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South Africa: Zuma’s cacophonous cabinet – what to watch

October 2, 2017
By Anne Frühauf

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On 13 September, President Jacob Zuma will face tough questions in parliament about governance and economic plans to avert a credit rating downgrade.

Although the ANC’s reform faction has stepped up its reassuring rhetoric, it is no longer able to paper over the cracks in cabinet and alarming noise from Zuma-aligned ministers. In this increasingly chaotic status quo Zuma is weakened but entrenched, and Finance Minister Pravin Gordhan’s tenure may hinge on his readiness to compromise on key battles. Below we outline which stories to watch in the battle between Zuma and key institutions.

Zuma: down but dangerous

Opposition against Zuma is intensifying from within the ANC, as well as from labor and business. However, the president’s remaining backers, including the ANC war veterans, also seem to be taking more entrenched positions. Although increasingly isolated, for now the president remains protected from calls for his early exist from office by the majority of the ANC’s National Executive Council (NEC). Similarly, demands for an early elective party conference – due in December 2017 – seem unlikely to materialize for now, as six provincial leadership structures have already opposed the initiative. This suggests that the emerging pro- and anti-Zuma factions will wage a protracted and dirty battle for control.

All this factionalism – also reflected in cabinet – points to a chaotic status quo in South Africa going forward. Although Zuma will focus on improving the economy in his parliamentary Q&A, there is little he can say to restore confidence in his dysfunctional cabinet. While the president has long been portrayed as a mastermind behind many erratic official decisions, some of the most recent ministerial statements suggest a degree of freelancing and a power vacuum that will make it ever harder for the government to provide consistent rhetoric and calm the markets. As long as the Zuma faction remains entrenched, it implies a continued threat to governance and South Africa’s credit ratings.

Gordhan: his tenure and his battles

However, a bad basecase scenario would be rendered infinitely worse were Gordhan to be axed in Zuma’s next cabinet reshuffle.

Although the Treasury already faces an uphill battle to steer South Africa away from junk status, Gordhan’s tenure – and the Treasury’s independence – still remains uncertain. The Treasury continues to fight battles with the Zuma faction on multiple fronts, in an increasingly public manner. Dragging issues – such as demands for Eskom to supply information regarding coal contracts – into the public enables the Treasury to increase pressure on public entities that refuse to play ball. However, it also compounds the perception of crisis permeating government. Key battles to watch are the forthcoming mid-term budget and long-running battles with state-owned enterprises (SOEs).

After a flurry of public accusations, the Treasury might now be moving towards a slightly more collaborative stance, as indicated by the recent compromise around the SAA board appointments and the approval of critical guarantees. Such compromises are not an optimal outcome for governance, but they could render Zuma a little less likely to reshuffle Gordhan. If Gordhan stays on, it would also signal that some members of the ANC’s top six are still able to exert a moderating influence over Zuma, which has become increasingly uncertain as the president’s circle goes for broke.

However, if Gordhan is replaced, there will be no good outcomes, only bad and worse ones. The most widely rumored replacement is Eskom CEO Brian Molefe. The former Treasury director appears to have embraced issues close to Zuma’s heart – such as supporting nuclear procurement and denying special contracts for the Gupta family at Eskom. Even if capable, he would therefore be considered politically compromised.

The other candidates currently mooted would only worsen the market fallout and downgrade risk: bringing back Minister of Cooperative Governance and Traditional Affairs Des van Rooyen would be an insane move, given the market reaction to his brief appointment during ‘Nenegate’. Similarly, MP Sfiso Buthelezi or ex-Tshwane mayor Kgosientso Ramokgopa would be considered just another van Rooyen-style appointment. The only positive surprise could come from an outside appointment of someone both capable and fiercely independent, such as former SARB governor Tito Mboweni. But surely such a move would defeat the whole purpose of the Zuma faction’s removal of Gordhan, and is therefore unlikely.

Taking aim at the SARB?

Recent statements by top ANC officials have also created the impression that the Zuma administration is taking aim at the country’s last bastion of stability – the South African Reserve Bank (SARB). In a recent TV interview, ANC Deputy Secretary-General Jessie Duarte not only attacked Gordhan for not having presented himself to the Hawks in an ongoing investigation that is widely believed to be a witch hunt, but also said the SARB should cushion the rand and blamed FX policy on the fact that the central bank has private shareholders. Even more unsettling was Mineral Resources Minister Mosebenzi Zwane’s absurd statement – purportedly a cabinet statement but later repudiated by the presidency as made in his “personal capacity” – calling for a judicial inquiry into banking (after four banks closed Gupta family accounts earlier this year) and the transfer of banking oversight from the SARB to the Treasury. Top ANC members have since rubbished his comments, but the only truly reassuring signal would be if Zuma heeds calls to axe Zwane.

While extremely negative, such noise is mostly empty talk. Such is the level of incompetence that Zuma’s men will not be able to realize their ambitions. However, in an environment of already twitchy markets and a threat of junk status ratings, any statements of this kind eat away at confidence even further.

The views and opinions in these articles are solely of the authors and do not necessarily reflect those of Teneo. They are offered to stimulate thought and discussion and not as legal, financial, accounting, tax or other professional advice or counsel.

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