an angst and sense of desperation that was specific to South Africa and yet also global. Their interest in the state of the South African nation was provoked by the miserable condition of most alternative destinations for their clients’ money. Capital is in frantic search of succulent berths but the global seas, in developed and emerging economies, are too choppy.

They came in hope rather than expectation, eager to discover whether there was something they had missed that would justify a more positive assessment of South Africa’s near-term future prospects.

They know that the country’s economy is sluggish, and that there is little or no evidence that the government is able to make progress to overcome the structural constraints that hamper progress. They also know that the leadership is lacking. They had long ago discounted Zuma, though his decision to fire two finance ministers in one week shocked them and undermined what little confidence remained in his administration.

They are frustrated, too, especially the expatriates who hanker for home; they contend there is low-hanging fruit, though they admit that October’s ANC national general council revealed little fresh thinking about injecting life into a moribund economy. The ANC, like the government, appears to have run out of ideas.

So, what does this mean for the start of the political year and, indeed, what will follow in 2016? Usually, one would look to the State of the Nation address (on the evening of February 11) for indications of what lies ahead. That is its core purpose but, from a public policy perspective, it is largely irrelevant. Politically, it is interesting as the end of the beginning.

In that respect, it will be intriguing to see whether Zuma can respond to the fact that he is now politically weakened, rendered vulnerable by his extraordinary misjudgment in December, which revealed that he has lost his political bearings, unable to understand the limits of his power.

He won’t. His political instincts are apparently dulled; and there is no adviser strong enough and independently minded, and sufficiently disinterested, to guide him past his major fallibilities and blind spots.

The budget speech on February??24 is far more important – a further indication of where real power may now lie in the government.

Back to my group of fund managers and analysts for a moment: ordinarily they would be most interested in the question of whether the treasury will hold the fiscal line, concerned that any perceived weakness will signal a descent towards a populist, overspending hell, and worried that the rating agencies will then downgrade South Africa once more.

But the consensus seemed to be that this battle is lost; that the rating agencies will downgrade the country’s standing regardless of what happens in the budget. In which case, why not go for a “growth” budget, one in which some risks are taken to inject life into the economy?

Treasury officials are hoping that, when Statistics South Africa releases the adjusted public finance figures for 2014, they will show an upward adjustment for the national accounts, which would provide a little bit of space for the sort of catalytic investments that would enable the government to do its bit to try to get the economy moving.

Where and what might they be? The government should be looking at facilitating a new investment drive at city level, using urbanisation and its potential for a different growth dynamic. This would chime with the political imperative that comes from the municipal elections in mid-year, which will meaningfully challenge the ANC’s hold on power for the first time and might compel it to enter into surprising coalitions to stay in power in places such as Pretoria, Johannesburg and Port Elizabeth.

Against the backdrop of a fractious country that is clearly far from at ease with itself, on-going protests by students and other parts of society, and a tough economic outlook, it will be Gordhan, not Zuma, who has to make the right big choices – choices that will set the tone and trajectory for the year ahead.

Treasury insiders are worried about South Africa talking itself into a recession when there is some evidence of a bit of a bounce from industry in the last quarter of 2016.

Gordhan will have to present a convincing narrative in which he says: we’re getting on with the job that needs to be done; we are finding a way out of the mess that we got ourselves into; it is not that bad now; and we are going to avoid falling into the very messy trap that some other emerging market economies have got themselves into. But we all have to work harder and smarter; we are not going to solve the problems by throwing money at it.

It is going to be a rough, tumultuous year – 2015 was just the warm-up act. So, fasten your seat belts and prepare for a very bumpy ride.

Preventing the country from being knocked off the rails for years to come will require strong leadership across society – in politics and government, in civil society and academia, and in business.

What we know is that the required leadership cannot come from the president. South Africa will have to look elsewhere. Unusual new coalitions need to be formed – and not just in politics – lest what remains of the social consensus of the 1990s is crushed by the weight of economic decline, painful fiscal and budgetary choices, and unresolved racial tension.