Consilium Insights 16 AWS
Consilium Insights 16 13/12/2017
The road to 2019 - the ANC’s 54th National Conference candidate of their choice, not necessarily that of the branch or province . Author: Gideon Pimstone & Ntombi Nkiwane
Executive summary The ANC’s National Conference will take place from the 16th-20th December at Nasrec. Cyril Ramaphosa and Nkosazana Dlamini-Zuma are the front runners in the race for the ANC presidency, although there are in fact five other candidates vying for this position. Zuma will step down as ANC President when one of the two aforementioned candidates is elected by a majority of delegates at the National (Elective) Conference. According to the latest figures from the ANC secretariat that has to audit the Branch General Meetings, Ramaphosa is leading the race with 1,861 nominations, whilst Dlamini-Zuma has 1,309. The nomination process has been characterised by disputes in Kwa-Zulu Natal, Free State, Mpumalanga and the Eastern Cape. We are unsure as to how conference delegates will vote even where branches and provinces have declared for one or other candidate. Voting takes place via a secret ballot. Delegates will be able to vote for a
Conference outcomes are therefore highly unpredictable. Six months ago Dlamini-Zuma was a shooin, but now by our estimation, Ramaphosa is somewhat ahead. Internal divisions as well as governance issues have crippled the party’s image and reputation. The SACP refuses to back any presidential nominee, marking a decisive shift in its approach to the tripartite alliance. This was shown in separate polling in a byelection in Metsimaholo in the Free State. Various independent polls have shown that the ANC may lose its parliamentary majority in the 2019 national elections, particularly if the Nkosazana DlaminiZuma slate will take over in government. This is due to perceptions around governance. The rand and SA bonds have responded positively to a potential Ramaphosa win or even a close run race that might force compromises. Whatever the outcome, the new leadership will have to work determinedly to realign party values. Civil society organisations along with the media and the courts continue to work tirelessly to hold government, along with the private sector, to account.
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The road to 2019 – The ANC’s 54th National Conference in December
Chairperson of the African Union Commission. She is credited with repairing the grossly mismanaged Department of Home Affairs during her tenure.
Introduction
Ordinarily, National Conference results determine the political outcomes leading up to the next general election.
The African National Congress (ANC) National Conference scheduled for December 16 is the elective conference of the party held every five years. The purpose of the conference is to elect the “Top Six” membership of the National Executive Committee (NEC), the party’s highest decision-making body. Additional NEC members are voted in as well. The NEC consists of executive party officials, including inter alia the President, Vice-President, National Chairperson, Secretary-General, Deputy SecretaryGeneral, and Treasurer-General. More than 80 other members, including cabinet ministers, also form part of the larger NEC body. The principal focus of the National Conference is on who will take over as President of the ANC. The candidates vying for the position are Cyril Ramaphosa and Nkosazana Dlamini-Zuma, as well as five others, who have no chance of victory but may or may not find a way onto one of the winning slates. Both frontrunners are seasoned politicians. Ramaphosa’s experience stems from his position of Deputy President of the country, his one-time leadership of the NUM, his role in the constitutional negotiations as well as his business savvy. Dlamini-Zuma has served in a number of key positions including Minister of Health, Minister of Foreign Affairs, and
However, due to deep divisions and ongoing governance concerns, conference outcomes this time out may not be determinative of the ANC candidates for the 2019 national elections.
Election Process ANC branch and delegate votes are provincial. Each branch consists of at least 100 delegates, with delegates being proportional to paid-up membership. Preferred candidates are nominated at branch general meetings (BGMs), normally chaired by the respective Chairperson. Chairpersons ensure that delegates are in good standing. Branches nominate one person for each NEC position, and nominees have to obtain 50% plus 1 branch votes, to secure nomination. Branches convene at their respective Provincial General Councils (PGCs), in order to select their preferred candidates. 90% of conference delegates must be from party branches. This leaves 10% of votes for delegates representing the NEC, as well as ANC Women’s, Youth, and Veterans’ formation. The top seven candidates who have made themselves available for the presidency include: Deputy-President Cyril Ramaphosa; National Chairperson Baleka Mbete;
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Treasurer-General Zweli Mkhize; NEC members: Nkosazana DlaminiZuma, Lindiwe Sisulu and Jeff Radebe; and Former Treasurer-General Matthews Phosa. The ANC constitution is somewhat dated in that it does not represent a party that competes for power in a pluralistic democracy. The paid-up membership model and branch system is open to abuse. The ANC constitution largely reinforces provinces where the ANC has previously done well and therefore where it has a stronghold. The party has recently performed better in rural areas, as membership is largely governed by provincial and local power barons and traditional leaders. The organisation therefore has more delegate votes in these areas, compared to cosmopolitan areas such as Gauteng and the Western Cape, as well as in the Eastern Cape urban areas, where the ANC has performed relatively poorly. The electoral process will merely consolidate the ANC as a rural party. With the rate of urbanisation set to hit 90% in the next few decades, this model requires considerable tweaking if the ANC is to remain relevant.
The current state of play Ramaphosa is in the lead with 522 branch nominations more than his rival, at 1,861 to 1,309. He is backed by Gauteng, Western Cape, Limpopo, Eastern Cape and Northern Cape.
