Why Zuma’s ouster is good for Lesotho

Why Zuma’s ouster is good for Lesotho

While the National Executive Committee (NEC) of the African National Congress (ANC) has the power to recall a state president deployed by the ANC to that position, legally, a state president is elected into that position by the majority in South African national assembly.
The removal of the president can also only be done through the National Assembly. This means therefore that a sitting state president who for one reason or another has a desire to cling to that seat, may defy the ‘recall’ by the ANC NEC and wait for the parliamentary process to take place and have him legally removed.

In September 2008, after the former ANC and state president Thabo Mbeki lost the ANC presidency to Jacob Gedleyihlekisa Zuma, Mbeki was recalled by the ANC NEC amid the allegations that he had interfered with the National Prosecuting Authority in the case involving his then deputy Zuma.

The courts had upheld this charge against Mbeki. He went on to challenge this judgment in the Supreme Court of Appeals, which overturned the earlier judgment. Mbeki did not attempt to have the resignation rescinded.
In my opinion, there is the mark of an honourable man. Mbeki not only understood that his recall was for all intents and purposes an indication of loss of confidence in him by his beloved political party, but also knew that his attempt at either clinging to power or to challenge his removal would throw the party into a state of disarray.

Today, it is poetic justice for Zuma (something that cannot be said about Mbeki) as he is now facing the same predicament that was subjected to as his predecessor. It is ironic that today, it is Zuma who is reported as saying that a recall would be humiliating for him.
Zuma is facing a plethora of charges against him ranging from his alleged involvement in corrupt dealings with the Guptas to the 783 corruption charges relating to the 1990s arms deal.

During the period of the 9th – 13th December 2015, Zuma had fired Nhlanhla Nene as the Finance Minister; hired and fired David van Rooyen for the same position; and reappointed the much respected Pravin Gordhan as the Finance Minister.

During this time, the Rand (South African currency) had plummeted to such a low level that it reached the USD1=R16 mark. His actions have resulted in the economy of that country and some of the companies in South Africa to be classified under dreaded “junk status”. Junk status simply renders South Africa as an economy not worth investing into, unless the government is prepared to offer high premiums to would-be investors. This translates to serious costs and an increase to the country’s repayment obligations to those who have invested in that country.

Lesotho, whose lifeline is in accordance with the heartbeat of South Africa, was not spared and the repercussions of Zuma’s acts were and are still felt in Lesotho as well.

Firstly and the most important according to me, the structure of Lesotho public debt stock, which stands at around 35 percent of GDP is such that the bulk of it (89%) of its total public debt is from external sources, and logically, this debt gets repaid in foreign currencies.

An ideal situation in this regard is when the exchange rate between the Lesotho Loti and other foreign currencies remains at their lowest. To clarify the risk of exposure and cost to Lesotho associated with Zuma’s actions, let us suppose that Lesotho had in 2015 contracted a loan amount of US$10, equivalent to M100 at a rate of US$1=M10.

If the exchange rate plummets to US$1=M16, it means that to repay the US$10, M100 is no longer sufficient. Lesotho would need an extra M60 of money that Lesotho did not receive to buy and repay the original US$10. In a country that is classified as a low income country, with challenges that include high unemployment and high levels of poverty, every cent is valuable to us.

Secondly, it has an impact of markedly pushing up the price of imports. On an annual basis, Lesotho runs a negative Balance of Trade (BOT), an undesirable thing when a country needs to grow its Gross Domestic Product (GDP).
The BOT, which was estimated to be around M2,375 million in September 2017 becomes negative when a country’s exports are less than its imports. It is evident from this value that Lesotho imports far more than she exports.

So, if we use the previous example, suppose Lesotho purchases a product worth US$10 with M100 from abroad at a rate of US$1=M10. When the exchange rate depreciates to US$1=M16, it means that Lesotho would now need to raise M160 instead of M100 to purchase the same product.
This means therefore that by the actions of one man, the economy can be made worse overnight. This analysis is by no means conclusive. A number of factors always come into play and it may be argued that this is an over-simplification of reality on the ground.

For example, someone may argue that the deterioration of the exchange rate would mean that locally produced goods would be cheaper to the buyers from abroad and therefore that translates to more foreign exchange earnings. While this may be true, for a country like Lesotho that imports a lot much more than it exports, the former argument is almost always the result.

The ANC held its 54th National Conference, which elected Cyril Ramaphosa as the president of the party and one can only conclude that the chances of him becoming the next president of South Africa, whether via the removal of Zuma or general elections are high.

On the 30th November 2017, the Rand and Maloti traded 13.71 to US$1. This was two weeks before the ANC National Conference. Towards the 16th December when almost everything pointed to Ramaphosa being the next ANC president, the Rand, hence the Lesotho Loti, began gaining value.
By the 31st December 2017, M12.14 purchased US$1. Better still, on Tuesday (at the time of writing) with the news from last night that Zuma had been given 48 hours to resign or be recalled, to buy US$1, one needs M11.97. The markets respond very well to the news that Zuma is about to be removed.

Ramaphosa is a former successful businessman. This could be one reason why the Rand is responding so well, since investors have confidence in him. He comes out as a person of a more tranquil character, and someone who compared to Zuma may change the fortunes of the South African economy for the better.

As I have said, when South Africa catches a cold, Lesotho sneezes. We therefore need a South African president to whom investors and markets respond in this manner for a sustained better performing Lesotho economy.

With Zuma still in power until 2019, Lesotho’s economy would surely be headed for a torrid time, which would only make things worse than they already are. A combination of the removal of Jacob Zuma and the dawn of the new president Ramaphosa is certainly a tonic for Lesotho’s ailing economy.

Mosito Ntema

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