South Africa: The Crisis of the Zuma Presidency

On Wednesday, 9 December the government of South Africa was thrown into a new crisis when president Jacob Zuma unexpectedly fired his finance minister, Nhlanhla Nene and replaced him with David van Rooyen, a little known ANC backbencher. This decision was so unexpected that neither the ANC nor members from his own cabinet were aware of it. The events over the four days which followed, once again shook the country to its foundations and ushered in a new period in the class struggle.

Earlier that Wednesday morning there was an ordinary cabinet meeting in which Nhlanhla Nene was giving a presentation on the state of the economy. It would be his final act as finance minister. Later that evening, the presidency issued a late night statement which announced Nene’s dismissal: “I would like to announce changes to the Finance portfolio in the Cabinet.

“I have decided to remove Mr Nhlanhla Nene as Minister of Finance, ahead of his deployment to another strategic position. Mr Nene has done well since his appointment as Minister of Finance during a difficult economic climate. Mr Nene enjoys a lot of respect in this sector locally and abroad, having also served as a Deputy Minister of Finance previously’’, said Zuma.

The statement further said Nene would be replaced by David van Rooyen, a little known former mayor and a  backbencher from the parliamentary standing committee of finance.

Market turmoil

The “markets’’ were stunned. “If Nene has done well, then why replace him?,’’ they asked. There was shock in the currency markets. The Rand immediately crashed to new record lows against the Dollar. Traders and market analysts were dumbfounded and were desperately looking for answers. But none was forthcoming which only exacerbated the situation. Two hours after the statement the Rand had fallen sharply, losing 2.4% of its value and plummeting to R15.24 to the Dollar before recovering to R14.59 late on Wednesday night.

It was clear that the ANC was also stumbling in the dark. There was frantic activity in Pretoria as leading ANC members were trying to find out what was happening. They issued a weak statement later that evening saying they “noted’’ and respected the president’s ‘’prerogative’’ to make cabinet appointments. This did not convince anybody. It simply stated that the ruling party had no idea what was going on.

On Thursday, contagion spread to the stock market which opened lower and sustained the losses throughout the day. The bond market was also affected, meaning the government was now paying more for its long-term borrowing costs. The national currency took a pounding, crashing to R15.38 on Thursday night.

On Friday, there was a media briefing by the leading members of the cabinet which confirmed that not even senior ministers were aware of Nene’s axing. “The issue of appointments and removal of cabinet ministers were the prerogative of the president. This was not discussed at cabinet’’, said the Minister in the Presidency, Jeff Radebe. This led to the currency traders launching  an all-out assault on the Rand, which went into freefall, plummeting to the unheard-of levels of R16 to the Dollar.

There was blood on the floor at the stock market. The Johannesburg Stock Exchange had lost nearly R170-billion within a matter of hours of Nene’s axing. The benchmark All-share index took a huge knock, falling from 49 523 to 48 067. The banking index was down more than 14%, the hardest hit of all indices and wiped out nearly R150 billion. This was now a full market rout. Two of the biggest banks, FirstRand and Standard Bank lost more than 14% and 13% of their value respectively. Government bonds were down a whopping 8.8%.

The capitalists were infuriated. Malcolm Charles, an Investec fund manager, told Business Day: “Investors are absolutely distraught and they are voting with their feet. All these guys are selling at a loss and they continue to sell. They’d rather take their money to a place where they know what the macroeconomic policies are going to be.’’ (Business Day, 11/12/15)

Having been fed up by Zuma’s poor performance for a long period, a large part of the South African and international capitalists launched an attack on his government through a strike of capital.

Intense lobbying

Together with this economic onslaught, there was a full scale media campaign, calling for Zuma’s head. One economist called the events “South Africa’s financial 9/11’’. The ANC remained silent. The normally outspoken secretary-general, Gwede Mantashe was nowhere to be found. Then on Friday night, Zuma blinked for the first time. In a matter of hours the presidency issued three clumsy statements, each contradicting the other. The first statement said that Nene was removed in order to present him as a candidate to the new regional BRICS development bank to be opened in Johannesburg. This answer did not satisfy the market analysts. “Why remove the finance minister for a  job he is not certain of getting? Why not “prepare’’ the markets? Is the BRICS bank more important than the stability of the financial system? ’’, the traders were asking.