Dlamini-Zuma has received 1,309 nominations, and is backed by KwaZuluNatal, North West and the Free State. The majority of Mpumalanga branches have opted for a “unity” outcome. But even in provinces where one or other candidate dominates, the other candidate will secure some considerable votes. Figure 1: Nomination tallies (source: Bloomberg)
At the end of the day, branch disputes have resulted in a prolonged election process. Major provincial contestations have taken place in KwaZulu-Natal, the Eastern Cape, Free State, and Mpumalanga. The nomination process in KwaZulu-Natal, representing the party’s biggest voting bloc, has been marred by controversy. Concerns over PGC results were expressed by some delegates, leading to a recount. Dlamini-Zuma was affirmed as victor, with 454 to 191, but the setting up of the Provincial Executive has been challenged in court. The vast majority of Mpumalanga delegates chose to nominate a unity outcome, which may or may not be
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possible. Gwede Mantashe and Mathews Phosa, amongst others, have challenged the viability and desirability of a unity vote. The province is the second biggest provincial voting bloc. It is also the home province of Premier David Mabuza. In the absence of a unity resolution most of the delegates will go for Dlamini-Zuma, but even here Ramaphosa is set in our view, to secure over 120 votes. The Eastern Cape is the ANC’s third biggest voting bloc, and thus an important battleground. The province has seen strong campaigning by Dlamini-Zuma in rural areas and was initially foreseen as backing her. The PGC was marred by violence between delegates. Although divided, the province nominated Ramaphosa for presidency by a tally of 423 to 89. The outcome of the PGC was challenged by the losing bloc, but the legal dispute was later dropped. The Free State’s PGC was hastily convened, to the dismay of some branches. The notice for the convening of the meeting was provided only a day before. Over 100 Ramaphosa supporters boycotted the conference due to 26 branches being allegedly irregularly constituted. This decision was upheld by the High Court, which declared those branch results null and void. However, Dlamini-Zuma was ultimately nominated as the preferred candidate by a margin of 209 to 44. Still, it remains anyone’s race. As we shall discuss later, there are a number of variables which will determine the outcome of the National Conference.
Policy platforms Either Ramaphosa or Dlamini-Zuma will win. This is a foregone conclusion. Ramaphosa’s campaign platform has focused on restoring business and investor confidence. South African randdenominated bonds have been downgraded to “junk status” by major ratings agencies Fitch and S&P, because of perceived public finance management failings, and the rapid deterioration of fiscal metrics, leading to rand depreciation and disinvestment. Contrastingly, Dlamini-Zuma has focused on radical economic transformation. The black majority continue to be excluded from mainstream economic activity and suffer from high levels of unemployment. The incumbent government, it has been argued, has been slow to redress the skewed nature of land ownership, as well as ensure the smooth delivery of basic services, and achieve credible public education and health outcomes for the poor. In our assessment, Dlamini-Zuma could be quite sincere about her redistribution agenda, but she is relying on elements of a political faction that have unfortunately exploited the narrative of transformation for very narrow material gains. We do not subscribe this view to Dlamini-Zuma, but worry about her capacity to deliver given these political constraints. The successful candidate and the broader slate might be met with a legal challenge given the disputed nature of many PGCs and BGMs.
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In the run-up to the conference, allegations of nefarious activity have repeatedly been made. These have mainly related to alleged receiving of gifts by branch delegates. The existence of socalled ghost branches has also been raised as a concern. Branch structures have in some cases been gerrymandered to ensure the maximum number of voting delegates. It has, in addition, been observed that the number of cardcarrying ANC members increases during election season. Wealthy individuals have been accused of funding new membership fees, in order to maximise branch membership. ANC spokesperson Zizi Kodwa recently admitted to the role of money and votebuying as being very concerning.
Unity and compromise Unity has been a recurring theme during the race, and was recently affirmed by President Zuma, who hosted a working dinner for the top seven presidential candidates. We believe that the event was somewhat stage-managed to repair the party’s image. Although it is not known what was spoken about, the ANC did assert that: the seven ANC leaders committed themselves to promote unity and comradeship in the preparations for, during and after the national conference in the interest of building a stronger united and more cohesive ANC. Further meetings will be held with the seven including provincial leadership as part of ensuring a successful conference.
This leads us to believe that there is a commitment to ensure that the conference will be held, and that a conclusive outcome will be achieved.
The ANC leadership is concerned about perceptions that the conference outcome will not be definitive and in any event, that the party could potentially suffer a major reversal in the 2019 national and provincial elections if it remains fractured. The manner in which support was given to candidates, and slates drawn up so far in advance of the conference, has been criticised as further dividing an already divided party. Ramaphosa’s slate includes the following candidates: Naledi Pandor (Deputy), Gwede Mantashe (Chairperson), Senzo Mchunu (Secretary-General), Thoko Didiza (Deputy Secretary-General), and Paul Mashatile (Treasurer-General). Dlamini-Zuma’s slate includes David Mabuza (Deputy), Nathi Mthetwa (Chairperson), Ace Magashule (SecretaryGeneral), Jesse Duarte (Deputy SecretaryGeneral), and Maite Nkoana-Mashabane (Treasurer-General). One scenario would have a single slate victorious all the way down from President to Treasurer. We do not, however, view this as likely. Some compromise will be in the offing. Compromise scenarios include the winner selecting a deputy from the other camp, such as Mabuza or Pandor, or reaching out to another presidential candidate. Pandor, who served in Thabo Mbeki’s cabinet as Minister of Health, is a longstanding and very credible ANC intellectual. However, it appears that she does not command much support within party ranks. Ramaphosa’s choice of Pandor evoked some surprise. By our estimation, she was chosen because it would be easy for her to make way for a
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compromise deputy. Press reports claim that Ramaphosa has already made overtures to Lindiwe Sisulu in this regard. Mabuza is a powerful figure, because as Premier of Mpumalanga he commands the second largest provincial voting bloc, and is able to direct support to ultimately make a difference to the election outcome. As a result, he has been dubbed the “kingmaker”. He has not endorsed either presidential candidate, although appears on Dlamini-Zuma’s slate as the candidate for Deputy-President. Rather, he has opted, as we have noted, for a unity outcome. This has largely been endorsed by the branches. Some analysts have viewed this as a snub towards the Dlamini-Zuma camp, but Mabuza may well be waiting to see how the conference pans out to ultimately decide his allegiance.
