Downgrade or Zuma
In reaction to last week’s cabinet reshuffle the S&P ratings agency last night downgraded SA’s investment status to junk.
Moody’s was already scheduled before the cabinet reshuffle to announce their grading on 7 April; unless something dramatic happens between now and Friday, they will probably downgrade SA on Friday as well. If two of the three major international agencies have downgraded a country, one is officially junk status.
The choice before the country, and particularly the ANC, is now quite stark: change the political leaders or be downgraded. That is the moment where the country is at.
Why does it matter?
A brief detour is in order here, we then return to the political dynamics.
Ratings are important because SA runs a current account deficit and needs foreign money to balance its books. It is a simple matter of cash flow. In 2015 that amount came to R174 billion – or approximately R477 million a day! It is a lot of money for foreigners to pour into your economy and you then better make sure that you keep them on your side – like staying on friendly terms with your bank manager. The bank managers in this case are the investment houses and most are obliged by either law or their mandates to only invest in countries with investment grade ratings from at least two of the major ratings agencies.
If a country is then downgraded by two of the three major ratings agencies it automatically triggers disinvestment by these major funds; that pushes up the cost of borrowing money; and in extreme cases may even cut off access to cash flow or foreign funding. Such cut-off last happened to SA in 1985, more or less at the time of PW Bothas’s Rubicon speech. Politics have driven us to junk status before.
In 1985 it took the body politic quite a while to react to the change in cash flow. How long will it take the body politic now?
ANC reaction
Deputy-president Ramaphosa, secretary-general Gwede Mantashe, treasurer Zweli Mkhize from KZN and ANC chief whip in Parliament Jackson Mthembu all went public to condemn the reshuffle in different ways. Two of them, Mantashe and Mhkize, referred to the fact that the list of cabinet appointments was drawn up somewhere else, in contrast to past practice (my emphasis). Alliance partner SACP demanded that President Zuma must resign. Such open dissent is unprecedented in the history of the ANC.
Of course the usual suspects came out in support of the reshuffle: Women’s League, Youth League, KZN cabinet and the premier of Mpumalanga (one of the Premier League provinces).
We know the ANC is evenly divided between Zuma supporters and opponents. Will the fall-out from the reshuffle force tilt the balance of forces; and over what time period? Time is of the essence.
Where will the fight be?
Inside the ANC the fight between the opposing forces will play out at the National Working Committee of which a special meeting has been called for Tuesday afternoon. The National Executive Committee (NEC, with 80 members) is the ANC’s highest decision making body between conferences and they will have to approve what the smaller National Working Committee decides.
Outside the ruling party, the battle can be waged in Parliament. The DA and the EFF have asked speaker Baleka Mbete to recall members from a recess to debate a motion of no confidence in the president. We will know later this week if that is going to happen. Even if they get their debate, what are their chances of winning?
It’s up to ANC members
A simple majority in the National Assembly is needed for a motion of no confidence in the president to succeed, upon which he and entire cabinet must resign (sec 102(2)). A new president must then be elected and a new cabinet appointed.
The National Assembly has 400 members, so 201 will carry the motion. The ANC has 249 parliamentarians. Fifty would have to switch sides (assuming the opposition is united behind it). It would not be sufficient for them to abstain. They would actually have to vote for the motion. More than 100 ANC members would have to abstain for abstentions alone to tilt the balance of power.
How will ANC members react when faced with a no-confidence vote in Parliament? Last time round they solidly backed Zuma, what will they do this time round? Can the major opposition parties muster the 50 to 70 votes required? (Not all of the smaller parties will vote against Zuma, so a bit more than 50 votes are needed). We simply do not know, yet.
So What?
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It is a very uncertain time and we simply do not know how events will unfold.
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The ratings agencies decisions will not cut much ice with the traditionalist in the ANC, but it will spur the modernists into some action. Deputy-president Ramaphosa said as much over the weekend. Precisely what that action will be will become clear over the next few days.
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We will either go back to where we were in 1985 or the country will tilt decisively in a new direction – it is a pivotal moment.