In one fell swoop Jacob Zuma has destroyed 14 months of collaborative effort to avoid a sovereign ratings downgrade, demonstrated that a celebrated liberation movement is now no more than a corrupt collective of self-serving criminals, and has once again brought the SA economy to its knees.
The latest cabinet reshuffle was a clear indication that incompetence will be rewarded, whilst selfless action to grow our economy will not be tolerated if it impedes the intentions of those determined to loot our national fiscus. The initial hope that democratic SA’s worst president would be recalled because of this blatantly corrupt move has now been dashed, as the ANC’s leadership capitulated spinelessly following the NWC meeting to now rally around him in support. ANC secretary general, Gwede Mantashe, has within a few short days gone from outrage at not being consulted on the reshuffle, to insisting that ANC leadership are a collection of individuals who have no conscience and will continue to vote in support of the clearly incompetent and corrupt President. There has never been a clearer signal that the ruling party no longer serves the people of this country.
It therefore came as no surprise that S&P downgraded SA to “junk” status and it is generally accepted that the other ratings agencies will do the same. Statements made by political leadership in response to the downgrade are indicative of a disturbing level of economic illiteracy within the ruling party. It is inconceivable that national ministers do not seem to care that we’ve been downgraded, with some going as far as calling for S&P to be banned from the country and alternate BRICS ratings agencies to be created. The low level of economic comprehension amongst these ministers is nothing short of a national embarrassment and statements like these reduce us to a laughing stock amongst foreign investors, as they hastily withdraw their much-needed capital from our country.
Ratings agencies base their decisions on several factors; including levels of political uncertainty, institutional integrity, fiscal discipline, and economic growth projections. The excellent work done by former Minister of Finance, Pravin Gordhan and the CEO initiative, driving collaboration between business and government to restore investor confidence was starting to gain traction and the Rand was strengthening to encouraging levels. Zuma’s midnight cabinet reshuffle, and the failure of the party’s leadership to call him to order, is indicative of the extent of our political volatility which will negatively influence investor confidence and exchange rates, whilst putting upward pressure on interest rates.
SA will spend more than R162bn, which equates to 10.4% of consolidated fiscal spending, during the 2017/18 fiscal year to service its ever-growing debt. The cost of this debt will increase significantly following our sovereign ratings downgrade and that means less money for infrastructure, education, health, and social grants. It begs the question as to how the President’s “radical economic transformation” will be funded – his reckless behaviour and economic illiteracy are more likely to bring about radical economic destruction, particularly in an environment bereft of accountability and responsibility.
For regular South Africans, rising interest rates, a weaker currency, and higher inflation will make it far harder to service debt on home loans, vehicles and credit cards. Necessities like food, clothing, and transport will become prohibitively expensive whilst entrepreneurs will find it increasingly onerous to access loans for small business, and much-needed growth of SMEs will fail to materialise. Contrary to populist rhetoric, a downgrade will hurt the poorest segment of our population far more than the wealthy. Capital will simply flow out of the country to where it can grow faster at less risk, whilst the poor will be stuck in a destroyed economy that could take more than a decade to return to investment grade.
Civil society is becoming increasingly vocal and organised as outrage grows at the unashamed corruption evident amongst political leadership. With political leaders having all but destroyed the good will generated through months of collaboration between business and government, the business community is left questioning its relationship with government and the support that has been given to date. Faced with a government administration that can no longer be trusted, business needs to rally together and give serious consideration to the role that the corporate collective can play with respect to effecting much-needed change to our politico-economic landscape.
Issued by Accelerate Cape Town