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Vol 56 No 25

Published 18th December 2015

South Africa

Jacob Zuma's costly week

The President kicked a hornets' nest when he sacked his Finance Minister. The ensuing crisis hit his authority and the economy

The impromptu alliance of African National Congress leaders and business interests which forced President Jacob Zuma to rethink his unilateral decision to sack Finance Minister Nhlanhla Nene and replace him with a little-known back bencher has opened a new political chapter. Last week's man-made crisis, which has proved hugely expensive for both working class and corporate South Africa, has greatly weakened Zuma and strengthened his growing band of critics within and outside the governing ANC. It was Zuma's greatest blunder since he assumed the presidency in 2009.

After the ANC and business barons met on 13 December in a meeting coordinated by Deputy President Cyril Ramaphosa and ANC Secretary General Gwede Mantashe, it took their envoys, Zwele Mkhize and Presidency Minister Jeff Radebe, less than an hour to persuade Zuma to back off and again appoint Pravin Gordhan as Finance Minister.

The ANC stands up
Zuma has lost much of his power to determine the outcome of the presidential succession race between his ex-wife, Nkosazana Dlamini-Zuma, and Ramaphosa. In the short term, he has made himself much more politically vulnerable if ANC-loyalists want to try to recall him. For the first time, the ANC leadership, which he was accustomed to bypassing, took a stand and imposed itself.

It has since become clear that Zuma was aiming for direct control of the Treasury and state finances when he sacked the respected Nene. He was holding the line on reckless government spending on an unaffordable US$100 billion nuclear power station programme and a threatened re-arrangement of a $624 million leasing deal with Airbus Industrie (see Feature & AC Vol 56 No 24, Box, South Africa's creditworthiness in danger). We hear that a powerful business family, the Guptas, who are close to Zuma and have major interests in uranium mining, has been pushing hard for the nuclear deal and may have influenced Nene's dismissal (AC Vol 52 No 5, The Gupta factor).

Nene was insisting on the full observance of lawful procurement procedures in the nuclear programme and on major if not indefinite delays. The proposed recasting of the Airbus deal to introduce a third party to it would have been at the insistence of Dudu Myeni, whom amid much criticism, Zuma appointed head of South African Airways (AC Vol 56 No 16, Public sectarians).

Very pointedly Gordhan said, shortly after his re-appointment, 'It's time that individuals stop playing with SOE's [state owned enterprises] as if it's a personal toy when you want to extract money when you feel like it. These are public institutions.'

Nene's sacking shocked the country to the core and seemed to be triggered by a combination of paranoia, pique and a belief that South Africa no longer needs to heed the warnings of Western investors as it has billions of dollars worth of cheap loans on tap from China and will benefit from the new development bank created for Brazil, Russia, India, China and South Africa – the BRICS countries. It also accords with Zuma's personal pan-African vision of a united continent where political freedom is matched by economic freedom and all traces of colonial power have vanished.

A slide to disaster – and collapse of the currency – was averted by the appointment of the respected former Finance Minister Gordhan late on 13 December. Among other things, he has confirmed that the procurement procedures on which Nene was insisting will be followed in the nuclear programme and also that the Airbus leasing deal will go forward as originally designed. The Treasury issued a formal statement on 16 December seeking to reassure the country on public spending. 'Any extra expenditure would only be accommodated if extra revenue is raised,' it said.

The sacking galvanised the country. Protests poured in from civil society and church leaders, and Treasury civil servants threatened to resign if it were not reversed. Leading academics called on Zuma to stand down. Two respected ANC veterans and lifelong stalwarts, Ben Turok and Barbara Hogan, the partner of one of the late President Nelson Mandela's closest associates on Robben Island, Ahmed Kathrada, called on Zuma to resign.

The eventual reversal of the dismissal and the appointment of Gordhan followed a statement by Presidency Minister Radebe. 'The ANC have heard the people of South Africa,' he said. Zuma's de facto admission of defeat read, 'we emphasise the importance of listening to the people and to respond to their views… I have received many representations to reconsider my decision.'