2019 Unlike the past, the National Conference may not dictate the unfolding political scenario to 2019. Polling and popular opinion indicates that the ANC may not win the 2019 national elections with a clear majority, with support varying between 42% and 47%. An Ipsos opinion poll conducted lateAugust revealed that 47% of participants would vote for the ANC “if there was an election tomorrow”. This could open the way for an opposition coalition or broader governing alliance were the ANC not able to garner a parliamentary majority.
Figure 2: Ipsos poll (source: Ipsos)
Support for the ANC is falling as the 2016 local government elections clearly showed (albeit that they were not general elections). The ANC’s share of the vote fell from 62% in 2011 to 54%. Furthermore, the party lost control of three major metros: Tshwane, Johannesburg, and Nelson Mandela Bay. Gwede Mantashe admitted that the elections were swayed due to the “negative narrative around President Zuma”. Our analysis of the election at the time indicated that it was not so much that the DA and the EFF had garnered much more support, rather it was that traditional ANC supporters simply stayed away. Where opposition parties won wards or municipalities, the turnout was close to 80%, but where the ANC did so, the turnout was on average around 55%. This tells us that the ANC still has enormous cachet among its base. The consensus appears to be that the ANC will do better under a Ramaphosa leadership, because to regain urban
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support, the party has to counter the narrative around state capture. Polling agency Plus 94 interviewed 2,400 people, half of whom were paid-up ANC members. Of those polled, 42.6% indicated they would support Ramaphosa if an election were held tomorrow, compared to his rival, who obtained 21.4%. These results are not indicative of the outcome of the National Conference, as support for the rival candidates remains roughly split. However, we believe delegates as well as broader ANC supporters, will gravitate towards Ramaphosa if polls continue to show a more favourable outcome for the ANC with him in charge. We reiterate that there is no evidence to suggest that Dlamini-Zuma will implement the same policies as President Zuma. However, she not distanced herself from some members of the prevailing patronage network, who are backing her candidacy, but moreover she is reading from the same script. This has resulted in negative perceptions around her and her campaign team.
Investment conclusions After the cabinet reshuffle in late March, which saw Pravin Gordhan and Mcebisi Jonas removed as Finance Minister and deputy respectively, Fitch downgraded the sovereign credit rating on South Africa’s rand-denominated debt to subinvestment grade (“junk” status). The move was for Fitch in and of itself reflective of deteriorating financial management and governance such as to warrant a downgrade.
Local-currency debt was further downgraded to junk by S&P a month after the Medium-term Budget Policy Statement, which highlighted a marked deterioration in fiscal metrics. Fitch reaffirmed its sub-investment rating on November 23. The next day Moody’s maintained the rating on SA’s randdenominated debt at the lowest investment grade Baa3, but it emphasised that the country was subject to review for a possible downgrade. This process usually takes six months. Although troubling, the worst market fears have not yet been realised. Unlike many emerging market economies, South Africa has deep and mature capital markets and substantial domestic asset demand. The bulk of the country’s debt (88%) is denominated in rands, a currency over which the Treasury exercises fiat control. This serves to reduce the premium the government has to pay to convince foreign investors to lend money to it. Around 40% of South Africa’s debt stock is foreign owned. The rand and SA bonds responded favourably to figures from the ANC Secretariat indicating that Ramaphosa was ahead and in any event that the race was very close. Just six months back Dlamini-Zuma was a proverbial shoo-in. The yield on the R186 benchmark 10-year bond rose on expectations of a downgrade, but when Moody’s maintained its investment grade status, which meant that SA bonds did not exit the Citi World Government Bond Index, the yield reversed. The yield has since compressed further on Elective Conference optimism amongst investors.
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The ZAR has plotted a similar course. Figure 3: R186 yield year-to-date (source: Bloomberg)
investors, until additional information came to hand. The sell-off has been violent. Corruption is by no means the sole preserve of public sector actors. That said: (a) taking the current audited declared votes; (b) assuming a 70:30 split in favour of Dlamini-Zuma among the Youth League, Women’s League, MK Veterans and eligible NEC voters;
Figure 4: USDZAR year-to-date (source: Bloomberg)
(c) further assuming that up to 100 votes will probably not be brought to bear because of outstanding legal issues; and (d) notwithstanding that the unity outcome will unravel with a majority in favour of Dlamini-Zuma, we still have Ramaphosa ahead by perhaps 50 votes at the time of writing.
