Jump to navigation

Vol 61 No 1

Published 9th January 2020

South Africa

Finally, Cyril picks up the pace

The stage is set for the clash between state prosecutors and Ramaphosa’s ANC enemies. The first trials will open soon

Sympathisers with President Cyril Ramaphosa's project to clean up governance are frustrated with his agonisingly slow strategy. He needs to speed up the suffocation of his opponents within the African National Congress and government, they say, and accelerate prosecutions and judicial inquiries in the coming year.

Copyright © Africa Confidential 2020

Rather than fight head-on his enemies in the ruling party, which is controlled by allies of former President Jacob Zuma led by ANC Secretary-General Ace Magashule, the President wants criminal justice to do the job for him. He has come under market, business and public criticism for not bringing corrupt ANC leaders more quickly to court, despite the wave of information about wrongdoing coming out of commissions of inquiry, task teams and the media.  

The case of Zuma and Magashule ally Bongani Bongo, the first high-profile Zuma  ally in the ANC to be charged with corruption after his arrest in December, will see both sides test their strength (AC Vol 60 No 24, KZN plots).  

Magashule has prevented the ANC from supporting, as a party, the arrest of Bongo. A cabinet minister under Zuma, Bongo was sacked by Ramaphosa. But Zuma allies smuggled him back into influence as the chair of parliament's portfolio committee on home affairs, where he could help frustrate Ramaphosa's political agenda.  

A key question is whether or not ANC 'untouchables' such as Magashule can be prosecuted this year. Zuma camp sources believe Ramaphosa wants Magashule's prosecution to start before the ANC General Council, which is likely to take place between July and September (AC Vol 60 No 21, 'Dump Cyril' move in KZN). For their part, Ramaphosa's enemies intend to use the tactics Zuma employed when he launched the rebellion against ex-President Thabo Mbeki at the General Council of 2005. Mbeki was ousted at the national elective conference in Polokwane in 2007 (AC Vol 48 No 25, 'Unstoppable tsunami').  

The Ramaphosa camp wants to head off rebellion by tying up the figureheads of the Zuma/Magashule axis in legal proceedings. The dockets of the investigation into the controversial Vrede Dairy Project in the central Free State province are now complete and will be presented in court early this year, according to sources in the National Prosecuting Authority (NPA).  

The Gupta family and associates including Magashule are alleged to have diverted public money intended for poor black farmers via a company called Estina. The Free State's agriculture department allegedly paid over 220 million rand (US$17m) into the Gupta-linked Estina's Nedbank account, a Bloemfontein court was told.  

However, the official that Zuma appointed as South Africa's Public Protector, Busisiwe Mkhwebane, controversially cleared Magashule in her 2018 report on the investigation of the Vrede scheme, blaming lower-level officials for corruption. In May last year, the Pretoria High court ruled the report was 'unconstitutional' and 'invalid' following an appeal by the opposition Democratic Alliance. 

Also, the NPA, which in 2018 was still under the control of Zuma/Magashule allies, provisionally withdrew the case against several Gupta family members and associates.  

Then, last year, at the Commission of Inquiry into State Capture, chaired by Deputy Chief Justice Raymond Zondo, testimony revealed major corruption in the project which had been approved by provincial ANC and government officials.  

A successful prosecution of the accused in the Vrede case could lead to the fall of Public Protector Mkhwebane, but her office is independent of the executive and she can only be impeached by parliament, whose ANC parliamentary caucus is dominated by Zuma/Magashule allies.  

Ramaphosa is aiming to prosecute the Gupta family, Zuma's chief allies and the main beneficiaries of 'state capture' before they left South Africa, by the end of 2020, we hear from presidential sources. If the government can secure their extradition it will be a huge political coup for Ramaphosa. It would greatly strengthen his authority in the ANC and the country, proving he means business and is no 'softie'.  

Late last year the United States Treasury's Office of Foreign Assets Control sanctioned the Gupta brothers and their business partner Salim Essa, forbidding them to do business in the US, and with US businesses, over corruption in South Africa. This caused a scramble among Zuma allies who were in business with the Guptas. They have been hiring lawyers to make sure they are not covered by the OFAC executive order.  

Justice Minister Ronald Lamola and Public Service and Administration Minister Senzo Mchunu are overseeing the effort to extradite the Guptas from the United Arab Emirates. Lamola, Mchunu, NPA head Shamila Batohi, Hermione Cronje, the head of the NPA's investigative unit, and Andy Mothibi, the head of the Special Investigating Unit, all travelled to the UAE just before Christmas to negotiate the extradition, according to our sources. Their case has been made stronger by the OFAC action, we hear, and formal extradition papers have been prepared.  