These concessions followed a meeting on 13 December of Radebe and Mkhize with an extremely high-powered business delegation that included the Barclays Africa Group Chief Executive Officer, Maria Ramos; Goldman Sachs' South Africa head Colin Coleman; Investec Bank's global Chief Executive Officer, Stephen Koseff; Imperial Holdings' CEO, Mark Lamberti; Sanlam CEO Ian Kirk; Business Leadership South Africa Chairman Bobby Godsell; Toyota Europe CEO Johan van Zyl and FirstRand CEO Johan Petrus Burger.

They presented a four-page document itemising how, if Nene's sacking stood, the rand would continue its plunge, foreign investors would flee, the cost of borrowing by the state and state corporations such as Eskom and Transnet would become exorbitant and inflation would soon hit the poorest people hard. This was the decisive meeting, insiders say, and Gordhan's appointment was announced about two-and-a-half hours after it ended.

The business community had also been pressuring the ANC leaders who came to Zuma. Before the business people made their démarche on the Sunday, ANC leaders had met at the home of former President Kgalema Motlanthe, who lost to Zuma in the 2012 ANC presidential election.

Motlanthe is one of three former leaders of the National Union of Mineworkers who now play a key role in the succession to Zuma by a new ANC leader who must be elected at the party's five-yearly conference in 2017, before general elections in 2019. Another key figure is Deputy President Ramaphosa, also a former NUM leader. He is married to Tshepo Motsepe, a former Deloitte risk analyst and sister of the billionaire Patrice Motsepe, who is one of the ANC's main financial backers and sponsored the last conference of the Congress of South African Trade Unions. Ramaphosa was on the brink of resigning after Nene was sacked, Africa Confidential understands.

The Motsepes' other sister, Bridgette Radebe, is married to Jeff Radebe, whose job at the presidency was earlier believed to be under threat. Zuma had become suspicious of Bridgette because she had been flirting politically with the opposition Economic Freedom Fighters' campaign to stop foreign companies from engaging in transfer pricing, a form of tax evasion. The Mmakau Mining Company which she chairs is estimated to be worth around $100 mn.

New dynasties
The Motsepes, along with the Ramaphosas and the Radebes, via marriage, are the closest equivalents to the diamonds-and-gold Oppenheimer dynasty (the late Harry and Nicky Oppenheimer and son Jonathan Oppenheimer) which opposed apartheid while having to cooperate with the National Party government on business compliance.

The Motsepe dynasty, while instrumental in supporting the ANC and at the centre of power, is quite apart from the coterie of rich business associates who keep Zuma afloat financially and enjoy his patronage in return. This group includes Robert Gumede, Vivian Reddy, Sandile 'Gwabs' Zungu, the

Independent News and Media baron Iqbal Survé, and the Gupta brothers (Ajay, Atul and Rajesh) who have massive influence with Zuma and benefit from extensive patronage in return.

Other key figures whose influence would have been felt in the lobbying prior to the reversal were former SA Reserve Bank Governor Tito Mboweni, Godsell, former Eskom boss Reuel Khoza, Eskom Chairman Brian Molefe, and banker Martin Kingston, CEO of Rothschild in South Africa.

To many, the most worrying aspect of the whole affair was the rambling speech that Zuma delivered at a gala evening of the African Business Leadership Programme on the night that he fired Nene and which, astonishingly, was carried live on national television. Zuma abandoned his prepared speech after formally addressing the host, Patrice Motsepe, and assembled guests, who included business leaders from at least ten African countries, and he extemporised vaguely for nearly an hour.

Zuma spoke about the suffering of Africans, first under slavery and then under colonialism and apartheid, and repeatedly returned to the theme of the impotence of political power if it were not accompanied by economic power. He kept coming back to how the British and French colonialists in particular had developed ways of creating Africans in their own image. These Africans, who have not found their true identity as Africans, are unconsciously manipulated to serve the interests of the colonialists rather than the interests of Africa, he explained. What became apparent was a distinction in his mind between true Africans who identified with the continent and those who were obstructing the realisation of the economic kingdom. It was clear to many that he saw Nene as one of those in the latter group. Such Africans had gone astray and were preventing the access to state funds that was needed to create a new class of African industrialists. He seemed almost to be asserting his entitlement to personal control of state funds.

