Zuma Survives NEC; What’s Next?

new south africa

The National Executive Committee (NEC) of the ruling African National Congress (ANC) ended its 3-day meeting with a decision not to recall Zuma.  Meanwhile, the no confidence motion filed in parliament by the opposition looms ahead.  We thought it would be useful to go over the likely outcomes.

WHAT IS THE ANC NEC?

The 107-member NEC is made up of the ANC’s President, Deputy President, National Chairperson, Secretary General, Deputy Secretary General, and Treasury General.  These posts along with 80 other members of the NEC are elected by the so-called National Conference every five years.  There are also 21 ex officio members made up of the heads of the Provincial Executive Committees and the various ANC leagues (Youth, Women’s, etc.).

The NEC reportedly declined to even vote on what was a no confidence motion within Zuma’s own ANC party.  Such a vote would not be unprecedented, as the NEC recalled former President Thabo Mbeki back in 2008.  Mbeki resigned rather than face a vote by the full parliament.  The refusal of the NEC to recall Zuma now puts the onus on parliament.

WHAT IS THE STATUS OF THE NO CONFIDENCE MOTION IN PARLIAMENT?

A no confidence motion was filed in parliament by the opposition back in April.  However, the vote has been delayed as the courts have yet to decide whether the no confidence motion can be done by secret ballot.  Senior ANC officials have threatened to remove any members of parliament that vote against Zuma, and so a secret ballot would theoretically lessen the fear of reprisals.

This would be the latest of several no confidence motions that Zuma has faced.  In March 2016, a no confidence motion was defeated 225-99 with 22 abstentions.  The margins narrowed in the November 2016 motion, which was defeated 214-126 with 1 abstention.

From what we can tell, party discipline remains in place after the NEC meeting.  Even if the ballot were kept secret, it seems that the ANC would prefer to remain united behind Zuma rather than jumping ship and allowing the opposition to bring Zuma down.

The ANC is particularly worried because its share of the vote has fallen to its lowest level since the end of apartheid.  The ANC only got 54% of the vote in last year’s municipal elections, down from 62% at the last national election in 2014.  A sub-50% would be a disaster for the ANC, to state the obvious.

WHAT IS THE MAKEUP OF THE CURRENT PARLIAMENT?

Since the president is elected by parliament (not directly elected by voters), the stance of ANC lawmakers is key.  The ANC won 62% of the vote in the 2014 general elections, giving it 249 seats in the 400-seat parliament.  Seats are awarded from party lists in proportion to the share of the popular vote won.  There are no electoral districts as voters choose a party, not a candidate.  Thus, lawmakers are likely to worry more about following the party line than about answering to constituents.

After the ANC, the next biggest party is the Democratic Alliance (DA), which won 89 seats.  Then there are the Economic Freedom Fighters (EFF, an ANC offshoot led by former head of the ANC Youth League Julius Malema) with 25 seats.  The remaining 37 seats are spread out amongst 10 small parties.

WHAT IS THE LIKELY OUTCOME OF THE NO CONFIDENCE VOTE?

A simple majority is needed to replace Zuma.  If we can assume that the DA and EFF will unite against Zuma, then they need 87 votes from either ANC defectors or the 10 small parties to succeed.  After this weekend’s meeting, the NEC has ordered all ANC lawmakers to vote along party lines in support of Zuma.

If party discipline holds, then the opposition will fall far short of the 201 votes needed.  Our base case is that Zuma survives the no confidence vote in parliament and serves out his terms as President and ANC President.

HOW WILL MARKETS REACT?

We have long believed markets were too optimistic on the chances of Zuma being ousted.  Therefore, we believe that South African assets will start underperforming more in the days ahead.  As it is, MSCI South Africa is up 9% YTD vs. 18% for MSCI EM, while the rand is up 4% YTD and in the middle of the EM pack.

After Gordhan was fired in March, the agencies reacted quickly.  S&P downgraded South Africa a notch to BB+ with negative outlook.  Moody’s also put its Baa2 rating on review for a downgrade while Fitch downgraded it a notch to BB+ with stable outlook.  Our model rating for South Africa remains at BB/Ba2/BB, and so further downgrades are warranted by all three agencies.  New Finance Minister Gigaba has little financial or business experience, and the agencies were right to downgrade after Gordhan’s sacking.