It remains, however, for the UAE to agree. South Africa and the UAE have had an extradition treaty since November 2018. South Africa has asked the US government for help to bring the Guptas and associates to book and also requested the assistance of India, China and Hong Kong.

Loss of appeal
The judicial net is tightening around Zuma, who is trying every legal avenue to have his cases thrown out. In November, the Pietermaritzburg High Court dismissed his application for leave to appeal to have his corruption charges in relation to South Africa's multibillion arms procurement transactions of the late 1990s set aside. Zuma, who appeared with his co-accused, the French arms manufacturing company Thales, had his action dismissed with costs.  

Zuma still has the option to petition the Supreme Court of Appeal and if he loses there he can go to the Constitutional Court. But President Ramaphosa withdrew state cover for his legal fees in 2018 and this leaves him with a dilemma.  

Zuma has denied having the cash to continue legal action but many believe he has plenty of money abroad. If he transferred any money to his lawyers from abroad it would probably be investigated as possible proceeds of crime and may be frozen. Similarly, anyone donating money to him for legal fees would also probably have their sources of income investigated.  

Ramaphosa, we hear, will also insist that ANC members may not demonstrate outside court hearings to support Zuma in their official capacities – only as individuals. Outside Zuma's High Court appearance in November, there were noticeably fewer supporters – a clear sign that they recognise his patronage powers are limited now he is out of power. Zuma lacks the cash to sponsor large rallies while those of his allies who could afford it are afraid that putting up the money could lead to their funds being investigated.

It is very likely that South Africa will be downgraded to 'junk' status in 2020 by the credit ratings agencies. This will be a blow to Ramaphosa and weaken his plans to revive the economy but it could also be used as ammunition against him by his enemies inside the ANC. Moody's, the only agency to maintain a positive, if low, rating, has put the economy on probation but at the end of that period there is scant chance of reprieve, putting South Africa out of consideration for foreign institutional investors.

The ANC government has been struggling to reduce the budget deficit, cut public spending and bring down public debt, but the left and populist opposition within the party, government and its allies oppose the reforms.

The Treasury has forecast economic growth of 1.2% for 2020. Even that looks optimistic. The Treasury in its 2019 Medium-Term Budget Policy Statement (MTBPS) has blamed policy, political and economic uncertainty, the slow implementation of structural reforms, an increasingly depressed business environment and a worsening global economy for weighing on investor confidence. It also blamed the management of state-owned enterprises.

South Africa's unemployment rose to 29.1% in the third quarter of 2019, the highest rate in decades, which will probably rise further in 2020. The Treasury said: 'This level of growth is far too low to support meaningful increases in employment and welfare. In this environment, there is little chance of the country's 9.4 million unemployed adults finding a job.'

Business confidence is at its lowest level since 1985 and is weighing on the rand also. The South African Revenue Services (SARS) in late December 2019 said that, based on 2017 data, 48.3% of companies had taxable income equal to zero and 27.4% reported an assessed loss.

SARS said the decline could largely be attributed to depressed economic growth, structural challenges in the economy, low confidence levels, and political uncertainty. SARS said that companies submitting returns fell to 36.9% – or just over two million for the 2018/19 fiscal year – partly due to many being considered 'inactive or dormant'. According to Statistics South Africa manufacturing fell 8.8%, mining 10.8% and agriculture 13.2% in the first part of 2019. Although figures for the second half of the year are not out yet, they are likely to be worse. Government was one of the only sectors that saw growth (+1.2%) mainly due to an increase in employment, which is in line with the ANC's unwillingness to reduce public spending.

'Failure to implement structural reforms and improve the composition and quality of spending meant that potential gains from persistent fiscal support were not realised … SA is experiencing its longest business cycle downturn since 1945. Business and consumer confidence remain near historical lows,' the Treasury said in its 2019 MTBPS.

President Ramaphosa's ability to introduce the much-needed structural reforms is hindered by the opposition of key elements of the ANC's traditional support base, especially the Tripartite Alliance of the ANC, the Congress of South African Trade Unions (Cosatu) and the South African Communist Party (SACP).

