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Gordhan’s firing – why did it happen and what will happen next?

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Gordhan’s firing – why did it happen and what will happen next?

6th April 2017

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What explains the allegedly irrational decisions taken by the South African government over recent days? Two explanations suggest themselves. The first is that the decisions were not irrational, but part of a calculated power-play designed to further entrench the Zuma-aligned faction of the African National Congress (ANC). The second is that Mr Zuma took the decision to fire Pravin Gordhan under duress – and specifically Russian duress.

What explains the allegedly irrational decisions taken by the South African government over recent days? Two explanations suggest themselves. The first is that the decisions were not irrational, but part of a calculated power-play designed to further entrench the Zuma-aligned faction of the African National Congress (ANC). The second is that Mr Zuma took the decision to fire Pravin Gordhan under duress – and specifically Russian duress.

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We are leaning towards the former explanation. In gaining control over the treasury the Zuma-aligned faction of the ANC has strengthened its position within the tri-partite alliance. Some analysts have suggested that Mr Zuma may be recalled through a vote of no confidence in Parliament, but we do not think that such a move could succeed. Mr Zuma is a consummate chess player and has accounted for this eventuality, and the analysts who say Mr Zuma will be removed by Parliament are likely to be wrong. We expect the ANC to put its immediate emphasis on unity, which means the party is unlikely to give its MPs the go-ahead for such a divisive move. Even if a dissident group did break away and join the opposition in voting Mr Zuma out, this would immediately see the Zuma-aligned speaker of parliament, Ms Baleka Mbete, take over the functions of the President. Mr Zuma would remain leader of the ANC and his party supporters would quickly purge those dissident MPs who voted him out.

The Zuma faction of the party could therefore use a successful vote of no confidence to decimate opposition within the ANC. It would then go on to pick the next President from within the Zuma-aligned camp. This would leave Mr Zuma in a stronger position than he currently occupies – hence our view of him as a consummate chess player. It is therefore incorrect to interpret Ms Mbete’s willingness to consider a vote of no confidence as evidence that the ANC is turning against Mr Zuma.

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The opposition that has grown in civil society to Mr Zuma has, at best, limited influence on internal ANC or parliamentary processes. We think this opposition will come to nothing for the time being. If it were to surprise and come to threaten the President, we expect the state security apparatus to swiftly nip that in the bud. Business leaders who have taken such an aggressive partisan stance against the now more deeply entrenched Zuma-aligned ANC are unlikely to stay the course. They will change tack and rather seek to influence the policies of the new-look cabinet. We also think that the government will try to preserve existing fiscal policy and confidence in the economy, and that dramatic short-term reversals in policy are unlikely. Rather, we will see a further deepening of existing policies, particularly those aimed at enriching a small politically connected elite while, at the same time, the government tries to rein in the budget deficit and get growth rates up – probably an impossible contradiction.

Overall, we read Mr Gordhan’s axing as being aimed at eliminating the logjam that he caused through standing in the way of a number of nefarious business and other transactions. Those transactions may now go ahead. However, this will not necessarily lead to an immediate and fundamental change in macro-economic policy direction. It remains to be seen, though, whether the new finance minister can retain investor confidence and we are not reassured that he will. He is a loose cannon with a limited understanding of economics and a penchant for making reckless statements.

The second explanation for the government’s decisions is that Mr Zuma took hurried and panicked decisions under duress. Understanding this explanation requires some context.       

Work published J Peter Pham, head of the Africa Centre at the Atlantic Council in Washington, argues that the 1990s saw significant Russian disengagement from Africa as Russian policy makers blamed their economic ills in part on the costs of their Cold War interventions in developing economies, including those in Africa. Pham argues that this began to change when Vladimir Putin came to power in 1999, and that Mr Putin moved to reengage with Africa in the pursuit of two strategic objectives.

The first was to capture African governments as a pool of diplomatic support for Russian interests on global fora such as the United Nations. African countries make up the single biggest geographic voting bloc across a range of global security, human rights, and trade and investment organisations. Being able to wield that voting bloc in pursuit of its strategic goals would greatly increase Russia’s global leverage. The chief executive of the South African Institute of International Affairs and former IRR staffer, Elizabeth Sidiropoulos, has been quoted in the media as saying that for Russia to realign global power balances with Western democracies, “it needed to be present in all geographies — and, of course, Africa is an increasingly important one”.

