The biggest news of the week for our South African clients was undoubtedly the fact that the country’s former President, Jacob Zuma, handed himself over to police to begin his 15-month incarceration for contempt of court just before midnight on Wednesday, 7 July. Zuma, who was found guilty of contempt of court for refusing to testify before the Zondo Commission on State Capture, had previously indicated that he would appeal the ruling.
This is a pivotal moment in South Africa’s history and shows that no-one, even a former President, is above the law. It entrenches the country’s Constitution as the ultimate law of the land.
In his Daily Maverick column, Stephen Grootes writes that, while Zuma still does have some support, the vast majority of South Africans are appalled by the corruption and incompetence that crippled the country while he was President. “Zuma is the symbol of everything that was wrong, and the testimony of multiple witnesses at the Zondo Commission has revealed the role that he played.” In fact, it has been estimated that more than R57 billion was lost to state capture.
Although we have yet to see what impact Zuma’s incarceration will have on investment flows into South Africa, and general business and consumer confidence, Business Maverick points out that “the non-spectacle of a bloodless transition of power tells investors and anyone else who might help lift the economy to higher ground, of a more fundamental shift in South African politics. It tells of the deepening of the rule of law, of an era of a more transparent, predictable policy path.”
Our local news section below summarises this week’s developments, including how Carl Niehaus was dealt with by the ANC as compared to Ace Magashule; where the balance of power within the ANC apparently lies; and that everything within the party is now focused on the ANC electoral conference in 2022.
“None of us should have expected the road to cleansing our country of the corruption of the Zuma years to be easy.”
– Justice Malala, columnist, and political analyst
- In related global news this week, Haitian President Jovenel Moïse, 53, whose term was tainted with accusations of corruption, was assassinated by a group of unidentified assailants, and the first lady was wounded. The Wall Street Journal reports that Haiti continues to find itself between a rock and a hard place and that more than 60% of the country lives below the poverty line.
- Dr Chris Jones, head of the Unit for Moral Leadership at Stellenbosch University, wrote that African Anti-Corruption Day is celebrated annually on 11 July, and this year it comes as perceptions and lived experiences of corruption on the continent are sky-high. In his column, he points out that foreign role players also contribute to the increase in corruption on the continent. According to estimates, Africa loses at least $50 billion a year through illicit financial flows.
- In economic news, 850,000 jobs were added to the US economy during June, which suggest that the economy is continuing to recover at a steady pace. However, the job figures released last week also showed a rather odd trend: people are beginning to quit their jobs in extraordinary numbers. The trend of people leaving their jobs, the highest recorded since 2000 when data started being collected, is mostly due to burn out. For June, the rate of unemployment was 5.9%, while 9.5 million people remain unemployed.
- In related news, the Organization for Economic Cooperation and Development has found that as many as 22 million jobs have been lost in advanced economies due to the Covid-19 pandemic. Its annual employment outlook said job retention schemes rolled out during the height of the coronavirus crisis saved some 21 million jobs.
- The Wall Street Journal reported that Americans are borrowing again, in some cases at levels not seen in more than a decade. Consumer demand for auto loans and leases, general-purpose credit cards and personal loans was up 39% in April compared with the same period last year, according to credit-reporting firm Equifax. Demand was also up 11% compared with April 2019. This increase in demand, should it be sustained, will fuel inflation and place pressure on the Federal Reserve Bank to raise rates sooner than previously indicated by them.
- A new report from the Tax Foundation has found that US President Joe Biden’s proposed tax increases would put US tax at much higher rates than many of its economic competitors. Biden has proposed several tax increases to fund his several trillion dollars in new spending, most of which has not yet passed through Congress. Those include taxing long-term capital gains as normal income for those making more than $1 million, plus an increase in the top marginal tax rate from 37% to 39.6%.
- Meanwhile, European bank shares have regained their pandemic losses, helped by vaccine developments, an improved economic outlook and the easing of a dividend ban.
- Opec+ abandoned its meeting without a deal this week, tipping the cartel into crisis and leaving the oil market facing tight supplies and rising prices. Several days of tense talks failed to resolve a bitter dispute between Saudi Arabia and the United Arab Emirates, and the group didn’t agree on a date for its next meeting. This resulted in brent crude jumping to its highest level since 2018 and could result in pressure on oil prices going forward.
