South Africa’s no confidence vote, a secret ballot and the rand

South African President Jacob Zuma is facing his eighth no confidence vote. The ballot will be held in secret. What does this mean for the country’s financial markets?

The rand
Source: Bloomberg

South Africa’s Speaker of Parliament Baleka Mbete has, to the surprise of many, announced that a vote of no confidence against President Jacob Zuma will be done via a secret ballot on 8 August. This will be the eighth such vote in Zuma’s tenor as president, although this time there is a clear factional divide within the ruling African National Congress (ANC).

The maths

There are 400 members of parliament (MPs) and to pass a vote of no confidence, 201 votes are needed. The ANC holds 249 of these votes and opposition parties have the remaining 151 seats. While most opposition parties appear united in the cause to remove the president, there are about five opposition votes that are uncertain or even unlikely to support it. So a minimum of 55 members of the ruling party would need to defect to pass a motion of no confidence in the president.

But will they?

It is possible (as we know there is divide within the ruling party), but is it likely? One key consideration here is that a vote by a defecting ANC member to remove the president, is also a vote to lose his or her own job. If the president is removed, the constitution dictates that his cabinet must step down as well. While some ANC members have been vocal about their unhappiness with South Africa’s current leader, we do not think there is enough support to pass a motion of no confidence and perhaps even less willingness to invoke a career suicide. However, the fact that the vote will now be held in secret presents an outside chance that those MPs who have been voiceless or fearful thus far will vote with the opposition.

How will markets react?

The rand has been a barometer of political uncertainty within the country. The currency immediately strengthened on the news that the vote of no confidence will be a secret ballot. This would imply market support for the possibility of the president being removed. Ironically, should the president be removed, it would result in further policy uncertainty and be negative for domestic currency.

With this in mind, if our most likely scenario occurs, which is that the president retains his job, perhaps a short-term weakening of the rand can be expected. Nearly 70% of earnings generated by companies in South Africa’s Top 40 index are derived in foreign currency, so a weakening rand would be positive for the index’s movements.  

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