Zuma Strikes Again

OVER THE PAST FEW WEEKS, SOUTH AFRICANS HAVE HAD TO ENDURE THE RECALLING OF FORMER FINANCE MINISTER PRAVIN GORDHAN FROM AN INTERNATIONAL INVESTOR ROADSHOW, A CABINET RESHUFFLE AND A CREDIT RATING DOWNGRADE. AND WHILE THE NEW MINISTER OF FINANCE MALUSI GIGABA IS OPTIMISTIC THAT HIS TEAM WILL “MANAGE THE ECONOMY REALLY WELL”, EXPERTS WARN OF BLEAK YEARS AHEAD.

- Mariam Isa

South Africa could be headed for a series of further credit rating downgrades, which will nudge its sovereign debt further into junk territory unless decisive action is taken to stabilise the country’s turbulent political environment and restore faith in the future of its economic policies.

This appears unlikely after President Jacob Zuma's decision to abruptly recall finance minister Pravin Gordhan during an overseas investor roadshow and then fire him in a Cabinet purge which saw the departure of several ministers and their deputies, who were replaced with politicians seen as allies willing to pursue policies of self-enrichment.

Zuma’s reshuffle and the reckless manner in which it was carried out prompted Standard & Poor’s (S&P) to downgrade SA’s long-term foreign currency rating to sub-investment grade for the first time in 17 years, citing risks of policy shifts that could undermine economic growth and fiscal prudence.

This will raise the government’s cost of borrowing, making less money available for spending on infrastructure and social programmes and in turn curbing the economy’s sluggish pace of growth, stunting job creation and spooking investors.

Further turmoil in domestic financial markets, which has been manageable so far, has raised the spectre of rising inflation and already destroyed any chances of interest rate cuts that had previously been predicted for the second half of this year.

Treason against the poor

Old Mutual chief economist Rian le Roux has described Zuma’s actions as “radical economic sabotage” and “treason against the poor”. “The real danger from here is that we suffer a ratings meltdown and are downgraded again and again. We are on a slippery slope here,” he said.