The second was to capture African energy resources and policy as a means of denying European countries any future African energy alternative to their dependency on Russian gas supplies. According to the energy consultancy, Wood Mackenzie, Russian exports meet approximately a third of European Union gas demand. According to The Economist roughly a third of German gas consumption is supplied by Russia, while countries such as Lithuania, Finland, Hungary, and Bulgaria are wholly dependent on Russian gas. In 2016 the New York Times quoted the Lithuanian foreign minister as saying that “energy was always used as a tool by Russia for blackmailing and leverage”.

Over the past decade-and-a-half, Russian energy firms became the spear point of Russia’s engagement with Africa. Research shows that after Mr Putin came to power Russian firms made considerable (occasionally multi-billion dollar) oil, gas, and nuclear power investments in countries ranging from Algeria to Nigeria, Ghana, and Egypt. The firms Gazprom, Lukoil, and Rosatom all made investments. Considerable non-energy investments were made in the resources sector in countries from Ivory Coast and Ghana to Namibia, Angola, and the Democratic Republic of the Congo. The volume of Russian trade with Africa increased considerably in the decade after Mr Putin came to power (sources we have consulted suggest five-fold and even greater increases).

In the case of both Egypt and now South Africa, the major investor is the Russian nuclear firm Rosatom. The firm is on the verge of developing nuclear power stations in Egypt. It is speculated that a South African nuclear agreement could be worth more than a trillion rand – more than ten times that of the controversial arms deal. In anticipation, a number of companies with close ties to the Gupta and Zuma families positioned themselves to take advantage of the pending nuclear agreement. The purchase of the Rietkuil uranium mine was one such deal (the details have been well analysed in the media).

Informed speculation is that past cabinet reshuffles were made to facilitate such deals and to get control of the Public Investment Corporation (which invests government pension funds) in order to finance some of these deals. The writer ‘Lily Gosam’ (a pseudonym), who publishes on the Business Day website, has done interesting research into these deals, and how cabinet reshuffles were made to enable them. Ms Gosam’s research is occasionally corroborated by unrelated sources. A reading of Ms Gosam’s research suggests that key ANC and government leaders have been so compromised by corruption around some of these deals that they have effectively become hostages of the originators of the bigger nuclear deal. South Africa’s recent voting record in the United Nations, which carries the fingerprints of Russian strategic interests, lends apparent credence to this theory. So, too, does South Africa’s anti-Western foreign policy.  

As the nuclear agreement may be unaffordable for South Africa, it would effectively mortgage South Africa’s economy to Moscow. This would allow Russia quite extraordinary strategic influence within southern Africa, thereby achieving Russia’s strategic objectives in the region.

The theory of the Russian connection goes further. It has been alleged that Nhlanhla Nene was fired as finance minister in December of 2015 because of his refusal to support the Rosatom deal. Similar allegations are doing the rounds about the recent firing of Pravin Gordhan. One is that Mr Gordhan might have stated quite plainly on his ill-fated London trip that the government would not support any Rosatom deal. The allegation is made that a phone call was subsequently placed from a Russian observer in London to Moscow, which led to a second call from Moscow to highly placed individuals in the South African government with the instruction that Mr Gordhan be immediately withdrawn. We have been able to establish that this could almost certainly not have happened in the manner it was reported.

A parallel allegation is that the decision to fire Mr Gordhan had been taken some time earlier. This theory is supported by reports of increased currency shorting activity in the time leading to his dismissal. Some analysts have suggested that the allegedly hurried nature of his firing may explain why some ANC sources say they were not consulted on the decision. However it is more likely that Mr Zuma knew that he did not need to consult them as he already had the backing of those who counted. The disputed Check-Mate intelligence report was allegedly drafted to justify Mr Gordhan’s dismissal on the grounds that he was conspiring to overthrow the South African government. The illiterate nature of that report has suggested to some analysts that it may have been drafted in a hurry – but similar past reports have been written equally badly (the Special Browse Mole report comes to mind).

Our inclination is that the events of the past days were a sophisticated power-play by Zuma-aligned factions in the ANC and that these events have strengthened those factions. In short; a coup has taken place within the ANC that gives Mr Zuma far greater control of the party than he had a week ago. While the decisions taken may have served foreign interests and been influenced by those interests, Mr Zuma and his allies remain in control of the country and the government. We expect that the ANC will now look to unite around their policy and leadership conferences later in the year. The treasury and the broader government, we expect, will seek to restore some measure of confidence in the country and the economy but this will be very difficult to achieve.  

Written by Frans Cronje, a scenario planner and CEO of the IRR – a think-tank that promotes political and economic freedom. His second book, a Time Traveller’s Guide to South Africa in 2030 will be published by Tafelberg in May

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