It’s the politics stupid!
Written, by Tim Hughes, Non-Executive Director Warwick Wealth
We all remember the famous phrase, “It’s the economy stupid!” which largely explained Hillary Clinton’s husband’s 1992 Presidential election victory. In South Africa the relationship is reversed. For us, it’s the politics stupid! The South African economy and financial markets in particular are extraordinarily correlated to our national politics.
This is demonstrated by contrasting South Africa with other economies. Consider the world’s second largest economy, China. Despite presiding over a population of some 1,3 billion, and a country characterised by vast geographical, class and ethnic divisions, the change of Chinese President barely impacts on the Shanghai stock exchange and has little impact on global markets. Even the shock electoral victory of Donald Trump over Hillary Clinton resulted in relatively insignificant movements in the U.S. markets with the Dow opening 0, 08% higher, the S&P 500 down 0, 2%, with the NASDAQ down a 0, 3%. To be clear, Trump’s electoral victory was the biggest political upset for decades and yet the world’s largest economy reacted maturely, taking it all in its stride and settling back into a ‘normal’ trading pattern.
Contrast this with the South African scenario in which our financial markets have been on a yo-yo rollercoaster ride for the past year since President Zuma removed Finance Minister Nhlanhla Nene from his post, and replacing him for the week-end with a Parliamentary back-bencher, whose academic credentials have since been brought into question. While the shock to the market sent the clearest politics signal to the President and government more broadly, a modicum of confidence and stability was restored by the re-appointment of Pravin Gordhan as Finance Minister.
From this moment, political confidence was measured by the performance of the Minister of Finance rather than the State President. Ratings agencies look to Gordhan, rather the Zuma for an assessment of the prospects for the economy. De facto and for South African financial markets in particular, the Minister of Finance budget speech has become state of the nation speech.
That Gordhan withstood the outrageous slings and arrows cast at him by the National Prosecuting Authority only to see these spurious charges summarily withdrawn, led to a collect sigh of relief from an anxious market that viewed this political high-noon as a litmus test of whether Zuma or Gordhan had the upper hand in the fratricidal fight to control access to state coffers.
Emboldened by Gordhan and his pragmatic supporters’ victory, the resultant extraordinary African National Congress National Executive Committee meeting was the most robust since the recall of former President Thabo Mbeki in 2009. That the NEC meeting did not permit a secret ballot on Zuma’s presidency is the clearest demonstration that he had lost majority support. So while the James Bond of South African politics emerged to fight another day, it was a pyrrhic victory for Zuma, which leaves the markets unsure, volatile and craving political direction and certainty.
By the end of 2017, a new ANC President will be elected, but until then, we are in for a volatile ride. One hopes that in 2017 our politics doesn’t make us all look stupid!