How does this Cabinet reshuffle fit into Zuma’s masterplan?

This is a power show by President Jacob Zuma who clearly believes he has enough power in the NEC and low enough risk of a Parliament split to be removed.

As expected PGxit occurred as Pravin Gordhan and his deputy Mcebisi Jonas were removed in an open attack on Treasury. The reshuffle is designed to lubricate the way to the elective conference through Treasury and a variety of major other ministries.

The market will struggle to digest new Finance Minister Malusi Gigaba.
He is someone who has been effective at home affairs but is clearly being put in a role to do a particular job by Zuma and is viewed as loyal to the president. Similarly with Sfiso Buthelezi. We view this as an open attack on Treasury to replace people who are anti-corruption and conservative, with people loyal to Zuma. 

This is an attack on the institution of the Treasury and as such will trigger multiple downgrades. While there are some fiscal risks, what is more worrisome is Treasury’s potential role in procurement, preventing corruption and oversight of state-owned enterprises – including nuclear and banking. This is bad for the market and for the country. 

There are also questions hanging over Buthelezi around his role at Prasa and his links to various others such as the Guptas. This will concern the market and overall the market will be deeply worried by these appointments.

Looking at this list is really is a list of largely unknowns. Importantly, Mining Minister Mosebenzi Zwane remains, despite the ANC top six asking that he be removed. 

Zuma is taking a risk here and the next step is to watch what happens with resignations. A key risk is that SACP members may step down and it was a surprise that more of them haven’t been removed. Maybe he wants to goad them to go to allow for a bigger reshuffle next time. It is odd, for instance, that Nkosazana Dlamini-Zuma hasn’t entered at this stage. Maybe he is waiting for Deputy President Cyril Ramaphosa to resign and then put her there? This is the next step we watch for. This is not over yet.

We must also consider the growth shock here like after Nene-gate. These events are going to make things harder on the fiscal side with difficult choices on revenues and probably a decision to debt finance instead. This will reinforce the need for ratings downgrades. 

The market has been far too complacent in believing that Zuma cannot remove Gordhan. But he has now gone and done it and yet the market is still hanging onto the hope of a credible candidate which has not come with a complete clear out at Treasury. This is a full Zuma-led reshuffle which will lead to multiple imminent downgrades where the president will be confident he has the upper hand over weak internal ANC opposition. 

The opposition to Zuma is too split with too weak a leadership in the NEC to be effective here. 

Peter Attard Montalto is a research analyst at Nomura.



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