Typically analysis points to the rand and SA bonds reacting more negatively to a Dlamini-Zuma triumph, than a Ramaphosa victory. However in our assessment, the outcome is likely to be a lot more nuanced than that with different and compromise slate members incorporated at the last minute. In any event, as we have argued, the Elective Conference outcome is not dispositive of who will stand for the ANC in the 2019 elections. Much could happen politically between now and then. In addition, market participants are currently pre-occupied with instances of extremely poor corporate governance among several leading listed companies. Despite being well flagged some time ago, repeated denial from private oversight and review bodies appeared to reassure
Conclusion Although representatives of their branches and provinces, we surmise that many delegates will vote their conscience. Just how many is unclear, but evidence appears to back the thesis that more delegates voting against the branch declaration will support Ramaphosa. The secret ballot generally helps him, although it creates greater uncertainty. We have confidence in the ANC Secretariat to run a free and fair election, just as they have conducted a very transparent audit of branch meetings and votes. Whoever is elected ANC President will preside over a very weak economy. The ANC is also at risk of relegating itself to a largely rural party. As the local elections showed, even here, parties such as the
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IFP, Cope and the UDM can play the role of regional alternative for disaffected ANC supporters. The party has shed urban black support. In black townships the EFF has made strides, and even the DA has gained a foothold. We think many in the ANC understand the need for the party to change, to develop new ideas and adopt transformative policies that work. We think that the party needs to become broadly more relevant within a contested, pluralist political environment and as a government within a constitutional state. Some have even argued that the ANC cannot achieve this. In late 2016, former Deputy-Chief Justice Dikgang Moseneke said that when we stop having good leaders and norms are not respected, “movements lose their power and they die”. This has been a constant theme of ANC veterans. And the call has come from Parliamentary members of the ANC too, as well as members of the party hierarchy. Recent political developments are instructive. The SACP opted not to back a candidate in the National Conference, describing the ANC as having a “leadership paralysis”, and urging the incumbent to tackle alleged state capture, and other forms of “corruption” and “arrogance”. Before the Metsimaholo by-election, the SACP also refused to go into coalition with the ANC in its attempt to win the municipality, marking the first time that the party has contested political power outside the alliance. The SACP opted to form an alliance instead with the EFF, to keep the prevailing ANC faction from
winning. As no majority was achieved, and no coalition could be struck, the municipality will need to conduct another by-election. But support for civil society and civic community organisations in the Metsimaholo election indicates that the ANC is facing opposition from outside formal political ranks. In the end, the ANC lost over 10% from the previous election. South Africa has strong, independent social institutions such as the media, community organisations and NGOs, as well as a fearless judiciary. These bodies continue to hold government to account in the absence of the proper functioning of many oversight bodies. This is a very important characteristic of South Africa’s democratic dispensation and marks the country as clearly distinguishable from many emerging market peers. In our view, if the ANC is to survive as a major political force it has to work towards a more equitable South Africa, and give poor and working class people sustainable and acceptable outcomes. It has, in addition, to ensure an economic environment in which jobs are created quite aggressively. To achieve these aims it requires more coherent and implementable policies, foreign and domestic investment and growth more generally. We think this is understood among many in the ANC leadership, and is certainty the sentiment of the majority of ANC supporters. We think too that these requirements will become more and more important as 2019 draws near.
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References ANC National Conference 54th National Conference Nomination Process. (2017). Johannesburg, www.anc.org.za/sites/default/files/docs/ NEC-Nomination-Process.pdf Constitution of the ANC | African National Congress. (2012). Anc.org.za, retrieved December 08 2017, www.anc.org.za/content/constitutionanc Du Plessis, C (2017), “ANC leadership race: Ramaphosa's 'slate' announcement causes ructions in his team”, Daily Maverick, December 06 2017, www.dailymaverick.co.za/article/201711-10-anc-leadership-race-ramaphosasslate-announcement-causes-ructions-inhis-team Harris, M (2017), “Ipsos Poll: Voters uncertain pre-2019”, Ipsos, December 04 2017, www.ipsos.com/en-za/ipsos-pollvoters-uncertain-pre-2019
strengthens-after-ramaphosas-victory12277836 Kotze, D (2017), “SACP not rooting for specific individual for ANC president: Nzimande”, Enca, December 07 2017, www.enca.com/south-africa/sacp-notrooting-for-specific-individual-for-ancpresident-nzimande Madia, T (2017), “North West backs the entire Dlamini-Zuma slate in nominations”, News24, December 06 2017, www.news24.com/SouthAfrica/News/no rth-west-backs-the-entire-dlamini-zumaslate-in-nominations-20171201 Madia, T., & Mngadi, M. (2017), “Metsimaholo by-election: ANC takes 16 seats, leaving DA with 11”, News24, December 05 2017, www.news24.com/SouthAfrica/News/me tsimaholo-by-election-anc-takes-16seats-leaving-da-with-11-20171201
Hunter, Q., Molatlhwa, O., & Shoba, S. (2017), “Poll has Ramaphosa beating Dlamini-Zuma”, Times LIVE, December 05 2017, www.timeslive.co.za/sundaytimes/news/2017-07-22-poll-hasramaphosa-beating-dlamini-zuma Independent Electoral Commission, (2017), “IEC releases Metsimaholo by election results”, Enca, December 05 2017, www.enca.com/south-africa/iecrelease-metsimaholo-by-election-results Khumalo, K (2017), “Rand strengthens after Ramaphosa’s victory” IOL Business Report, December 08 2017, www.iol.co.za/business-report/rand-
