November 13, 2017    4 minute read

Zuma 2.0: Turbulent Times in South Africa

The Road Ahead    November 13, 2017    4 minute read

Zuma 2.0: Turbulent Times in South Africa

Stories have been trickling out over past few years regarding the Gupta Family and its influence over president Jacob Zuma in the form of cabinet appointments and SOEs (state-owned enterprises) that have signed deals with private companies owned by the Guptas.

These were at first just that – allegations. The situation changed when the Public Protector, Thuli Madonsela, came out with her ‘state of capture’ report in October. Since then, talk of the Guptas inculcating themselves into the South African state is now gaining more clout. The latest allegations now include big names such as Mckinsey, KPMG, HSBC and SAP.

In September, SAP, Europe’s largest software company, has referred allegations that it agreed on kickbacks to a company controlled by the Guptas to US authorities. Last Friday, HSBC has shown signs of concern about its involvement in this snowballing scandal by shutting “front company” accounts associated with the Guptas. HSBC is particularly sensitive to money laundering allegations after it was fined $1.9bn in 2012 for handling Mexican drug cartel and terrorist financing.

The key development here is that the regulatory attention and implications are now international. The Financial Times reports that the FBI has now opened a probe into US links to the Gupta family. Many government bodies within South Africa are highly contested and indeed some appointments are controlled directly by the President himself as per the South African Constitution; this may explain why little domestic investigation has taken place.

The Economy

Business confidence is critically low in South Africa’s equities and bonds markets; many are anticipating December’s ANC vote. Private investment is suffering particularly; state companies such as Eskom can expect a turbulent few months ahead.

South Africa’s credit rating being cut to junk status earlier this year by S&P Global can be seen as a direct result of the country’s corruption scandals. This has a detrimental effect on the rate at which the country can borrow and also serves as a red flag of investor confidence in the economy.

Relief on the Horizon?

South African politics is no different to the markets; stagnant. Legislation has effectively been put on hold until after the 54th National Conference where Jacob Zuma’s successor will be elected. It is anybody’s guess as to how the December vote will turn out. There is speculation that the vote may not go ahead at all; the possibility of Zuma and his affiliates collapsing the vote altogether should a win not be guaranteed for Nkosazana Dlamini-Zuma, the president’s ex-wife, cannot be ruled out.

The man standing in her way is Cyril Ramaphosa. Mr. Ramaphosa, the country’s deputy president, is running on a strong anti-corruption ticket. Throughout his campaign, he has made very clear, albeit indirect, references to a ‘certain family’ and ‘certain individuals’ that are exploiting and tainting the reputation of South Africa internationally. Whilst he is vocal about these issues, it remains unclear whether he will have the capacity, or even the will, to carry out such reform and restructuring should he win in December.

Conclusion

A party that is so inherently divided does not make for light work on matters requiring concerted efforts. Restoring South Africa’s economic reputation and clearing corruption, no doubt, requires said concerted efforts. The need to set aside personal goals, smear campaigns, and politics ‘as we know it’ has never been greater.

In a region where it has become increasingly difficult to tell a smear campaign from a founded allegation, can one really blame the markets for being hesitant and uncertain? An imminent recovery seems unlikely regardless of the who succeeds Zuma in December. Many analysts are now looking onwards to 2019 when the president of a divided ANC may for the first time, since 1994, become the leader of the opposition.

Get articles like this straight to your inbox each morning with our Breakfast Briefing. Sign up by clicking here!

Log in with your details

or    

Forgot your details?

Create Account

Send this to a friend