Zuma resignation brings hope: Nedbank

Former SA President, Jacob Zuma and ex-Finance Minister, Pravin Gordhan

A defiant President Jacob Zuma finally resigned late last night after more than a month of behind the scenes moves to effect political change. His announcement came after the NEC formally recalled him on Tuesday and just hours before a motion of no confidence was due to be held in the National Assembly.

“The eleventh‐hour resignation came after an embarrassing TV interview in which the president claimed that he did not know why he had been recalled,” Nedbank said today in a statement.

“His resignation speech concentrated on perceived positive elements of his legacy. The recall itself revealed the deep divisions within the ANC, with Secretary General Ace Magashule declaring that Zuma had done nothing wrong and the ANC press statement lauding him for his ‘outstanding contribution’, while acknowledging ‘errors and mistakes that were committed’. Most other comments were less complementary.”

Cyril Ramaphosa was sworn in as president today and will deliver his first State of the Nation Address tomorrow evening.

Nedbank comments: “It now looks likely that the National Budget will go ahead as planned next week on Wednesday. Markets strengthened further in the wake of the announcement, with the rand touching three year highs and bond yields down nearly a percentage point from pre‐ANC conference levels.”

It added that Cyril Ramaphosa faces the difficult task of repairing the considerable damage caused to the economy and the country’s institutions over the past decade.

“The economy’s capacity to grow has been hampered by a poor education system, infrastructural shortfalls, a burgeoning public debt and poor policy choices. Corruption has become endemic and state owned enterprises have been bankrupted by wasteful expenditure, bloated workforces and irresponsible procurement policies. The incoming president has already made impressive strides in addressing some of these issues, forcing changes in the board of Eskom, pushing his predecessor to appoint the commission of enquiry into state capture and encouraging organs of state to pursue those involved in wrongdoing over the past few weeks”.

Nedbank said the National Prosecuting Authority and the Hawks “appear to have woken from a deep sleep” and are actively pursuing years‐old cases.

“The raids at the Gupta residence and high‐profile arrests are clear evidence of a much more aggressive approach.”

Key markers in the days ahead will be the SONA, where clarity on future policy direction will be sought, and the National Budget on 21 February, “where the arithmetic must point to a much more favourable outcome over the next three years than that painted in the Medium Term Budget Policy Statement.”

Nedbank noted that the The most difficult decisions will be around the composition of the cabinet.

“As President Zuma resigned – as opposed to being forced out in a vote of no confidence – the existing cabinet remains in place unless changed by the new president. A wholesale firing of ministers will probably be seen as undesirable because of party unity considerations. However, many have underperformed dismally and some are directly linked to the state capture project, so a cabinet reshuffle is necessary and urgent.

“Probably around 12 ministers of the existing 35 should go, with a further 9 or so still in underperforming territory. Among other portfolios that have to be addressed urgently, mineral resources and energy stand out, the former because of the severe damage caused to the sector over an extended period, and the latter to end, once and for all, the proposed nuclear deal, which in its current form is unnecessary and would be fiscally ruinous.”

Nedbank noted that President Ramaphosa will also need to appoint a new National Director of Public Prosecutions quickly and look critically at other key leadership positions in government.

“With the positive moves over the past few days and the strong market reaction, the economy is likely to recover more quickly and strongly over the medium term. The firmer rand has improved the inflation outlook considerably, making one or two cuts in interest rates in the first half of the year now likely. This and better confidence will help growth pick up momentum.

“However, this year’s growth is still likely to be constrained by contractionary fiscal policy, inevitable lags in the implementation of new capital formation projects and job creation, and headwinds in the agricultural sector. Our forecast is for the economy to grow by 1,6% in 2018, 1,8% in 2019 and 2,4% in 2020 (from 1,4%, 1,7% and 2,2% previously).”