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The road to 2019 - the ANC’s 54th National Conference candidate of their choice, not necessarily that of the branch or province . Author: Gideon Pimstone & Ntombi Nkiwane
Executive summary The ANC’s National Conference will take place from the 16th-20th December at Nasrec. Cyril Ramaphosa and Nkosazana Dlamini-Zuma are the front runners in the race for the ANC presidency, although there are in fact five other candidates vying for this position. Zuma will step down as ANC President when one of the two aforementioned candidates is elected by a majority of delegates at the National (Elective) Conference. According to the latest figures from the ANC secretariat that has to audit the Branch General Meetings, Ramaphosa is leading the race with 1,861 nominations, whilst Dlamini-Zuma has 1,309. The nomination process has been characterised by disputes in Kwa-Zulu Natal, Free State, Mpumalanga and the Eastern Cape. We are unsure as to how conference delegates will vote even where branches and provinces have declared for one or other candidate. Voting takes place via a secret ballot. Delegates will be able to vote for a
Conference outcomes are therefore highly unpredictable. Six months ago Dlamini-Zuma was a shooin, but now by our estimation, Ramaphosa is somewhat ahead. Internal divisions as well as governance issues have crippled the party’s image and reputation. The SACP refuses to back any presidential nominee, marking a decisive shift in its approach to the tripartite alliance. This was shown in separate polling in a byelection in Metsimaholo in the Free State. Various independent polls have shown that the ANC may lose its parliamentary majority in the 2019 national elections, particularly if the Nkosazana DlaminiZuma slate will take over in government. This is due to perceptions around governance. The rand and SA bonds have responded positively to a potential Ramaphosa win or even a close run race that might force compromises. Whatever the outcome, the new leadership will have to work determinedly to realign party values. Civil society organisations along with the media and the courts continue to work tirelessly to hold government, along with the private sector, to account.
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The road to 2019 – The ANC’s 54th National Conference in December
Chairperson of the African Union Commission. She is credited with repairing the grossly mismanaged Department of Home Affairs during her tenure.
Introduction
Ordinarily, National Conference results determine the political outcomes leading up to the next general election.
The African National Congress (ANC) National Conference scheduled for December 16 is the elective conference of the party held every five years. The purpose of the conference is to elect the “Top Six” membership of the National Executive Committee (NEC), the party’s highest decision-making body. Additional NEC members are voted in as well. The NEC consists of executive party officials, including inter alia the President, Vice-President, National Chairperson, Secretary-General, Deputy SecretaryGeneral, and Treasurer-General. More than 80 other members, including cabinet ministers, also form part of the larger NEC body. The principal focus of the National Conference is on who will take over as President of the ANC. The candidates vying for the position are Cyril Ramaphosa and Nkosazana Dlamini-Zuma, as well as five others, who have no chance of victory but may or may not find a way onto one of the winning slates. Both frontrunners are seasoned politicians. Ramaphosa’s experience stems from his position of Deputy President of the country, his one-time leadership of the NUM, his role in the constitutional negotiations as well as his business savvy. Dlamini-Zuma has served in a number of key positions including Minister of Health, Minister of Foreign Affairs, and
However, due to deep divisions and ongoing governance concerns, conference outcomes this time out may not be determinative of the ANC candidates for the 2019 national elections.
Election Process ANC branch and delegate votes are provincial. Each branch consists of at least 100 delegates, with delegates being proportional to paid-up membership. Preferred candidates are nominated at branch general meetings (BGMs), normally chaired by the respective Chairperson. Chairpersons ensure that delegates are in good standing. Branches nominate one person for each NEC position, and nominees have to obtain 50% plus 1 branch votes, to secure nomination. Branches convene at their respective Provincial General Councils (PGCs), in order to select their preferred candidates. 90% of conference delegates must be from party branches. This leaves 10% of votes for delegates representing the NEC, as well as ANC Women’s, Youth, and Veterans’ formation. The top seven candidates who have made themselves available for the presidency include: Deputy-President Cyril Ramaphosa; National Chairperson Baleka Mbete;
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Treasurer-General Zweli Mkhize; NEC members: Nkosazana DlaminiZuma, Lindiwe Sisulu and Jeff Radebe; and Former Treasurer-General Matthews Phosa. The ANC constitution is somewhat dated in that it does not represent a party that competes for power in a pluralistic democracy. The paid-up membership model and branch system is open to abuse. The ANC constitution largely reinforces provinces where the ANC has previously done well and therefore where it has a stronghold. The party has recently performed better in rural areas, as membership is largely governed by provincial and local power barons and traditional leaders. The organisation therefore has more delegate votes in these areas, compared to cosmopolitan areas such as Gauteng and the Western Cape, as well as in the Eastern Cape urban areas, where the ANC has performed relatively poorly. The electoral process will merely consolidate the ANC as a rural party. With the rate of urbanisation set to hit 90% in the next few decades, this model requires considerable tweaking if the ANC is to remain relevant.
The current state of play Ramaphosa is in the lead with 522 branch nominations more than his rival, at 1,861 to 1,309. He is backed by Gauteng, Western Cape, Limpopo, Eastern Cape and Northern Cape.
