In our first issue of South Africa Strategic Brief we look at:

–  Continued calls for Zuma to resign
–  Judicial inquiry into banking system
–  Upcoming protests
–  The anticipation of a cabinet reshuffle
–  In-depth profile of Busisiwe Mkhwebane… and more

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Analysis:

Tensions continue to increase between the Treasury, led by Finance Minister Pravin Gordhan, and other parts of the government. Over the past month alone, ANC MPs have launched a number of vicious attacks on the Treasury and Gordhan in parliament; there have been numerous threats to arrest Gordhan; and he has also been ordered to ‘present’ himself for a warning statement in conjunction with a Hawks investigation. [Note – Hawks is the common name used to refer to the Directorate for Priority Crime Investigation].

Underlying all of this tension is an ongoing and bitter battle between the patronage faction of the ANC and the National Treasury over the control of state resources. Its outcome will have a profound influence on South Africa’s economic future.

In brief, the positions are these: the patronage faction of the ANC is engaged in widespread looting of state resources and relies on revenue streams from government to maintain its power. The Treasury, in contrast, is trying to reduce this looting, impose fiscal discipline, and maintain South Africa’s reputation as a safe investment destination. State-owned enterprises are a key battleground in this regard, as attempts by the Treasury to impose fiscal discipline here directly threaten existing networks of patronage.

SAA — where Gordhan wants to replace current chairwoman Dudu Myeni and has refused to extend unlimited credit — has been perhaps the most publicised of these battles, but there are many more. At Eskom, for example, the Treasury is cur-rently engaged in a dispute over a costly short-term coal-buying contract awarded in 2015 to a mining group owned by the Gupta family. The Treasury has barred Eskom from extending the contract for a second time, and demanded an open ten-der to find a replacement supplier. Similar-ly, at the Denel arms manufacturing firm, Gordhan has repeatedly refused to en-dorse a R400 million (US$28million) joint venture with the Guptas, much to the dis-may of the patronage faction.

It is not, however, just in the parastatal realm that the Treasury and the Presidency disagree. Nuclear power — an energy solution enthusiastically championed by the Presidency and Energy Minister Tina Joemat-Pettersson — is another key bat-tleground. Joemat-Pettersson says that nuclear is non-negotiable for South Africa and must take place, and the Treasury, in turn, refuses to support any move to nu-clear power on cost grounds.

While many have argued that Gordhan’s position as Finance Minister is under in-creasing threat as a result of these attacks, with some media sources even going so far as to evaluate the possible alternatives — current Eskom CEO Brian Molefe; former controversial and short-lived Finance Min-ister Des van Rooyen; businessman Sfiso Buthelezi; and former Tshwane Mayor Kgosientso Ramokgopa are the apparent frontrunners — we continue to believe Gordhan’s removal remains unlikely.

While it is undoubtedly true that Zuma and the patronage faction would like to remove him, and we expect the attacks on Gordhan to continue, we do not believe the faction currently has the strength to force him out. The outcry from business, civil society, and the reform faction within the ANC would be very significant were Gordhan removed. With Zuma already facing significant opposition, and having been weakened as a result of the August local election results, it is likely to be a battle he would rather avoid.

Instead, we expect the attacks to continue, and anticipate a reshuffle at lower levels of the Treasury to remove at least a little of Gordhan’s strength. How successful this is in rendering the department toothless, however, will largely depend on how closely business and civil society monitor these changes, and how vociferously they pro-test any weakening of Gordhan’s power. So far, the signs are good for the minister.