Zuma breached the Constitution – Constitutional Court

In a landmark ruling by the Constitutional Court yesterday, President Jacob Zuma was found to be in breach of his constitutional obligations. This ruling was made in reference to cases brought before the court by the Economic Freedom Fighters (EFF) and the Democratic Alliance (DA) regarding the Nkandla debacle and the enforceability of the findings by the Public Protector.

Peter Attard Montalto, research analyst at Nomura, noted: “In a very forceful ruling the Constitutional Court has issued a declaratory order that the President and parliament violated the Constitution and their duties with respect to the scandal surrounding the President’s Nkandla homestead.”

As a result of the ruling, Zuma will be required to repay an amount to be determined by National Treasury, for the non-security related upgrades to his private Nkandla residence.

The Banking Association of South Africa has come out commending the decision of the Constitutional Court, however, it has concerns about the implications of the judgement.

Reaction to the judgement

Cas Coovadia, managing director of the Banking Association of South Africa, said: “We commend the unanimous and significant judgement by the Constitutional Court in affirming the duties, responsibilities and co-equal nature of Government, Parliament, Chapter 9 institutions and the Judiciary to uphold their Constitutional obligations in executing their mandates. We are however deeply concerned that the judgement confirms that in respect of the Public Protector’s report on the Nkandla matter, Parliament, the President and members of Cabinet have been found by the Constitutional Court to have acted in conflict with their constitutional obligations.”

The Association stressed that no individual, regardless of their position, is beyond reproach. Furthermore, it noted that the stability and credibility of South Africa’s constitutional democracy “requires critical institutions such as Parliament to perform its Constitutional functions and mandate of accountability, oversight and legislating in a procedurally sound, unbiased and constitutionally compliant manner.”

According to Montalto, the market is likely to view this feat by the Constitutional Court as a positive for South Africa. However, he noted that there are other factors that need to be taken into consideration too.

The impact on the economy

“The market views President Zuma on the back-foot and so sees a higher chance of Zumxit – as a result ZAR and South African assets will likely remain on the front-foot until the market realises that this issue does not shift the needle decisively within the ANC NEC, beyond where it is already. The market also needs to recognise the deeper dismissive attitudes towards the Constitution held by some parts of the ANC and that the impeachment process is unlikely to get anywhere as the ANC deals with issues internally and such a motion is highly unlikely to garner a two-thirds majority,” stated Montalto.

Montalto highlighted any decision needs to be viewed from the point of view of the ANC NEC. Legal and constitutional issues differ from politics, and according to Montalto, the court’s ruling will have little impact on the NEC. Therefore, despite the impact that this may have on the public, media and the markets, there may be very little political impact.

“President Zuma’s control is political and patronage based and is independent and immune (to a large but not total degree) to legal issues like this,” said Montalto.

In addition, Montalto noted that markets need to be aware of the views held by the ANC with regards to the Constitution. “These range from President Zuma’s rhetoric that the ANC is “above” the Constitution, through to similar comments from the Speaker of Parliament Baleka Mbete (who is also Chair of the ANC, ‘top six’ member, and a potential alternate Presidential candidate for the Zuma-faction in place of Nkosazana Dlamini-Zuma).”

As a result of this, there is an underlying negative market current, and whether Zuma were to step down as president or not, there are still concerns that need to be addressed.

“Overall, we think markets put too much emphasis on Mr Zuma as the root of all problems in South Africa. Instead, we think Mr Zuma needs to be seen as one component of the Tenderpreneur faction, whose ultimate success at the elective conference at the end of next year is the embodiment of the status quo continuing beyond Mr Zuma,” stated Montalto.

“We are faced with fundamental national economic and social priorities that need to be addressed through our collective efforts as government, business, labour and civil society to get our economy back on track and to affirm that our Constitution remains intact and unshaken,” added Coovadia.

The ruling

According to the Banking Association, the judgement handed down by the court is significant as it highlights how the separation of powers should be navigated by all organs of state.

“The Court very clearly laid out the constitutional roles of the President and parliament and found that both had acted unlawfully and had broken the Constitution in the way they failed to implement remedial action requested by the Public Protector in her 19 March 2014 report. President Zuma will now personally have to pay back the money within 45 days of a National Treasury (NT) determination. The NT in turn has 60 days from today to report on the amount to be repaid to the Constitutional Court,” explained Montalto.

He added: “The total cost of the Nkandla upgrades was R246 million, but the Court has ruled that only certain non-security upgrades need to be repaid and then the NT can determine a ‘fair portion’ of those costs. The total non-security costs the Constitutional Court lists add up to around R10-12 million. This means President Zuma only has to repay maybe R5-10 million, but the degrees of freedom here mean there is some uncertainty.”

Furthermore, Montalto pointed out that the court has noted that the ministers who defended Zuma, should be reprimanded.

“Zumxit is becoming more likely at least by January 2018 after the elective conference, with the possible option of an exit after the elective conference pre-announced (‘managed exit’) later this year, after the local elections. However, it will be a decision ultimately taken by the NEC, through the recall mechanism and while likely a very significant market positive event will not, if the status quo and Tenderpreneur camp continue to hold power – fundamentally shift the path South Africa is on,” added Montalto.