Overreach – how generals, tyrants and puffed up fools implode

Business Day  this morning published an article suggesting that Nhlanhla Nene was on the verge of being shuffled out of his Minister of Finance position to some face-saving backwater.

I wrote early last week in a client note: “It is widely held that the National Treasury and Minister Nhlanhla Nene have come under hostile pressure for investigating close Zuma allies and an axe in the form a threatened Cabinet shuffle hangs over Nene’s head to keep him compliant with Zuma’s own spending priorities and plans for SOE’s and nuclear power roll-out (to which Nene is widely believed to be opposed in its current ZAR1-trillion form).”

However I have repeated to several of my clients that I believe that while Zuma might axe Nene is might be a step too far, the moment the great leader overestimates his greatness and fails to understand his Ozymandian limitations.

Nene is the first black African Minister of Finance and he is at least as steely and technically competent as any of his post 1994 predecessors. Last week be brought the meat-clever down on the plan of SAA board chair Dudu Myeni (widely suggested to be an intimate of Jacob Zuma) to place a mock-up company in an already done leasing deal between the national carrier and Airbus. The company would have been nothing other than a rent extraction tool – and added hugely to the costs of the deal. Myeni’s reprehensible argument was that it was all for the purpose of transformation – proving that the political elite uses the practice to loot the SOE budgets as much as it ever does to promote real BEE.

Nene has also been going after the SABC’s Motsoeneng (another person who brags widely about his relationship with the President and his untouchable status) and he (Nene) has been widely assessed to be dragging his heals on Jacob Zuma’s pet nuclear deal that in its current form  would beggar the country and state finance for many years to come.

So Nene has apparently got in Zuma’s face and he is facing the axe – according to various stories including the one linked above.

When Nene was first appointed on May 24 2014 I expressed concern about his seniority in the party and questioned whether he would be able to stand up to the fiscal pressures that would be placed on him – especially in relation to his predecessors in the position and especially in our declining growth environment.

I was wrong – if anything Nene has been both stronger and more tactical in his attempts to meet the increasingly difficult targets of fiscal consolidation – given the endlessly lower levels of growth. The rating agencies, those who grade South African government debt and have recently moved us closer to non-investment grade (i.e., junk) have come to rely on the dependability of the head of the National Treasury. We have a tradition of putting some of our best ministers in the position and Nene has risen to the challenge.

The Business Day story quoted above (which might be rubbish, but chimes with several of our initial views) suggests that some “malleable” nobody by the name of Des van Rooyen from the Parliament’s finance committee could replace Nene (the closest information I could find on a web search for this character was this smarmy speech on the ANC website).

I have no idea if this is true, but have concluded elsewhere for a range of reasons and from a range of sources that Nene is vulnerable and that ‘an axe hovers over his neck’ because he has stood up to Zuma.

If Zuma gets rid of Nene, because the head of the NT has offended Zuma’s friends and he is showing opposition to Zuma’s nuclear retirement plan or legacy project he (Zuma) would be making a grave mistake – a mistake leaders who have come to overestimate their power often make.

Axing Nene will be read by the capital markets and rating agencies in exactly the terms I have described above – Nene has been exemplary in his job except when forced to concede to political pressure from the top – and even then he has skilfully manoeuvred to lessen the damage.

If Nene is axed I will be unsurprised to see us downgraded to junk by the end of 2016.

I will also be unsurprised to see political shifts against the leader (Zuma) who has finally overstepped the mark, who has heaped damage upon damage on the South African political economy, especially as regards to its reputation for probity, but who has especially damaged the reputation of the ANC.

I see from the Business Day story that the rumour is the Guptas “let the cat out of the bag” (read “announced”) the impending Cabinet reshuffle. Excuse me! This more than anything suggests (if it is true), not for the first time, that Zuma has sold our sovereignty to these shady interlopers for something a lot more than a mess of pottage.

My underlying point is that Zuma’s power is becoming more brittle and his lines of support stretched thinner and thinner. He is engaging in actions that parts of his party find repulsive and there is a point beyond which a system under stress can quickly unravel as the connections snap and the nodes pop.