Economic Thoughts: Zuma “changes” his mind

A rather unexpected course of events late Sunday night (13 December 2015), as Zuma “reconsiders” his decision to fire finance minister Nene, and reappoints Pravin Gordhan (who should never have been replaced last year in the first place with a presumably more pliable Nene) as finance minister.


The background to these unprecedented Zuma moves (firing Nene, reappointing Gordhan) remain murky. Zuma’s corrupt infrastructure dealings and intentions had been an open book for years, with especially deputy-president Ramaphosa getting a front row look-in. With Ramaphosa working closely with Nene on the SAA deal, and Nene’s relationship with Zuma reportedly for months breaking down, one can sense the opportunities.


Reportedly, Nene resisted the political and irresponsible impositioning on him, for months preparing for his axing. Was this a trap set for Zuma, it becoming obvious what he wanted yet denying him the necessary pliability? If so, his reckless firing of Nene showed a total lack of political acumen, possibly correctly foreseen by those who were opposing him. Thereafter the firestorm, and the climbdown, after which a badly damaged Zuma is allowed to proceed towards the exit? Ever so civilly.


Clearly, there can be many angles to this, but don’t disregard the obvious.


The implications go far & wide, for markets & economy, but also for the Zuma political succession. The implied loss of face is enormous for Zuma. At the same time, the ANC has regained a sense of relevance as common sense is shown not to have been completely lost.


The immediate implications are presumably a reinstatement of fiscal discipline, as much in the wider budget, as well as regarding unaffordable, potentially corrupt infrastructure decisions. The threat of higher tax burdens recedes, even as Gordhan will have to manage the budget carefully, aiming to prevent junk status and its implied higher borrowing costs.


More fundamentally are the power relationships inside the ANC and the Zuma succession that presumably has been deeply affected by these developments.


What processes were involved leading up to this rethink & climb down? Was there rebellion in the ranks? What understandings have been reached?


Though markets will take time to fully absorbing what has happened here, after much damage was done last week, there likely will be an enormous positive “relief” reaction from today for SA equity, bond & currency markets.


It is “difficult” to decide where these markets will settle today and in coming weeks after the bloodbath of last week, and where things will travel next year. Clearly, the underlying realities prior to Nene’s firing haven’t gone away and will need to be addressed adroitly. But the collapse in progress since Wednesday is what is now in focus, and it should be reversed, given time.


We will have the summer break to think through the full reach of things, and how this will translate in time. Clearly there has to be political follow-through from this surprise decision for the upside to come more fully into view.