Dlamini-Zuma has received 1,309 nominations, and is backed by KwaZuluNatal, North West and the Free State. The majority of Mpumalanga branches have opted for a “unity” outcome. But even in provinces where one or other candidate dominates, the other candidate will secure some considerable votes. Figure 1: Nomination tallies (source: Bloomberg)
At the end of the day, branch disputes have resulted in a prolonged election process. Major provincial contestations have taken place in KwaZulu-Natal, the Eastern Cape, Free State, and Mpumalanga. The nomination process in KwaZulu-Natal, representing the party’s biggest voting bloc, has been marred by controversy. Concerns over PGC results were expressed by some delegates, leading to a recount. Dlamini-Zuma was affirmed as victor, with 454 to 191, but the setting up of the Provincial Executive has been challenged in court. The vast majority of Mpumalanga delegates chose to nominate a unity outcome, which may or may not be
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possible. Gwede Mantashe and Mathews Phosa, amongst others, have challenged the viability and desirability of a unity vote. The province is the second biggest provincial voting bloc. It is also the home province of Premier David Mabuza. In the absence of a unity resolution most of the delegates will go for Dlamini-Zuma, but even here Ramaphosa is set in our view, to secure over 120 votes. The Eastern Cape is the ANC’s third biggest voting bloc, and thus an important battleground. The province has seen strong campaigning by Dlamini-Zuma in rural areas and was initially foreseen as backing her. The PGC was marred by violence between delegates. Although divided, the province nominated Ramaphosa for presidency by a tally of 423 to 89. The outcome of the PGC was challenged by the losing bloc, but the legal dispute was later dropped. The Free State’s PGC was hastily convened, to the dismay of some branches. The notice for the convening of the meeting was provided only a day before. Over 100 Ramaphosa supporters boycotted the conference due to 26 branches being allegedly irregularly constituted. This decision was upheld by the High Court, which declared those branch results null and void. However, Dlamini-Zuma was ultimately nominated as the preferred candidate by a margin of 209 to 44. Still, it remains anyone’s race. As we shall discuss later, there are a number of variables which will determine the outcome of the National Conference.
Policy platforms Either Ramaphosa or Dlamini-Zuma will win. This is a foregone conclusion. Ramaphosa’s campaign platform has focused on restoring business and investor confidence. South African randdenominated bonds have been downgraded to “junk status” by major ratings agencies Fitch and S&P, because of perceived public finance management failings, and the rapid deterioration of fiscal metrics, leading to rand depreciation and disinvestment. Contrastingly, Dlamini-Zuma has focused on radical economic transformation. The black majority continue to be excluded from mainstream economic activity and suffer from high levels of unemployment. The incumbent government, it has been argued, has been slow to redress the skewed nature of land ownership, as well as ensure the smooth delivery of basic services, and achieve credible public education and health outcomes for the poor. In our assessment, Dlamini-Zuma could be quite sincere about her redistribution agenda, but she is relying on elements of a political faction that have unfortunately exploited the narrative of transformation for very narrow material gains. We do not subscribe this view to Dlamini-Zuma, but worry about her capacity to deliver given these political constraints. The successful candidate and the broader slate might be met with a legal challenge given the disputed nature of many PGCs and BGMs.
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In the run-up to the conference, allegations of nefarious activity have repeatedly been made. These have mainly related to alleged receiving of gifts by branch delegates. The existence of socalled ghost branches has also been raised as a concern. Branch structures have in some cases been gerrymandered to ensure the maximum number of voting delegates. It has, in addition, been observed that the number of cardcarrying ANC members increases during election season. Wealthy individuals have been accused of funding new membership fees, in order to maximise branch membership. ANC spokesperson Zizi Kodwa recently admitted to the role of money and votebuying as being very concerning.
Unity and compromise Unity has been a recurring theme during the race, and was recently affirmed by President Zuma, who hosted a working dinner for the top seven presidential candidates. We believe that the event was somewhat stage-managed to repair the party’s image. Although it is not known what was spoken about, the ANC did assert that: the seven ANC leaders committed themselves to promote unity and comradeship in the preparations for, during and after the national conference in the interest of building a stronger united and more cohesive ANC. Further meetings will be held with the seven including provincial leadership as part of ensuring a successful conference.
This leads us to believe that there is a commitment to ensure that the conference will be held, and that a conclusive outcome will be achieved.
The ANC leadership is concerned about perceptions that the conference outcome will not be definitive and in any event, that the party could potentially suffer a major reversal in the 2019 national and provincial elections if it remains fractured. The manner in which support was given to candidates, and slates drawn up so far in advance of the conference, has been criticised as further dividing an already divided party. Ramaphosa’s slate includes the following candidates: Naledi Pandor (Deputy), Gwede Mantashe (Chairperson), Senzo Mchunu (Secretary-General), Thoko Didiza (Deputy Secretary-General), and Paul Mashatile (Treasurer-General). Dlamini-Zuma’s slate includes David Mabuza (Deputy), Nathi Mthetwa (Chairperson), Ace Magashule (SecretaryGeneral), Jesse Duarte (Deputy SecretaryGeneral), and Maite Nkoana-Mashabane (Treasurer-General). One scenario would have a single slate victorious all the way down from President to Treasurer. We do not, however, view this as likely. Some compromise will be in the offing. Compromise scenarios include the winner selecting a deputy from the other camp, such as Mabuza or Pandor, or reaching out to another presidential candidate. Pandor, who served in Thabo Mbeki’s cabinet as Minister of Health, is a longstanding and very credible ANC intellectual. However, it appears that she does not command much support within party ranks. Ramaphosa’s choice of Pandor evoked some surprise. By our estimation, she was chosen because it would be easy for her to make way for a
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compromise deputy. Press reports claim that Ramaphosa has already made overtures to Lindiwe Sisulu in this regard. Mabuza is a powerful figure, because as Premier of Mpumalanga he commands the second largest provincial voting bloc, and is able to direct support to ultimately make a difference to the election outcome. As a result, he has been dubbed the “kingmaker”. He has not endorsed either presidential candidate, although appears on Dlamini-Zuma’s slate as the candidate for Deputy-President. Rather, he has opted, as we have noted, for a unity outcome. This has largely been endorsed by the branches. Some analysts have viewed this as a snub towards the Dlamini-Zuma camp, but Mabuza may well be waiting to see how the conference pans out to ultimately decide his allegiance.
