Cape Town – As the National Executive Committee (NEC) of the African National Congress starts its meeting on Friday, the market underestimates the support for the Jacob Zuma camp and its ability to “fight dirty” in a way the rest of the ANC can’t. That’s the warning from Nomura’s emerging markets economist Peter Montalto on Thursday.
Montalto writes this in-depth analysis:
The ANC NEC meeting that starts on Friday will see a tense stand-off between different camps. The market underestimates the support for the Zuma camp, however, and its ability to “fight dirty” in a way the rest of the ANC cannot. Zumxit (recall) may well happen later in the year after local elections as we highlighted in December but, while possible, it seems less likely now. We expect a broadly stalemate whitewash outcome from this NEC as our baseline.
Things move fast in politics once the cupboard of secrets is opened. Confirmation on Wednesday from Deputy Finance Minister Mcebisi Jonas, who alleged that he was indeed offered previous finance minister Nhlanhla Nene’s job by the Zuma-affiliated Gupta family in November last year (before Nene was sacked on December 9), was hardly news after the event was discussed extensively and appeared in a recent FT article – but it was important. It is a sign that the Tenderpreneur faction is losing its previous air of mystique where such activities were seen as normal in the past or could not be challenged.
It also appears to be part of a larger coordinated campaign by the AZT camp (anti-Zuma and anti-Tenderpreneurs, which we dub “team Pravin Gordhan” – it’s hard to think of names for these camps). This includes a former MP making similar claims about the Guptas offering her the post of minister of public enterprises in the past, as well as an emergency interdict application from the Helen Suzman foundation against the chief of South Africa’s Directorate for Priority Crime Investigation, known as the Hawks. This is accompanied by a range of cases being presented in court against the Guptas and others by opposition parties.
More and more voices have come out since, backing Jonas and voicing the need to remove the “rot” from the ANC and the government. However, many of these voices are not current National Executive Committee members. Others like ANC secretary general Gwede Mantashe are important, but it is unclear how much support they actually have on the NEC.
Equally, markets should not underestimate that this is a fight with two sides and is existential for both camps. The Tenderpreneur camp has already pushed back with threats of legal action against Jonas and others. The ANC Youth League has also said it will call for Jonas to be recalled by the ANC at this weekend’s NEC meeting, and there is still the action the Hawks can take that we commented on earlier this week. On top of that, Business Day reported that Jonas had received death threats before his revelations yesterday.
This leaves us looking at a major political event this weekend with the ANC NEC meeting. This is a scheduled meeting though, not one of the formal twice-yearly “Lekgotlas”, the last of which happened in January. Nevertheless, it is a meeting of the most powerful body within the ANC and the key route to the removal of Jacob Zuma (Zumxit, as we call it).
The meeting will run from Friday until Sunday. Some kind of summary is normally presented on the Saturday, with a formal statement only released on the Monday. However, at these extraordinary times the timetable is likely very fluid.
It is important to note that what happens this weekend is highly unpredictable, like the NEC meeting in September 2008 when former president Thabo Mbeki was unexpectedly recalled. Our baseline as we present below is that Zumxit may well occur later this year after the local elections (which still have no set date), but that the Tenderpreneur faction is currently in the majority on the NEC and will likely back Zuma with a whitewash outcome from the meeting.
Let’s look at some background first: how Zumxit might happen and our view of the current political situation in the ANC. We will then look at some of the possible scenarios and outcomes from the NEC.
There are two ways to remove a sitting (ANC) president:
Recall: This is where the NEC decides, as the deploying body of ANC cadres, to tell an office bearer that it basically has lost confidence and wants them to resign. This is what happened with President Mbeki in September 2008. Under the constitution he resigned the post, and with him his cabinet – but essentially he was basically sacked by the “ruling” party’s NEC. It is not clear whether there are any set rules within the ANC on how this works. Our understanding is that a motion must be put to the NEC by a senior leader (most likely a top-six member) or an “elder” to be voted on and approved by simple majority. In this case an AZT group member on the top-six (most likely Mantashe seconded by others – see below) would put the motion.