Although national elections are due only in May 2019, the ANC is expected to suffer greatly in next year's municipal polls, at least if the opposition parties can capitalise on its woes. That much is a given in political debate in South Africa but Zuma has set up obstacles to through his extensive re-engineering of the ANC and of key institutions, particularly in intelligence and the police. He has also introduced a raft of legislation designed to empower tribal chiefs and – through a combination of legislative coercion and patronage – to keep them and some 18 million people beholden to their power.

While the 2014 general elections showed that the ANC was losing support in key cities such as Johannesburg, Pretoria and Nelson Mandela Bay in the Eastern Cape, the party's support in the rural areas is still solid and Zuma and his allies have been working hard to make sure that remains so. Within government and the governing party, however, the centre of gravity has shifted away from the President. There are strong rumours that a cabinet reshuffle is likely after the ANC birthday celebrations in Rustenburg on 8 January. Ministers most associated with the Communist Party and whom Zuma no longer trusts may be on the chopping block: Rob Davies (Trade and Industry), Tina Joemat Patterson (Energy) and Blade Nzimande ( Higher Education). 


Chronology of a crisis

25 May 2014: President Jacob Zuma makes shock transfer of respected Minister of Finance Pravin Gordhan to a lesser portfolio, Cooperative Governance and Traditional Affairs. He appoints his deputy Nhlanhla Nene as the first black Finance Minister.

27 August 2015: Nene says he will not sign on off on a controversial US$100 billion deal to build nuclear power stations, struck between Zuma and Russian President Vladimir Putin, if it is unaffordable.

23 October 2015: Zuma surprises by capitulating to a student demand to scrap a 6% increase in tuition fees after protests around the country culminating in a march in Pretoria.

2 November: Former Acting President Kgalema Motlanthe says the Tripartite Alliance of the governing African National Congress (ANC), Congress of South African Trade Unions (Cosatu) and the SA Communist Party is dead and criticises the Zuma leadership for not sticking to the constitution.

5 November: Zuma launches attack on Motlanthe for his 'cowardly' criticism.

8 November: In a boost to the Zuma succession plan, pro-Zuma candidate for the ANC provincial chair of KwaZulu-Natal, Sihle Zikalala, narrowly beats the incumbent Edward Senzo Mchunu. Zuma says that he (Zuma) puts the ANC's interests before those of South Africa.

24 November: Cosatu gives tacit backing to Deputy President Cyril Ramaphosa as presidential candidate. Zuma's backers have made it clear they want his ex-wife, Nkosazana Dlamini-Zuma, the African Union Commission Chairperson, to succeed him.

27 November: Standard & Poor's and Fitch downgrade South Africa's investment status respectively from BBB to BBB- and from BBB stable to negative, taking the country to the brink of 'junk status'.

7 December: It is revealed that Finance Minister Nene has written to the South African Airways Chairperson, Dudu Myeni, instructing her not to interfere with a deal with European manufacturer Airbus Industrie over the lease of new aircraft to save the national carrier from financial ruin. Zuma is reported to have had a love child with Dudu Myeni, which he later denies.

9 December: Zuma sacks Nene, replacing him with a little-known member of the parliamentary Finance Committee, David van Rooyen. The move is met with shock and disbelief in all sectors at home and abroad. Zuma cancels an appearance at the African Business Leadership Forum in Johannesburg to attend a crucial cabinet meeting where he reportedly pushes through an agreement to support the Russian nuclear deal. He appears late at the ABLF black-tie gala and makes a rambling 55-minute speech on Pan-Africanism which SA television broadcasts live.

10 December: Hundreds of billions of rand are wiped off the value of banking and financial shares and the battered currency, the rand, goes into freefall losing around 5% of its value. In one year, it has lost nearly half its value against the dollar and sterling.

11 December: The currency rout continues with the rand touching R16 to the US$ and R24 to the British pound. There is a massive backlash in all sectors and widespread calls for Zuma to go.

12 December: Civil society and church leaders write open letters appealing for urgent meetings with the President. Academic leaders call for him to go. Social media is abuzz with #Zumamustfall.

13 December: Captains of industry hold urgent meetings with ANC leaders who later meet with Zuma and urge him to reverse the Finance Minister's appointment to save the country from economic meltdown. Zuma reconsiders and announces the reappointment of Gordhan.

14 December: The ANC's National Working Committee meets and endorses Gordhan's appointment and commends Zuma for his act of leadership. 

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