2019 Unlike the past, the National Conference may not dictate the unfolding political scenario to 2019. Polling and popular opinion indicates that the ANC may not win the 2019 national elections with a clear majority, with support varying between 42% and 47%. An Ipsos opinion poll conducted lateAugust revealed that 47% of participants would vote for the ANC “if there was an election tomorrow”. This could open the way for an opposition coalition or broader governing alliance were the ANC not able to garner a parliamentary majority.
Figure 2: Ipsos poll (source: Ipsos)
Support for the ANC is falling as the 2016 local government elections clearly showed (albeit that they were not general elections). The ANC’s share of the vote fell from 62% in 2011 to 54%. Furthermore, the party lost control of three major metros: Tshwane, Johannesburg, and Nelson Mandela Bay. Gwede Mantashe admitted that the elections were swayed due to the “negative narrative around President Zuma”. Our analysis of the election at the time indicated that it was not so much that the DA and the EFF had garnered much more support, rather it was that traditional ANC supporters simply stayed away. Where opposition parties won wards or municipalities, the turnout was close to 80%, but where the ANC did so, the turnout was on average around 55%. This tells us that the ANC still has enormous cachet among its base. The consensus appears to be that the ANC will do better under a Ramaphosa leadership, because to regain urban
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support, the party has to counter the narrative around state capture. Polling agency Plus 94 interviewed 2,400 people, half of whom were paid-up ANC members. Of those polled, 42.6% indicated they would support Ramaphosa if an election were held tomorrow, compared to his rival, who obtained 21.4%. These results are not indicative of the outcome of the National Conference, as support for the rival candidates remains roughly split. However, we believe delegates as well as broader ANC supporters, will gravitate towards Ramaphosa if polls continue to show a more favourable outcome for the ANC with him in charge. We reiterate that there is no evidence to suggest that Dlamini-Zuma will implement the same policies as President Zuma. However, she not distanced herself from some members of the prevailing patronage network, who are backing her candidacy, but moreover she is reading from the same script. This has resulted in negative perceptions around her and her campaign team.
Investment conclusions After the cabinet reshuffle in late March, which saw Pravin Gordhan and Mcebisi Jonas removed as Finance Minister and deputy respectively, Fitch downgraded the sovereign credit rating on South Africa’s rand-denominated debt to subinvestment grade (“junk” status). The move was for Fitch in and of itself reflective of deteriorating financial management and governance such as to warrant a downgrade.
Local-currency debt was further downgraded to junk by S&P a month after the Medium-term Budget Policy Statement, which highlighted a marked deterioration in fiscal metrics. Fitch reaffirmed its sub-investment rating on November 23. The next day Moody’s maintained the rating on SA’s randdenominated debt at the lowest investment grade Baa3, but it emphasised that the country was subject to review for a possible downgrade. This process usually takes six months. Although troubling, the worst market fears have not yet been realised. Unlike many emerging market economies, South Africa has deep and mature capital markets and substantial domestic asset demand. The bulk of the country’s debt (88%) is denominated in rands, a currency over which the Treasury exercises fiat control. This serves to reduce the premium the government has to pay to convince foreign investors to lend money to it. Around 40% of South Africa’s debt stock is foreign owned. The rand and SA bonds responded favourably to figures from the ANC Secretariat indicating that Ramaphosa was ahead and in any event that the race was very close. Just six months back Dlamini-Zuma was a proverbial shoo-in. The yield on the R186 benchmark 10-year bond rose on expectations of a downgrade, but when Moody’s maintained its investment grade status, which meant that SA bonds did not exit the Citi World Government Bond Index, the yield reversed. The yield has since compressed further on Elective Conference optimism amongst investors.
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The ZAR has plotted a similar course. Figure 3: R186 yield year-to-date (source: Bloomberg)
investors, until additional information came to hand. The sell-off has been violent. Corruption is by no means the sole preserve of public sector actors. That said: (a) taking the current audited declared votes; (b) assuming a 70:30 split in favour of Dlamini-Zuma among the Youth League, Women’s League, MK Veterans and eligible NEC voters;
Figure 4: USDZAR year-to-date (source: Bloomberg)
(c) further assuming that up to 100 votes will probably not be brought to bear because of outstanding legal issues; and (d) notwithstanding that the unity outcome will unravel with a majority in favour of Dlamini-Zuma, we still have Ramaphosa ahead by perhaps 50 votes at the time of writing.