Over the weekend Zuma was facing the wrath from the banking sector, both foreign and local. There was a flurry of activity in Pretoria involving the representatives of big Capital. This was confirmed by Bobby Godsell, the former CEO of AngloGold Ashanti, and who now represents some of the biggest companies in the country through Business Leadership South Africa. “Everybody in business that I know raised their concern and expressed their concern in every way possible,’’ he said. (Bloomberg, 15/12/15).

Part of those who “expressed their concern” so vividly were executives from Goldman Sachs and Barclays locally who met with senior ANC officials, including deputy president Cyril Ramaphosa and ANC secretary-general, Mantashe. According to Bloomberg, it was after this meeting that these officials went to confront Zuma.

Then late on Sunday five ANC officials, including Ramaphosa and Mantashe told Zuma about the situation. The presidency soon after issued another statement, announcing that Pravin Gordhan, the former finance minister would replace David van Rooyen after only four days on the job. Gordhan is a bourgeois politician trusted by big business. This could be seen in the reaction of the currency after the announcement of his appointment. The Rand strengthened sharply and moved back below the R14 mark to the dollar on Tuesday. Within a matter of four days the country had had three finance ministers. The financial system had had a heart-attack and it forced the capitalists to make the highest profile intervention to change a government decision since 1994.

Why did Zuma fire Nene?

The immediate cause of the crisis related to the proposed restructuring of a R6 billion contract between the state-owned airline, South African Airways (SAA) and European aircraft manufacturer Airbus. The original deal involved the lease of twenty A320 aircraft by SAA from Airbus. Then in March this year a “swap arrangement’’ was struck which meant that SAA would now get ten A320 aircraft and five A330s.

This arrangement benefited SAA. It now did not have to pay the exorbitant amounts of pre-delivery payments. But the SAA chairperson, Dudu Myeni a close ally of president Zuma, had other plans. She intended to re-negotiate the deal with Airbus by bringing in a faceless third party into the leasing arrangements. This would have been against the law because it would have circumvented a procurement process. The finance minister Nene refused permission for the new deal. He instructed the SAA board to implement the previously approved swap arrangement.        

Meanwhile Airbus put a strict payment deadline for 21 December of this year. This move sped up the process. Dudu Myeni, the SAA chairperson then went directly to Zuma to get backing for the new proposal. Meanwhile, Nene was also blocking a $100-billion nuclear power plant deal with Russia which Zuma was overseeing himself. This had major contracts involving many business interests. Nene was now a major impediment to a web of interests involving the president’s allies. It was at this point that Zuma decided to bring the axe down on Nene’s head.

A clash within the ruling class

The events of the past week were in fact a clash between two wings of the capitalist class in a declining economy. On the one hand there was big business and their dominance of the most profitable sectors of the South African economy. On the other hand, we have the small, upstart capitalists which make their profits from their closeness to high political office. This is a phenomenon which started soon after the formal overthrow of Apartheid. The bourgeoisie created a whole network of corruption in order to co-opt leading members of the former liberation movement. The South African working class had become so powerful that it could have overthrown the ruling class many times over. Therefore, in order to save themselves the best bet from their point of view was to co-opt the leaders of the former liberation movement.

While big business were emphatically in charge of the commanding heights of the economy, the only avenue open to the upstarts were to use its close contacts with high political office to get tenders and government contracts. Gradually, this phenomenon grew into an insatiable feeding frenzy involving the notorious Gupta family who are personal friends of Zuma. But the bigger the feeding frenzy, the bigger their appetite became. In this process of ever increasing looting of state resources, one state department after the other was captured.

