author peter attard montalto4

President Zuma, as expected, survived a recall attempt in the ANC NEC at the end of November. He is somewhat weakened but this should not be overplayed – he clearly retains a significant degree of raw political power in our view. Our Senior Emerging Market Economist, Peter Attard Montalto, looks at the why South Africa will be back in focus in 2017.

We continue to believe that he will survive until a managed exit in H1 2018. The key events in the next two months now are a potential reshuffle (excluding PGxit), resignations from the cabinet (unlikely we think), ANC rebels in parliament backing a no-confidence vote (this may take place but we doubt it would succeed) and then an ANC NEC Lekgotla meeting in January where there could be another attempt to unseat him (but again we would expect this to fail). We expect the status quo to continue and be damaging for the economy. Markets, however, do not care – they have become tired of the volatility and trying to trade this narrative. This is not good thing for the market acting as a constraining factor against more extreme domestic events.
Like groundhog day, we saw a ‘surprise’ motion at the ANC NEC to recall President Zuma from office as President of the Republic (though not to remove him as head of the ANC) which felt somewhat familiar and predictable. What transpired at the NEC was an extended meeting into Monday to allow for everyone who wanted to speak out for and against Jacob Zuma within this highest decision-making body in the ANC (between elective conferences). In the end there was no vote and a consensus appears to have emerged that there was insufficient support for the motion and so it failed.
The NEC decided instead to allow a one-day ‘consultative conference’ in July next year in order to facilitate discussion of the ANC’s future. We see it as impossible, given its proposed form, for Zumxit to happen at that event and instead it kicks the issue into the long grass.
The outcome was confirmed in an ANC press conference which stated that the issue of removing Jacob Zuma was now closed and that the ANC was moving on and united. This belies serious rifts clearly opening behind the scenes and in cabinet.
Overall, it would appear the status quo is as sticky as we have long forecast. We present our more detailed view in our usual ANC bubble diagram in Figure 1. Put simply, the pro-Zuma faction has roughly 60% support in our view (comprising mainly the patronage, rent extraction, cadre deployment and tenderpreneur factions). The anti- Zuma faction has roughly 40% support and encompasses the left and centre-left who are more ideological and less involved (or not involved) with patronage.

SA pic 1 

A key question now is what the anti-Zuma faction does next after losing this key battle and how Jacob Zuma will react to this confrontation of his position.  We see several possible scenarios from here, which we lay out in Figure 2. These are not mutually exclusive at all.

SA pic 2 

The problem for the market is that the story has become too complex.  What will happen if market volatility reduces?  Read the full report here and check our global Themes and Trades page.  2017 will be defined by the process of finding an outcome to this political ‘war’. It will be noisy and uncertain. For now markets can only focus on one negative thing at once and Turkey is the target. We think as growth remains low in SA and ratings at risk into mid 2017 so South Africa will be back in focus.

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