Constitutional: Only the parliament can remove the President. There are technically two separate routes under the constitution for this to happen. The courts have no mechanism for removing the president, but judgements of the president acting unconstitutionally (which is an issue in the current Nkandla case) can be important catalysts. In reality, the difference here is academic given a smaller majority route:
– Section 89: a two-thirds majority vote of the parliament is required where there is “a serious violation of the Constitution or the law; serious misconduct; or inability to perform functions of the office”.
– Section 102: a vote of no confidence by simple majority forces the resignation of the president.
Our understanding is that the ANC’s preferred option is to resolve the issue “in house” and to do recall with private votes behind closed doors rather than have the ANC and opposition parties voting together in parliament. The constitutional routes have been tried frequently by opposition parties in recent years with (obviously) no success. Technically, this could be successful if a large segment of the ANC lost confidence in the party’s ability to deal with the situation itself, but that seems highly unlikely given the depth of institutional ties and loyalty – it would mean the party splitting into two publicly. The ANC never likes such messy outcomes.
The ANC’s internal political dynamic
The ANC is a many-layered organisation and each one has some importance.
Figure 1 (below) is our bubble chart. It shows our traditional view of the ANC as a whole, which is basically a split between two ideological factions (the left and the conservative centre left – CCL) on the bottom, and a non-ideological segment on the top which is where the rent extraction Tenderpreneurs sit but also the so called cadre-deployees who rely on the ANC for jobs.
The current battle is a broad split of the ANC between ideological and non-ideological, between the patronage networks of the Tenderpreneurs, which go way beyond the alleged involvement of the Gupta family. Figure 1 shows how that split happens – note that the bubbles do not represent the size of each faction.
In Figure 2 (below right) we look specifically at the National Executive Committee.
This is made up of the so-called top-six office bearers on the one hand, then the National Working Committee (NWC), which is a sub-group that meets more regularly of the whole 100 member NEC. Nkosazana Dlamini-Zuma and Pravin Gordhan are ordinary members of the NEC outside these inner structures. The ANC Youth League and the ANC Women’s League are directly represented on the NEC in an ex-officio capacity, but both are also backers of Zuma, and we believe they have some sway over the broader membership of the NEC.
Overall, we think the broad balance of power in the top-six is split between the camps, with key member Zweli Mkhize on the fence between them. The NEC is equally split between the camps, but may have more members moving towards the AZT camp. The key ultimately, though, is the broader membership of the NEC, and we see the majority of ordinary members there as reliant on Zuma and alleged patronage for their positons. Also in the wider NEC are key supporters of this faction, such as the so-called “Premier League” province premiers who back both the Guptas and Zuma. They are from the Free State, North West and Mpumalanga. The influence of provinces is also felt over the NEC, and this is partly why we still think there is a majority on the NEC supporting the Tenderpreneur camp.
Figure 1: The bubble chart of the ANC with battle lines drawn; Figure 2: National Executive Committee breakdown
Source: Nomura (Note: circles are not to scale. If Nomura has put someone in the wrong place they are more than free to get in contact to correct.)
Broadly, we think Zumxit was discussed before December by the AKT faction given dissatisfaction with leadership and tenderpreneurship issues (as well as things like the Nkandla issue). At this time, we believe the discussions did not break into the open in the NEC.
After Nene-gate we think that calls for Zumxit started growing not only on the AZT side, but also on the Tenderpreneur side who were starting to consider life after Zuma and how to maximise their access to power. In addition, the Nkandla constitutional court case – in which some Zuma supporters suffered a loss of face – reinforced this discussion, we think.
However, more recently the battle lines that have been drawn are causing the president’s supporters to close of ranks to some degree.
Broadly, going into this weekend we think that Zumxit is of interest for both sides. However, the Tenderpreneur camp has no succession plan in place at this time to ensure their ultimate victory in the elective conference next year. Nor would they countenance Cyril Ramaphosa taking over as president now even in the interim.
The AZT camp appears to be gaining support, and that will continue through this year, especially after the local elections if and when a date is set. As such, we still think that time would be more likely for Zumxit. Now seems too early in terms of support levels.
More broadly, the party may, from both sides, decide it is better to deal with these issues after the local elections battle this year where the ANC is already under pressure.
These dynamics lead us to think Zumxit is unlikely at the moment. Though, as we say above, things can move very quickly.