Lately this section of the ruling class has attempted to become involved in the mainstream economy through the advancement of the so-called “Black Industrialist Policy Framework’’, a R23-billion fund which is earmarked over the following three years to share out among 100 so-called “industrialists’’ under the excuse of addressing racial ownership of the economy. Over this whole period, big business, who generally despised this section of the ruling class as crass and unsophisticated, gnashed their teeth and looked the other way. That changed on 9 December.

But by attacking the treasury, the junior wing of the bourgeoisie came in direct conflict with Big Capital. Those who fight over the scraps of a few million Rands were dealt a heavy defeat by those who own an economy worth trillions of Rands.  

Economic ruin

One fund manager called these events a “self-induced crisis.’’ This clearly expresses a typical empirical bourgeois outlook. From a bourgeois point of view what Zuma did was completely irresponsible. He clearly did not think of the economic consequences of his actions. But from a Marxist point of view the actions of Zuma could be put in the category of an historical accident. This is an event which may or may not have occurred, but once it did occur, merely expressed an inner necessity.

The economic crisis which has now come to the fore is actually an expression of all the contradictions which have piled up over the whole of the last period. The first factor is the crisis in the world economy. The crisis in the European Union meant a decline in exports to South Africa’s second biggest trading partner. On top of that, there is the restructuring of the Chinese economy which means a decline in investment in infrastructure. This has slowed down the demand for raw materials which has hit the South African economy hard. The decline in commodity prices such as platinum and iron ore as a result of weak demand in the world market meant that companies like Anglo American have recently announced massive job cuts. This further exacerbates the pressure on the fiscus.

The result of this crisis was a widening current account deficit and a growth in the trade deficit. This put serious pressure on the Rand which has been weakening extensively against a range of currencies over the last period. The crisis of overproduction in the world market meant that the weakening Rand did not help exports.

All of this meant that the crisis on the South African economy was internalised. Unemployment grew to 25 percent and youth unemployment to 35 percent. These are official figures. In real terms, youth unemployment is over 60 percent. Under the Zuma administration borrowing went up and more than R750-billion was spent on infrastructure with very little results for the economy. The economy grew at a snail’s pace at barely 1.3 percent a year. The effect of slow growth and increase borrowing led to the exponential growth in the cost of debt.

On top of this, the economy  has also been hit hard by the crisis in electricity generation and a crippling drought. Just four days before the current events, the ratings agency Fitch downgraded the country to just one notch above junk status. Although other ratings agencies have a slightly better outlook, they are also pointing in the direction of a decline. Now the announcement of an increase in US interest rates will further impact on emerging economies with capital flowing back to the world’s biggest economy. This will put extra pressure on the Rand as imports will increase which also means an increase in inflation.

So from this point of view its is clear that the South African economy suffers from a multifaceted crisis. It is therefore clear that any internal or external shock to the economy risks pushing the economy over the edge. The fact that it was Zuma’s firing of his finance minister merely expresses an inner necessity which sooner or later would have become reality.

Political fallout

The crisis of the last few days has now severely weakened Zuma. Within a matter of 96 hours he was forced to make a humiliating about-turn under enormous pressure from big Capital. This is also a heavy defeat for the clique which has shored up his presidency over the last six years. He is now in an extremely vulnerable position. This has prompted some petty-bourgeois elements to call for his recall as president. But this is highly unlikely, not because of him but because of the damage this would do to the ANC itself. The truth is that the ANC has never been weaker than it is at this moment. The governing party is suffering from a deep loss of political authority unprecedented in its history. The party is riddled with crises and destructive internal factions. The recall of Zuma could do serious damage to the the ANC and could even precipitate another split.

The clique around Zuma has also now been weakened. Over the last six years there has grown a parasitic network around Zuma which has gradually captured various structures of the ANC to suit their own selfish interests. Although these are very powerful people, they mostly rely on Zuma’s network of patronage to sustain themselves. But the actions of the big capitalists have severely damaged them.