Typically analysis points to the rand and SA bonds reacting more negatively to a Dlamini-Zuma triumph, than a Ramaphosa victory. However in our assessment, the outcome is likely to be a lot more nuanced than that with different and compromise slate members incorporated at the last minute. In any event, as we have argued, the Elective Conference outcome is not dispositive of who will stand for the ANC in the 2019 elections. Much could happen politically between now and then. In addition, market participants are currently pre-occupied with instances of extremely poor corporate governance among several leading listed companies. Despite being well flagged some time ago, repeated denial from private oversight and review bodies appeared to reassure
Conclusion Although representatives of their branches and provinces, we surmise that many delegates will vote their conscience. Just how many is unclear, but evidence appears to back the thesis that more delegates voting against the branch declaration will support Ramaphosa. The secret ballot generally helps him, although it creates greater uncertainty. We have confidence in the ANC Secretariat to run a free and fair election, just as they have conducted a very transparent audit of branch meetings and votes. Whoever is elected ANC President will preside over a very weak economy. The ANC is also at risk of relegating itself to a largely rural party. As the local elections showed, even here, parties such as the
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IFP, Cope and the UDM can play the role of regional alternative for disaffected ANC supporters. The party has shed urban black support. In black townships the EFF has made strides, and even the DA has gained a foothold. We think many in the ANC understand the need for the party to change, to develop new ideas and adopt transformative policies that work. We think that the party needs to become broadly more relevant within a contested, pluralist political environment and as a government within a constitutional state. Some have even argued that the ANC cannot achieve this. In late 2016, former Deputy-Chief Justice Dikgang Moseneke said that when we stop having good leaders and norms are not respected, “movements lose their power and they die”. This has been a constant theme of ANC veterans. And the call has come from Parliamentary members of the ANC too, as well as members of the party hierarchy. Recent political developments are instructive. The SACP opted not to back a candidate in the National Conference, describing the ANC as having a “leadership paralysis”, and urging the incumbent to tackle alleged state capture, and other forms of “corruption” and “arrogance”. Before the Metsimaholo by-election, the SACP also refused to go into coalition with the ANC in its attempt to win the municipality, marking the first time that the party has contested political power outside the alliance. The SACP opted to form an alliance instead with the EFF, to keep the prevailing ANC faction from
winning. As no majority was achieved, and no coalition could be struck, the municipality will need to conduct another by-election. But support for civil society and civic community organisations in the Metsimaholo election indicates that the ANC is facing opposition from outside formal political ranks. In the end, the ANC lost over 10% from the previous election. South Africa has strong, independent social institutions such as the media, community organisations and NGOs, as well as a fearless judiciary. These bodies continue to hold government to account in the absence of the proper functioning of many oversight bodies. This is a very important characteristic of South Africa’s democratic dispensation and marks the country as clearly distinguishable from many emerging market peers. In our view, if the ANC is to survive as a major political force it has to work towards a more equitable South Africa, and give poor and working class people sustainable and acceptable outcomes. It has, in addition, to ensure an economic environment in which jobs are created quite aggressively. To achieve these aims it requires more coherent and implementable policies, foreign and domestic investment and growth more generally. We think this is understood among many in the ANC leadership, and is certainty the sentiment of the majority of ANC supporters. We think too that these requirements will become more and more important as 2019 draws near.
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References ANC National Conference 54th National Conference Nomination Process. (2017). Johannesburg, www.anc.org.za/sites/default/files/docs/ NEC-Nomination-Process.pdf Constitution of the ANC | African National Congress. (2012). Anc.org.za, retrieved December 08 2017, www.anc.org.za/content/constitutionanc Du Plessis, C (2017), “ANC leadership race: Ramaphosa's 'slate' announcement causes ructions in his team”, Daily Maverick, December 06 2017, www.dailymaverick.co.za/article/201711-10-anc-leadership-race-ramaphosasslate-announcement-causes-ructions-inhis-team Harris, M (2017), “Ipsos Poll: Voters uncertain pre-2019”, Ipsos, December 04 2017, www.ipsos.com/en-za/ipsos-pollvoters-uncertain-pre-2019
strengthens-after-ramaphosas-victory12277836 Kotze, D (2017), “SACP not rooting for specific individual for ANC president: Nzimande”, Enca, December 07 2017, www.enca.com/south-africa/sacp-notrooting-for-specific-individual-for-ancpresident-nzimande Madia, T (2017), “North West backs the entire Dlamini-Zuma slate in nominations”, News24, December 06 2017, www.news24.com/SouthAfrica/News/no rth-west-backs-the-entire-dlamini-zumaslate-in-nominations-20171201 Madia, T., & Mngadi, M. (2017), “Metsimaholo by-election: ANC takes 16 seats, leaving DA with 11”, News24, December 05 2017, www.news24.com/SouthAfrica/News/me tsimaholo-by-election-anc-takes-16seats-leaving-da-with-11-20171201
Hunter, Q., Molatlhwa, O., & Shoba, S. (2017), “Poll has Ramaphosa beating Dlamini-Zuma”, Times LIVE, December 05 2017, www.timeslive.co.za/sundaytimes/news/2017-07-22-poll-hasramaphosa-beating-dlamini-zuma Independent Electoral Commission, (2017), “IEC releases Metsimaholo by election results”, Enca, December 05 2017, www.enca.com/south-africa/iecrelease-metsimaholo-by-election-results Khumalo, K (2017), “Rand strengthens after Ramaphosa’s victory” IOL Business Report, December 08 2017, www.iol.co.za/business-report/rand-
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