/ 22 October 2009

Cabinet structure changes worry investors

Changes to the way South African President Jacob Zuma’s Cabinet operates and the resignation of a senior policymaker have stirred investor fears that unions are shifting economic policy to the left.

Zuma this week announced new Cabinet clusters, tasked with planning and decision-making, that left out former finance minister Trevor Manuel, who was widely respected by markets and now heads a new planning commission.

The resignation of Joel Netshitenzhe, an architect of policy since the end of apartheid, added to concerns that Zuma may be bowing to labour and communists, who are allied with the ruling African National Congress (ANC) and helped bring him to power.

”I am concerned that a slow victory of the left is taking shape in so far as interest groups are placing themselves in positions of power,” said an analyst with a financial services firm, who declined to be named.

Manuel, who steered South Africa’s economy through its longest period of recorded growth, is loathed by powerful trade unions who saw him as a champion of business-friendly economic policies under former president Thabo Mbeki.

A government paper on the planning commission is under discussion in Parliament and Cabinet and if the paper is watered down, Manuel could resign, said Mike Davies, Middle East and Africa analyst at Eurasia Group.

”This will clearly unsettle market confidence as Manuel continues to be seen as a key balancing figure in Zuma’s administration. However, it is unlikely that Manuel will back away from a fight easily.”

Zuma, in office since May, has been under pressure from labour federation Congress of South African Trade Unions (Cosatu) and the South African Communist Party (SACP) to move economic policy to the left to help the country’s millions of poor.

They want more government spending on welfare and job creation, lower taxes for the poor and for the central bank to be brought under state control.

Meanwhile, the Economic Development Ministry on Thursday denied reports that it planned to ”freeze” the rand currency, which had added to fears of a policy shift, weakening the rand.

”We have absolutely no idea about this [report]. We are suprised as anybody else,” said the ministry’s spokesperson Zubeida Jaffer.

The rand touched a three-week low of 7,5250 against the dollar, about 1,3% weaker for the session.

Netshitenzhe’s resignation after 15 years in government raised concerns of possible tensions within the alliance of the ANC, Cosatu and the SACP. He had also been close to Mbeki.

ANC officials said Netshitenzhe resigned because his policy department was to be re-organised and he was concerned the ANC was overly influencing and dictating government programmes.

”He was a Thabo Mbeki loyalist who wanted to work with Zuma but it’s becoming too difficult,” one senior ANC official told Reuters, adding that he had also criticised the ruling party for micro-managing policy.

The Inkatha Freedom Party said his resignation raised serious questions.

”Is this proof that the SACP and Cosatu are now firmly in charge of the ANC?,” it said in a statement.

The unions and communists, as well as politicians on the left of the ANC, have gained strength since succeeding in getting the ruling party to force Mbeki from the presidency in 2008.

The official said Zuma’s decision to appoint labour-backed Economic Development Minister Ebrahim Patel to the economic cluster over Manuel was the final straw for Netshitenzhe.

In recent weeks, labour unions have insisted that Patel devise a plan to steer South Africa out of its first recession in 17 years, rejecting Manuel’s planning commission.

But Eurasia’s Davies said Manuel’s exclusion should not be seen as a sign that his influence is waning, adding that he did not think labour and the communists have gained the upper hand.

”I don’t think it is the case that the left has gained control. Zuma is looking like he constantly does [try] to appease all interested parties in these types of issues,” Davies said. — Reuters