The left in general and the labour movement also oppose Finance Minister Tito Mboweni's economic strategy document of late 2018, in which he proposed loosening onerous visa regulations, releasing digital spectrum and opening up the energy mix to include renewable energy. There is no sign of these forces accepting Ramaphosa's policies and they are likely to mobilise against them vigorously, with a further increase in social protest, including the possibility of violence against foreigners – whom many of the poorest blame for their economic hardships. This in turn could undermine investor confidence further, and reduce efforts to lift growth, creating a vicious downward spiral.  

The restructuring of Eskom, the state energy utility, will be Ramaphosa's major test (AC Vol 60 No 20, Ramaphosa writes off coal & Vol 60 No 24, Grasping the Eskom nettle). The ANC left, populists and Black Economic Empowerment (BEE) capitalists who have invested in coal that is supplied to power stations oppose the Eskom reform fearing the loss of jobs, state contracts and patronage. The National Union of Mineworkers, the union that Ramaphosa used to lead, has many members at Eskom and redundancies would weaken the NUM and its mother body, Cosatu. The Cosatu breakaway National Union of Metalworkers of SA (Numsa), which formed a new rival to Cosatu, the South African Federation of Trade Unions (SAFTU), is equally opposed to change at Eskom.  

The Treasury has said Eskom is one of the main drags on growth. It has a R450bn ($32bn) debt and in spite of proposed power tariff increases of 17% for 2020 will still probably post a loss of $1.4bn in FY 2019/2020. Eskom has received R128bn in support from government over a three-year period. 

In a presentation to Eskom executives last August not yet released to the public, Eskom chairman Jabu Mabuza said Eskom was in a death spiral. He said Eskom came close to collapse several times in 2019, and if Eskom collapses, South Africa collapses. Mabuza said a turnaround strategy will consist of debt relief and debt restructuring, electricity tariff increases, better collection of arrears, cost-cutting, restructuring the business, and improved plant performance and security of supply.  

President Ramaphosa announced the key reform of Eskom – its split into separate entities for generation, transmission and distribution – last February but opposition from the left and from within the corporation has prevented progress.  

Such changes as have occurred, such as the Energy and Mineral Resources Minister Gwede Mantashe's surprise announcement that the government will now open a fourth bid window for renewable energy projects through Independent Power Producers, only came about because of unprecedentedly long power-cuts in the run-up to Christmas.



Malema: Bang to rights

In early December, the National Prosecuting Authority said it would take On-Point Engineering, a company linked to Economic Freedom Fighters leader Julius Malema, to court over fraud allegations linked to a tender scandal years ago, when Malema was an ally of Zuma and under his protection. In November, the NPA charged Malema for allegedly discharging a firearm during the EFF's fifth anniversary celebrations in July 2018. Both these actions are likely to come to court soon, and the EFF will do everything in its power to stop them succeeding.  

The EFF is also vulnerable to investigations of the VBS Mutual Bank, a small Limpopo bank catering for the rural poor (AC Vol 60 No 22). The NPA will bring charges in relation to VBS bank against Malema and key EFF figures this year, prosecution sources say. Malema has promised he will use the actions against him as a 'political programme' to enhance his 'political career'. The prosecutions 'basically mobilise people for me and the EFF because every time we appear, we get an opportunity to talk to our people and mobilise them. When they throw lemons at you, make lemonade,' said Malema at a press conference in December. The state's evidence, however, is thought to be strong.

Related Articles

KZN plots

Opponents of President Cyril Ramaphosa in the African National Congress's biggest province intend to start a fightback at the National General Council in 2020 with a vote of no con...

'Dump Cyril' move in KZN

Supporters of President Cyril Ramaphosa are increasingly worried about moves against him by opponents in key African National Congress branches including Limpopo, KwaZulu-Natal and...

'Unstoppable tsunami'

Jacob Zuma is set to sweep the ANC presidency in a wave of protest against incumbent Thabo Mbeki

Jacob Zuma's campaign for the presidency of the African National Congress is called the 'unstoppable tsunami'. A poll of party branches gives him the support of 61% of delegates to...

Ramaphosa writes off coal

The President hopes that his bold plan to replace coal with renewables will rescue the ailing power utility and reboot the economy

Three key developments this month will shape South Africa's economic standing – Finance Minister Tito Mboweni's budget statement, Moody's credit rating report and the appoint...

Grasping the Eskom nettle

A new CEO has come to the electricity utility, but the government is still picking its battles carefully and change remains gradual

Finance Minister Tito Mboweni described national power utility Eskom as 'South Africa's biggest economic risk' next to low growth. The gigantic utility is an albatross around the A...