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Analysis: Infighting shakes South Africa’s economic confidence

Analysis: Infighting shakes South Africa’s economic confidence

President Jacob Zuma’s decision to fire one of the mainstays of the African National Congress (ANC) government, Finance Minister Pravin Gordhan, has shaken an already weak administration.

South Africa’s economy is fragile and struggling. The last things it needed were higher borrowing costs and a further fall in investor confidence but the current crisis has brought about both. Gordhan had been finance minister for just 16 months this time around but was widely respected, having served in the same role between 2009 and 2014.

ANC Secretary General Gwede Mantashe cited the “irretrievable breakdown” in the relationship between Zuma and Gordhan but said that his replacement, Malusi Gigaba “is going to do a good job”. He said that the sacking had been discussed in late 2016 but postponed.

The move seems to have exacerbated existing tensions within the ruling ANC and associated organisations. The main trades’ union federation, the Congress of South African Trade Unions (Cosatu), which has 1.8m members and which has traditionally aligned itself closely with the ANC, has turned against the president.

Cosatu is believed to have criticised the president in private previously but this is the first time such an important organisation has criticised him publicly. Secretary general Bheki Ntshalintshali said Zuma was no longer the “right person” to serve as president and called his leadership “inattentive, negligent…and disruptive”. He added: “We will support the new minister where necessary and fight with him where necessary.”

Widespread condemnation

Another ANC ally, the South African Communist Party, has also appealed for Zuma to stand down. Protestors took to the streets of Pretoria to demonstrate against the dismissal, while Kgalema Motlanthe, who served as interim president following the resignation of Thabo Mbeki in 2008, has also criticised Zuma. Deputy President Cyril Ramaphosa described the sacking as “totally unacceptable”. Ramaphosa, who carved out a hugely successful career in business before returning to frontline politics, is regarded as a likely future president.

Some leading ANC members submitted a complaint that Zuma failed to consult them over the cabinet reshuffle but the party’s National Working Committee (NWC) rejected the claim and gave the president its continued backing. The only ANC body with more authority than the NWC, the integrity commission, submitted a letter asking Zuma to resign but later withdrew it because of apparent disagreement among commission members.

After the reshuffle, Gigaba said: “changing a certain individual won’t cause a credit downgrade”, but he was wrong. Just hours later, on 3 April, Standard and Poor’s (S&P) responded by cutting the country’s long term foreign currency rating from BB+ from BBB-, pushing it into junk territory. It directly blamed Gordhan’s sacking, citing “heightened political and institutional uncertainties that have arisen from the recent changes in executive leadership”.

It will be interesting to see whether the other two main credit ratings agencies follow suit. Gigaba said: “I’m not saying it’s easy to get out of a rating downgrade, yet I remain confident.” He added: “Ultimately what these rating reviews underline is that we need to ignite the country’s growth engine. When I walked into the office on Friday they had already made their decision.”

Economic fallout

Since the start of this year, the rand had recovered a lot of the value that it had lost over the past three years but it quickly depreciated by 11% against the US dollar after the change of finance minister was announced. Standard Bank argues that the country’s banks are strong enough to cope with the downgrade and there is no doubt that the banks are particularly strong in comparison with the national economy.

Yet the sector is worried. The managing director of the Banking Association of South Africa, Cas Coovadia, said: “The executive changes initiated by President Zuma have put at risk fiscal and growth outcomes. We must now recognise the crisis we are in. This sovereign downgrade will lead to a steep erosion of already poor levels of investor confidence.”

Zuma has stumbled from one crisis to another during his eight years in office, including over his use of government money to upgrade his private home, Nkandla, a move that the constitutional court concluded was unlawful, and his controversial relationship with the Gupta family.

He survived that and other occasions when he looked vulnerable, although his reputation – and perhaps also that of the ANC – was severely dented. The second of Zuma’s maximum two terms of office is due to end in 2019 and it is still possible that he will stagger on in power until then, but the country, the party and the economy will not benefit if he does.

Neil Ford

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