South Africa will in all likelihood be downgraded immediately should President Jacob Zuma fire Finance Minister Pravin Gordhan in the near future, Nomura emerging markets economist Peter Attard Montalto said in a company note yesterday.
Numerous reports have surfaced in the past weeks of an imminent Cabinet reshuffle, which could see ministers such as Gordhan, Trade Industry’s Rob Davies, Tourism Minister Derek Hanekom and Health Minister Aaron Motsoaledi removed from their Cabinet posts.
Loyalists of President Jacob Zuma (the Zuma camp) want access to the National Treasury and especially tighter controls over the Public Investment Corporation (PIC).
“National Treasury and the PIC are important in funding nuclear plans, driving transformation in the banking sector and other schemes,” said Attard Montalto.
“However, against this there are factors preventing a reshuffle – Zuma’s natural caution about timing and finding the moment to make sure moves, the disruption to South African asset prices and pressure on the coalition of support he has around him, which added up to around 60% of support at the (ANC’s) November National Executive Committee (NEC) meeting, and the complexity of managing a complicated number of shifts in portfolios.”
Attard Montalto believes the ANC succession battle ahead of its leadership conference in December 2017 is the dominant issue among the ANC, government and the president to the detriment of policy.
The Dlamini-Zuma factor
“We think Nkosazana Dlamini-Zuma could enter a Cabinet to a portfolio similar to what she held previously, such as health (removing the more capable Aaron Motsoaledi, who we view as anti-Zuma) or home affairs (shifting Malusi Gigaba somewhere else as a versatile Zuma loyalist).”
He believes Dlamini-Zuma could also take over a broader economic transformation role in Cabinet, possibly through the Department of Trade and Industry (DTI) replacing Rob Davies, who is a South African Communist Party member and seen as increasingly anti-Zuma and perhaps a roadblock to more radical transformation policies.
“The Economic Development Department could then be collapsed back into the DTI, removing another SACP minister, Ebrahim Patel.”
The purpose of a Cabinet reshuffle, Attard Montalto believes, is to turn the Cabinet into a more cohesive and loyalist unit to ensure the Zuma camp’s victory and continuity of the status quo after the December elective conference, while also ensuring the Zuma camp’s interests are met.
“We had originally expected a reshuffle would occur after the African Union Summit this past weekend and before the February 9 State of the Nation Address, allowing the president to present his platform and cohesive team at that time.
“However, there is now a key complication: Brian Molefe.”
Attard Montalto believes despite the hit to his standing from serious and detailed allegations in the public protector’s state capture report of last year, it seems likely he will shortly become a member of Parliament.
“Given the PR list system in place, basically anyone can become an MP at any time if there is a vacancy, which there are.
We would suspect he would then be appointed to either a role at the DTI or National Treasury. However, this process takes maybe a month or so from here, which would take us to after the State of the Nation address.”
Jonas in the firing line
Having said that, Attard Montalto is of the view that it is more likely Deputy Finance Minister Mcebisi Jonas could be removed over the short term.
“Zuma can achieve most of what he needs to without the fallout risks of a Pravin Gordhan exit. The PIC, of whom Jonas is the chairperson, can be more tightly managed day to day with Jonas gone.” However, if Gordhan is fired there would be an initial sharp sell-off in asset prices. If not, markets could rally on a mistaken view that it is a signal of Zuma’s weakness, Attard Montalto said.
“Ultimately calling the timing of a reshuffle is pointless, though we look in two segments – the risks of a move before the February 9 State of the Nation address, and if nothing by then, a shift to a move after the budget on February 22.
“Overall, we think markets need to see the political risk dynamic on a reshuffle as a live issue, but one that will take some time to play out. As ever, it is important to consider that President Zuma is not weak, as many seem to think.
He is weaker than he was pre-Nenegate (when former finance minister Nhlanhla Nene was removed), but the option and availability of a scorched earth strategy are still there.”