Has South Africa stopped progressing?
For investors, recent events indicate that South Africa is in the midst of
a prolonged political and economic crisis that could
seriously
hamper growth for one of
the continents largest economies
Joseph Dana
More than 20 years after the end of apartheid, South Africa is reeling from political chaos and an economic crisis spurred by listless leadership. For those who struggled to free South Africa from apartheid, its replacement with political mismanagement and rampant corruption constitutes a slap in the face.
These events reveal a South Africa that is bleeding itself to death and reversing much of the progress made in the last 20 years. The South African writer Sisonke Msimang argued last week in the South Africa press that it is time to accept that South Africa has changed and the new normal is the rejection of compromise across the political spectrum.
Such a rejection of compromise is particularly dangerous for a young democracy that has achieved a historic transformation because of the peoples ability to embrace the ethos of mutual concession. Dangerous radical elements, from corrupt politicians to aggressive police cracking down on non-violent student protests, are part of South Africas new normal.
It was once a favourite of emerging market investors, but a mixture of grave political mismanagement, cronyism and the economic ghosts of apartheid are conspiring against South Africa.
For investors, recent events indicate that South Africa is in the midst of a prolonged political and economic crisis that could seriously hamper growth for one of the continents largest economies.
When South African finance minister Pravin Gordhan was summoned by prosecutors and charged with fraud last week, few were surprised. The finance ministry has been embroiled in controversy for close to a year, sending the South African rand on a roller-coaster ride on global currency markets.
In November 2015, president Jacob Zuma replaced the finance minister with an unknown back bench African National Congress (ANC) politician, only to then appoint Mr Gordhan after markets reacted terribly to the decision. The ANC more or less forced Mr Zuma to reappoint a steady hand to the post.
Settled in his posting, Mr Gordhan received a letter in March from the Hawks, a special unit of the South African police, questioning him about allegations of fraud stemming from a 2010 incident. The police later reported that Mr Gordhan failed to answer their questions in the allotted time, and last week the finance minister was summoned to face fraud charges because he allegedly approved an early pension payment to an employee of the revenue service without following correct procedures.
While many South Africans agree that Mr Gordhan is not above the law and should be held accountable for any wrongdoing, the timing of the summons underlines the continued crisis rocking the ruling ANC of Mr Zuma.
After the end of apartheid, the finance ministry was given broad powers in the new constitution. In recent years, however, Mr Zuma has been waging a war to gain control over the ministry by replacing the former finance minister with a political ally and now attempting to do the same with Mr Gordhan, who was appointed only after the scope of the economic damage of Mr Zumas previous decision had been made apparent. With Mr Gordhan headed to court in November, Mr Zuma could try to reshuffle his cabinet and push him out.
The news comes as South Africas real GDP growth is showing signs of serious decline and credit status is hovering just above junk. With the political crisis showing no signs of abetting and student protests against debts and rising university fees turning violent, the rand and markets will continue to take a hit. Ratings agencies could be forced to officially downgrade the countrys credit status to junk. To make matters worse, the American election will continue to increase market volatility ahead of a possible interest rate hike by the United States Federal Reserve at its November or December meeting.
With leadership elections for the ANC slated for next year (and Mr Zumas term as ANC president coming to an end), the political crisis could decide whether Mr Zuma is able to solidify his grip on power or if the party will split. After its historic electoral defeat in municipal elections this year, such a fracture could see the ANC losing significantly more power in the 2019 presidential election. The continuing student protests, which have highlighted once again the glaring racial inequality of post-apartheid South Africa, are proof that economic issues will manifest in violence if left unaddressed.
Mr Zumas decisions in the next two months as to the future of his finance minister have the power to send a message that South Africa can halt its slide into cronyism.
If he is able to articulate this message through actions namely, by ending his desire to control the finance ministry investor confidence will return. Given his handling of the student protesters and their calls for access to affordable education, it doesnt appear Mr Zuma will listen.
Last Friday, public protector Thuli Madonsela ended her term in office. Before leaving, she signed off on a report about the influence of the prominent Gupta family in various government affairs.
Mr Zuma and his allies are frantically attempting to block the release of the report as the president could be implicated in corruption charges. Once the report comes to light, the evidence that South Africa is moving to a model of corruption on parwith its neighbours will be impossible to ignore.
thenational.ae
