Cape Town – South Africa is now much further along the path towards a Cabinet reshuffle, although there’s still the chance that the move will meet strong resistance and not happen, Nomura emerging markets economist Peter Attard Montalto said in a company note on Wednesday night.
Montalto is of the view that Brian Molefe, reportedly favoured by President Jacob Zuma, would be the most likely candidate to replace Finance Minister Pravin Gordhan.
“However, we don’t believe any candidate will be market-positive. President Zuma is taking a very large, though calculated, risk here that his majority within the National Executive (NEC) does not fracture and that a rebel ANC caucus in parliament does not manage to remove him.
“As such, this will be a real test of his stock of political capital and the lack of action of his opponents (until now at least),” Montalto said.
He believes Zuma is taking this risk to try to ensure that former African Union chairperson Nkosazana Dlamini-Zuma is elected at the ANC’s leadership conference in December this year.
“That is the ultimate goal.”
Should Gordhan be fired, Montalto expects a severely negative currency and an “economic shock”, which could include an immediate credit ratings downgrade, given the fact that there is no credible replacement for Gordhan on the table.
Pandora’s box nudged again
“Pandora’s box is being nudged a second time,” Montalto said. “First, there was the surprise recall of a finance minister on a foreign roadshow and now there is silence and speculation.”
Nomura has with the help of news agencies tried to construct what exactly is happening:
- Zuma has been attempting a major reshuffle since the start of 2015, but has never found the right timing or coherence of narrative to pull one off. Nenegate on December 9 2015 (the surprise removal of former finance minister Nhlanhla Nene) was a specific response to specific events at the December Cabinet meeting on nuclear power and South African Airways in particular, which led to a badly considered and ill-prepared reshuffle. A reversal was ultimately prompted by elements within Zuma’s own faction.
- Since Nenegate, Montalto believes detailed work has been done behind the scenes to prepare the ANC internally for a reshuffle, including an increasing narrative against ratings agencies and markets.
- There were two failed reshuffles in 2016 which were forestalled by leaks, particularly from the South African Communist Party (SACP) and in which it appeared that Zuma did not have full confidence in the backing of his faction to make the move. “In neither case do we believe that the National Working Committee or the top 6 of the ANC was briefed.”
- The NEC meeting at the end of October 2016 was used by Zuma to expose the fault lines within the NEC, revealing a split of 60% for Zuma and 40% against him. “We think this was a key new catalyst for a wider reshuffle to remove Cabinet members who came out against Zuma,” Montalto said.
- At the most recent NEC meeting on March 25, Zuma tested the waters with his own faction regarding a reshuffle and received adequate backing. "Additionally, however, we believe he has come under pressure from some elements of his own faction to undertake a reshuffle now and stop waiting."
- Zuma was probably testing the market on Monday with the recall of Gordhan from London and the cancellation of the scheduled trip to New York and Boston later in the week. Feedback from investors indicates the roadshow was organised relatively recently.
- After the post-NEC press conference on Monday, there were meetings between Zuma and first the top 6 and subsequently the SACP at which a wider reshuffle and particularly the removal of Gordhan was discussed. A meeting with unions followed on Tuesday. There is no requirement for the president to receive sign-off from these bodies for a reshuffle, but it is convention that they are consulted. “We do not believe either body gave authorisation (and indeed strong objections were raised including by three or four members of the top 6), but they accepted presidential prerogative in this area and in particular that there has been a complete breakdown of the relationship between the finance minister and the president. Some objections appear to have been raised to Brian Molefe as the next finance minister if other underperforming ministers were not removed.”
- The funeral of Ahmed Kathrada on Wednesday appears to have delayed matters. The markets may struggle with Zuma still being slow to act, even as the clock is now ticking. “If Zuma is playing a longer game and for example chooses to meet with the top 6 again on Monday April 3, then this could be more drawn out,” Montalto said.
Overall, Zuma appears to have found himself in a corner on the matter of a Cabinet reshuffle and Montalto believes he could “lose face” among members of his own faction if nothing is done. “As such, we think a reversal could be more difficult than last year, or at the time of Nenegate.”Read Fin24's top stories trending on Twitter: Fin24’s top stories