The ANC is facing deepening internal divisions as corruption scandals involving President Jacob Zuma have eroding the longtime ruling party’s popular support, as was made clear at municipal elections held in August. Zuma survived a no-confidence vote in the ANC’s top executive body in late November, and Secretary-General Gwede Mantashe has deferred further discussion of Zuma’s leadership to the party’s policy conference in July, but the fault lines within the ANC are likely to widen over the coming months, and Zuma’s claim to the presidency could become tenuous once the party chooses a new party leader in December 2017.

Zuma faces fresh allegations of shady dealings related to the influence of domestic business interests, in particular, the powerful Gupta family. A report issued in November by the independent Office of the Public Protector called for a judicial inquiry into “state capture” by big business. Having failed in his effort to quash the report, Zuma has called on the High Court to ignore the state watchdog’s recommendations, a move that has only reinforced suspicions of wrongdoing.

In another blow to the president, state prosecutors withdrew an indictment against Finance Minister Pravin Gordhan on fraud charges dating back to his tenure as head of the national tax authority in late October. The reversal seemed to validate widespread suspicions that the indictment, which was issued only three weeks earlier, was politically motivated, s an attempt to undermine the credibility of the Treasury’s anti-corruption efforts and to create a pretext for replacing the finance minister with someone who would tolerate populist spending initiatives aimed at shoring up the ANC’s eroding base.

Zuma’s struggles will inject a measure of added drama into the December 2017 leadership election, which will determine who will succeed Zuma in 2019, assuming the ANC can retain its legislative majority and the incumbent serves out his full term. The president’s loyal supporters are likely to coalesce around his former wife, Nkosazana Dlaimini-Zuma, while rival factions are expected to throw their support behind Deputy President Cyril Ramphosa, a former trade union leader and successful businessman who advocates a market-based economic policy program, and remains the favorite to get the nod.

With Gordhan’s position less uncertain, credit-rating agencies have affirmed the investment-grade status of South African debt, but there remains a risk of a downgrade if fresh political turmoil raises doubts about the government’s commitment to containing deficits. The budget deficit forecast for 2016/2017 has been revised upward to 3.4% of GDP, and Gordhan has indicated that he will rely on tax increases, rather than spending cuts, to narrow the shortfall, and protecting the capital investment will be a priority.

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