- In other news, China is not slowing down its historic tech crackdown, having issued a sweeping warning to its biggest companies, vowing to tighten oversight of data security and overseas listings just days after Didi Global decided to go public in the US. Didi controls almost the entire ride-hailing market. Among the ways in which China will crack down on big tech is that rules for overseas listings will be revised, while publicly traded firms will be held accountable for keeping their data secure. China also said it will step up its regulatory oversight of companies trading in offshore markets.
- This news was followed by China’s antitrust regulator fining several internet companies — including Didi, Alibaba and Tencent — over accusations that they violated the country’s Anti-Monopoly Law while making mergers or acquisitions over the past decade.
- Zuma handing himself over for arrest showed that the rule of law prevailed with the judiciary, especially the Constitutional Court, which performed its custodianship role in an exemplary manner.
- It ends a long period of obstructionism where impunity prevailed. The delivery of consequences for non-compliance reinforces the principle of equality before the law.
- However, going into custody was not a voluntary act. Zuma realised the game was up and wanted to avoid the spectacle of arrest covered live by the media. The police vehicle convoy signaled the intent to arrest him and to deal with crowds should there have been resistance.
- It must be born in mind that Zuma’s compliance with the law is also an attempt to claim persecution and victimhood while being a good citizen. He is trying to appear the hero in a crisis of his own making.
- As a result, we now expect the mobilisation of the fused radical economic transformation (RET) and Zuma factions within the ANC to intensify as Zuma’s self-proclaimed victimhood leads to intensified public relations campaigns based on conspiracies and misinformation.
- This is the march to December 2022, when the ANC will elect its leadership and ANC President Cyril Ramaphosa will face a coordinated and well-resourced challenge. It all comes down to branch membership and mobilisation. The local government election due in October will provide some indication of Zuma’s support, especially in parts of KwaZulu-Natal.
- We also need to consider that the suspension and pending disciplinary action against Zuma’s “campaign manager,” Carl Niehaus, indicates a loss of patience with reckless and inflammatory behavior by the ANC leadership and National Executive Committee (NEC). This suggests the balance of power within the ANC remaining slightly in Ramaphosa’s favour. But that could be a short-term support while plotting a longer-term game to replace him in 2022.
- It is worth noting that no similar suspension letter was sent to former ANC Secretary General Ace Magashule for incendiary statements at Nkandla. This indicates an attempt to prevent muddying the existing steps and related legal processes underway against him. Such would complicate existing processes and open possible loopholes for delaying or undermining these actions.
- All of the above dynamics relate largely to ANC internal politics and the power dynamics surrounding them. The assertion of the rule of law now also sends a clear message to those already charged with corruption, suspects investigated by the Special Investigating Unit and others named in the Zondo Commission, that if found guilty in courts of law, unpleasant consequences are now guaranteed.
- Although the rule of law has prevailed, it has also raised the stakes for the corrupt who can be expected to fight to retain their riches and freedom.
- Interestingly, the rand shrugged off this week’s Zuma related news and was trading largely unchanged at R14.25 late Friday afternoon. Although the rand’s strength since its trough in April 2020 can be partially attributed to the massive increase in South Africa’s trade surplus, in our view the surge has been mostly due to global factors such as stimulus programmes in developed economies and successful vaccine rollouts. It remains noteworthy that the rand has weakened by 39.5% during the past decade. Taking inflation into account, the exchange rate against the dollar has weakened to the point where spending power has declined in absolute terms over the past ten years. We have recently shared a technical article clarifying our expectations for the currency over the medium term and offered insight into our current investment outlook, which you can read here.
- South Africa recorded its thirteenth consecutive trade surplus in May with commodity sales again lifting exports, keeping hope alive that the global upswing of prices of metals like platinum, gold, copper, and iron ore will support the country’s climb out of a fiscal and economic sinkhole. Year-to-date, the trade surplus was at a record R202.6 billion, with exports increasing by 53.7%.
Sources: Dynasty, The Guardian, BusinessLIVE, Daily Maverick, Bloomberg, Financial Mail, Analytics Consulting, TechCentral, The Centre Square, CNBC, Professor Ivor Sarakinsky, etc.