We should also note within the wide battle that alleged captured state institutions and ministries like the SA Revenue Services, Department of Mineral Resources, IEC, Hawks, policy, state and ANC securities structures etc sit under the Tenderpreneur faction and work and support them.
Scenarios for this NEC weekend
With all the uncertainties we have listed above, let’s look at some possible outcomes from this weekend’s NEC meeting. We would expect some read out on Saturday through we doubt that much will be available this time until the Sunday. We rank the scenarios here by Zuma support level.
Figure 3: NEC outcome scenarios
These scenarios are equally applicable to this NEC as to coming ones right up to the elective conference in December next year.
The ANC ultimately likes task-teams and reviews and that seems a possible outcome now. A whitewash outcome would see the ANC move against the Guptas but still show support for Zuma. Such a strategy would come from valuing the ANC as an institution too much to make a move on its president.
Moving fast to action requires too much consensus in such an organisation among too many people. While maybe only requiring a majority of votes in the NEC, recall might really need a two-thirds majority or a clear majority to work. As such, a step-by-step process seems more likely, with the foundations being laid now for a push after the local elections. Agreements now that are not announced are, of course, possible but in such an electric environment there would surely be incentives for either side to leak.
We think any form of early national parliamentary elections being called for mandates to be gained is highly unlikely given the ANC’s uphill battle to maintain support.
After Zumxit – a brief comment
But what happens if Zumxit does occur, ie, between now and 2019?
First, it’s important to note that the internal ideological contradictions within the ANC that are the current blockage to reform – between the left and conservative centre left (CCL) – would continue or even intensify as each sought primacy. As such, we would still remain bearish on the potential for structural reform. This would especially be the case under a risk-averse caretaker who might not want to be seen to favour any particular side of the ANC.
Yet the 2008 recall and the brief tenure of President Motlanthe shows what is possible – he changed Aids policy overnight and swept out the cobwebs of policy-making. However, at the time he had no pretensions to power over the long run and so was broadly free to act in the best interests of the country. Any caretaker could become lost in ANC internal issues and would be in the situation of a succession plan not being clear.
While we doubt that Cyril Ramaphosa would take over after Zumxit, as we have stated above, it could be fascinating to watch. He has kept his head below the parapet much to the frustration of the private sector and those wanting to see reform in South Africa – since he came into office in 2009. Would he now be able to get to work or would he still be too wary of upsetting anyone before the elective conference at the end of next year? Indeed, would he have to sell out to the left (as on the national minimum wage) to ultimately win that contest? Incumbency has some power, though. We would expect more efficiency but not necessarily significant structural reform (on labour issues especially) under such an outcome.
However, the market – all South African assets – would have a major rally on Zumxit. It would be the inverse of Nene-gate in December. It would likely stave off downgrades for now at least as agencies gave South Africa the benefit of the doubt. The market would likely become overoptimistic at the prospect of real change occurring. However, this tail risk (countering the large tail risk on the other side) has opened up now and hence markets rally (on top of a more constructive external environment with the FOMC among other things) into this weekend’s NEC.
The elective conference – a brief comment
Our original baseline was that Nkosazana Dlamini-Zuma, as the candidate of the Tenderpreneur faction, would likely win the ANC elective conference in December next year – though we always highlighted that the campaign was ongoing and could change.
Everything is surely to play for now. Some things to bear in mind:
1. Patronage networks still exist around the Tenderpreneur camp even if Zuma himself is weakened. And we should not underestimate the ability of the Zuma camp to “fight dirty” in a way the other side does not want to.
2. The unions and SACP are weaker while ANCWL and ANCYL remain strong forces across the country.
3. Ultimately the process is won through delegates who are at the elective conference; they in turn are chosen from provincial lists down to branches selecting people for those lists. As such, there are many key points where significant power rests in deciding who is there on the day voting for which faction – such power can be used for one side or the other. This is how Jacob Zuma won the last two elective conferences.
Overall, we think Dlamini-Zuma can still win by being positioned as a “cleaner status-quo” candidate with international experience, a “not-Zuma status quo” for the electorate with little changing underneath. The challenge for Cyril Ramaphosa is to break through this without compromising the future potential for structural reform.