2016-11-08
Last week provided strong proof of the strength of our institutions. The fraud case against the finance minister was withdrawn, and the court gave the green light for the State Capture report of the public protector to be released.
It was a week in which SA social and public media gave vent to their frustrations by focusing on anyone in authority trying to defend the indefensible. Thus Shaun Abrahams & Brian Molefe had to discover their cover stories were rejected, with scorn or heavy-handed humour, even when there was support for them from the ranks of the main political party.
With the legal victories so overwhelming, there was reason to believe there would be follow-through. But of what kind? Quick success in overthrowing the existing order through resignations and retirement, or wholesale stonewalling and worse?
The Gordhan fraud case was withdrawn but not the rogue unit one. The NPA is now expediting that one and promising it won't make such a mess of it as did happen to the fraud one. What does that mean? That they will try one more time to properly nail Gordhan? Not giving up, are we?
As to the State Capture report, we are having various timelines here, from Zuma having to call for a commission, the Chief Justice having to appoint the presiding judge, and this commission having 180 days. Add it up, and a year can go by. Admittedly full release just before the ANC elective leadership conference in late 2017, with unpredictable consequences?
Markets reacted positively to the week’s local events, but it could have been better if seen as a genuine breakthrough. It didn't help it happened at a time of increased global jitteriness about the US presidential election outcome. That was a heavy head wind.
In the event, the Rand gained 70 cents at best, but gave up half of it by weekend. A 13.60:$ level isn't bad, but it is a minute gain on previous levels and still badly undervalued. Hopeful voices spoke of breaking through 13:$ and then through 12:$ but this didn't really keep our bigger political picture in focus.
Gordhan is still in the dock (for now), legal action will grind through next year unearthing the full range & depth of state capture (and refutation of such talk), and most pertinently Zuma loyalists still pack the NEC. Until death do us part?
One gets the impression western rules have been used to capture the state, and are to be used against anyone not defined as insiders, who in turn are not to be held to account by these rules. The insiders are firmly ensconced, have a radically different view of the kind of society they want, and are not prepared to give up their hopes, ideals, aspirations, expectations, birthright, whatever it is that is driving them to transform things the way they do.
That suggests a continuous disconnect between our modern sector and the transforming patronage network, as many businesses & middle class households on one side and many patronage and general welfare beneficiaries on the other confront each other without any form of empathy on either side.
It does not suggest a vote for change soon. And even when we get to 2019, it remains to be seen what the real outcome is going to be. Zuma counts on the rural voting mass to keep providing majorities through sheer numbers.
On the other hand, Gillian Tett (FT) this week highlighted the phenomenon of what has become identified globally as sullen foot-dragging among previously loyal foot soldiers as these become disenchanted with political leadership, not openly rebelling (in your face) but fugitively opting out, refusing to vote, and causing unexpected political downfalls. According to her this is happening to Clinton democrats in recent weeks.
In SA we could observe this same phenomenon in the August local elections when nearly one million voters switched sides but reportedly up to three million ANC followers melted away, apparently refusing to vote. Will this phenomenon deepen in 2019, or be reversed?
In any case, Zuma still thinks he has a crucial NEC majority which will decide 2017, and 2019 is probably not written off in his mind either (there also remaining the 8-10% EFF card, presumably post-Zuma).
Meanwhile, the country faces one or more years of legal challenges, stonewalling, political slapstick, minimal policy reform, the lingering threat of discontinuity such as the replacement of the finance minister, and major expensive policy decisions still going through after being resisted for so long.
One wonders what makes the rating agencies run this risk gauntlet rather than simply getting it over with. Apparently, markets are in any case pricing in a credit derating as things stand. Its actual announcement, either in December or in the course of 2017, may cause a flutter on the day, but the real damage was long done and mostly discounted already.
These same considerations keep business confidence suppressed, despite moments of exuberance among the political centre at legal victories or political breakthroughs. The entrenched nature of our patronage state is such that it apparently hasn't the least intention of giving up. Like the badger, it is every day showing its true nature by its tenacious defence of what it considers belongs to it, including life & limb.
Early days to talk the Rand through 12:$, talk of a political reformer at the Union buildings and the Zuma era at an end, our credit rating forever investment grade, business confidence defrosting, growth reviving as our stalled business and economic engines finally come back to live.
The world may have revived our commodity prices and terms of trade, well off early 2016 lows but barely ahead of 2015, the drought may be ending (but fully or only tentatively?) and this giving our growth a bit of decimal lift, too.
But as Eskom has discovered, first destroying electricity demand in a faltering political context doesn't guarantee the return of such demand once supply stabilises. Electricity tariffs have risen stupendously, business has defensively diversified away from Eskom exposure, and otherwise has moved on in a stagnating economic and political context. Supply won't necessarily create its own demand after being so thoroughly thrashed for years.
Confidence could have two pillars, functional state delivery and private belief in greater demand, activity and earnings. If neither is forthcoming, confidence may stay at a low ebb, the focus elsewhere, and the growth engine mostly stalled.
The JSE is showing similar regression: no earnings drive from a firm Rand, weak economy, directionless global economy, Fed lifting rates next month & political anxiety generally.
There may be more victorious legal moments next year, giving us more spikes of exuberance, just as we may again be shocked by patronage audacity. It kind of weighs up, and keeps us marooned.
Early days to think great breakthroughs are upon us. Never mind a long term turn for the worse. By all means keep the fate, but it may be a long attrition.
Cees Bruggemans
Bruggemans & Associates, Consulting Economists
Website www.bruggemans.co.za
Email economics@bruggemans.co.za <mailto:economics@bruggemans.co.za>
Twitter @ceesbruggemans
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