Brace yourself for a downgrade. That was the message from Dawie Roodt, chief economist of Efficient Group, following President Jacob Zuma’s cabinet reshuffle last week that saw finance minister Pravin Gordhan replaced by previous home affairs minister Malusi Gigaba. “I don’t see any way that we can prevent a downgrade,” said Roodt. “It is absolute state capture and the goals have been achieved. Those who wanted to be are now in charge of the South African coffers.” The rand started to fall when then finance minister Pravin Gordhan was recalled from an investment roadshow in the UK ahead of the cabinet reshuffle that cost him his job. By early Friday morning it had moved from R12.80 to the US dollar to R13.60 and the by the time of going to press it was hovering around R13.54. “State capture means more incompetence, more bad management, more weak economic growth, more unemployment,” said Roodt. “The picture is incredibly gloomy.” Economist Mike Schüssler said the appointment of Malusi Gigaba as finance minister would do little to calm the market. “He has no business or finance credentials but he does have strong links to the Guptas,” said Schüssler. “He has denied the allegations around him and the Guptas, but I don’t think that is going to hold much ground in the market.” He said Gigaba’s track record was insipid at best. As Minister of Public Enterprises it was under his watch that SAA chair Dudu Myeni was appointed – with SAA performing worse than ever before – while Eskom awarded a contract worth more than R564 million to a coal mining company owned by the Guptas. The visa fiasco implemented during his tenure as minister of home affairs cost South Africa millions in lost revenue. He is a minister also depicted as being stubborn and arrogant. “The fact of the matter is it is not really about Gigaba or any other cabinet appointments, but rather the president,” said Schüssler. “The running of the country and the political decisionmaking is causing massive uncertainty which is affecting the economic market negatively. It is not as simple as just the rand falling. That was just the immediate implication.” A potential break-down of fiscal discipline will lead to a string of negative consequences – including the credit rating downgrade and lower business confidence. Interest rates will go up and the government will have less funds to service debt, meaning less money to go around for infrastructure, transport, education, health and so forth. More worrying though
are the predictions that this is just the start of the president’s move to overhaul National Treasury and a host of other state institutions including the Reserve Bank and the government pension fund. “They are now in control of one of the largest pension funds in the world,” said Schüssler. “This is far from over,” said Roodt. “Much of what happens next politically will depend on the outcome of the motion of no confidence. Before that process is concluded it is very difficult to predict anything.” He said one certainty was, however, the downgrade. “It is not about if we get downgraded any more but rather whether it will be one or two or even three notches.” Save South Africa founder Sipho Pityana said the cabinet reshuffle was clearly on behalf of the Gupta family – an insult to the suffering of millions of South Africans over many decades, while OUTA chairman Wayne Duvenage said the personal interests of one man were now holding the people of South Africa to ransom. Along with other analysts contacted by FTW, they agree that Zuma has taken a huge political risk – one that will be at the cost of South Africa and its economy if it pays off.