This was confirmed by a press conference which the new finance minister, Pravin Gordhan gave shortly after his appointment. In what was a direct reference to the junior wing of the ruling class, he stated: “We’re really serious when we say good governance is non-negotiable. It’s time that individuals or group of individuals stop playing with state entities, whether they’re SOEs or other governments components, as if it’s a personal toy from which you can extract money when you feel like.’” This was an emphatic statement from this faithful servant of big Capital and a cold slap in the face for the Zuma clique. To rub salt into the wounds, he further said that he will call SAA chairperson, Myeni over the phone and only meet with the board next year. This was a message that big business was in charge and the junior wing must know its place.

By getting Zuma to make an about-turn, the positions of Ramaphosa and Mantashe have been strengthened. Big Capital will inevitably look towards these people to give a greater lead to the ANC. It is in this context that we could see a greater role being played by the ANC National Executive Committee in all the key decision-making processes. Up until now the NEC has been a staunch supporter of Zuma. But the weakened position of Zuma as president and the increased assertiveness of big business could also weaken those closest to the president with the balance of power shifting to those closer to Ramaphosa and Mantahase. This will inevitably mean that Zuma could increasingly become more of a lame duck president. The bourgeois class now totally mistrusts Zuma and will want to curtail his authority. In turn, this increased bourgeois influence on the top structure of the ANC would mean that the ruling party will move even further to the right.

The crisis will also impact on the ANC’s succession race. Ramaphosa has been strengthened by recent events and will necessarily want to consolidate his position. The other frontrunner, Nkosazana Dlamini Zuma now has an uphill battle. The faction which has been backing her candidature has been weakened and is under assault from big business. This will result in a bruising succession race which could weaken the party even further.

Another factor is the impact on the tripartite alliance with the the trade union federation, COSATU and South African Communist Party (SACP). At the recent congress of COSATU the majority of the bureaucracy scandalously threw in their support for Ramaphosa, a bourgeois politician and a key element of the Marikana massacre of 16 August 2012 where 34 mineworkers were killed. This shows the extent to which the bureaucracy has moved to the right. The SACP has tied itself in knots. They have lost influence with Zuma who is now under the control of the corrupt Gupta family. In the absence of an independent working class policy, they now find themselves in a de facto alliance with big business against the Guptas. This is the logical result of “manoeuvring within the capitalist system.’’ If you accept Capitalism, then you must accept its logic and its consequences.

With the explosion of strikes, demonstrations and marches of the working class and poor communities over the last period, it means that the anger and frustration working class, the poor and the students will be channelled outside of the ruling alliance. Already we have seen this process over the last period playing itself out with the rise of NUMSA, the EFF and movements such as #FeesMustFall.

A new phase

The whole episode has also exposed how vulnerable the capitalists themselves have become. The fact that they have been outside the decision making process of the ANC to the extent that they nearly lost control of the finance ministry is indicative of this. The fact that the bourgeois parties are so weak means that the ruling class is now totally dependent on the ANC. But there is an inherent contradiction in this. By pushing the ANC even further to the right, the ruling party will move in the opposite direction to its working class base. In the absence of a rank and file revolt to reverse the fortunes of the party, it will inevitably lead to a weakening of the party.

From a working class point of view the crisis has exposed the fraud of capitalist democracy. The notion that in a bourgeois society it is the people who decide has been exposed as a lie. In the events of the past week we have graphically seen that all the big decisions which affect society are taken by a handful of bankers and capitalists. The fact that Zuma and the ANC beat a hasty retreat when the capitalists threw their toys out of the cot will not be lost on the advanced workers.

The contradictions are becoming sharper in South African society. The periodic crises are leading to wider and wider layers of society questioning the entire system. A huge section of the advanced workers have already drawn a balance sheet and are looking for a way out. But the working class consists of different layers and not all come to the same conclusion at the same time. The student protests showed that fresh new layers are now also joining the movement and are pushing it more to the left. This is an important phenomenon because it could overcome the conservatism of those layers which were leading the process previously.

South African society has now entered a new phase. The crisis within the ruling class is a symptom of an impending revolutionary storm. The country has entered its most turbulent period ever. Society will enter a period of class struggle never before seen in its history. The historic role of the revolutionary South African working class with its militant traditions is to fight for the overthrow of Capitalism and to usher in a new era of the socialist transformation of society.