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Cape Town – The market is confused with the reality of President Jacob Zuma's current political security and seems to react every time it looks like he's about to fall from grace, emerging market economist Peter Montalto of Nomura said on Monday.
His concern follows Zuma's apology speech on Friday after the Constitutional Court announced on March 31 that Zuma defied the Constitution when he and the National Assembly decided to set aside remedial actions over payments for his Nkandla residence by Public Protector Thuli Madonsela.
Zuma said that the "matter has caused a lot of frustration and confusion, for which I apologise, on my behalf and on behalf of government".
"The intention was not in pursuit of corrupt ends or to use state resources to unduly benefit me and my family," he said. "Hence I have agreed to pay for the identified items once a determination is made."
The Democratic Alliance said Zuma owes R52.9m for the upgrades, but the court ruled that Treasury should determine how much Zuma should pay.
Montalto said "the market will continue to jump from event to event, seeing every opportunity for Jacob Zuma to be ousted, sacked, impeached or recalled".
“The market, as we saw plainly last week (from interactions rather than price action) seems to be confusing what ‘should’ happen or what might happen in other countries, with what ‘will’ happen,” he said.
The rand dropped to R14.60 to the dollar ahead of Zuma’s Nkandla apology on Friday at about 18:00 and quickly returned to R14.70 after the damp squib of speech ended at around 20:00.
It's more complex than Zuma - Montalto
Montalto said "investors mistakenly view South Africa's current problems as a symptom of President Zuma's leadership alone rather than a more complex outcome from the state of the ANC (African National Congress) and interplay of its factions and ideologies”.
He said the political dynamic will be confusing for the rating agencies: The Constitutional Court judgment was seen as ratings positive, while the political manoeuvrings and spin was seen as ratings negative.
Monalto said Nomura predicts Zuma will leave after the local elections, between September and October.
“Zumxit is likely to be seen as an opportunity for the agencies to give the benefit of the doubt,” he said. “Moody's would probably be more outright positive on it and S&P (Standard & Poor’s ) more neutral and sceptical.
“Hence, the manner of exit is key: a long managed exit through to January 2018 would allow downgrades to proceed, whereas an immediate exit could pause downgrades until next year,” he said. “All this of course could be swayed by more negative macro and fiscal outcomes.”
Zuma’s exit will be done while the tenderpreneur faction holds a majority on the NEC, Montalto explained.
“We would expect Mr Zuma to be offered a managed, dignified way out that protects him from future prosecution, secures the wider ability of the faction to manage patronage networks and secures their ability to win (or maximise their chances of winning) in December 2017,” he said.
