The nation’s Finance Minister Pravin Gordhan, credited as the person that kept his nation from being junked earlier this year by having promised fiscal stability and reform, has been involved in a sequence of the allegedly politically-motivated scandals and a thorough public scrutiny. The ruling party, the African National Congress, has been losing its grip on the reins of power and has become radicalized to a certain extent in its vision of economic policy, substantially swaying deeper into the left-wing narrative. The market-friendly opposition party Democratic Alliance has been gaining ground in the past two elections, and part of the ANC leadership has grown suspicious of their own market-oriented members.
The attacks on Gordhan, who will appear in court on November 2 on the charges of fraud, are seen as undermining the efficiency of the Finance Ministry. The national currency, the rand, plunged 3.4pc against the dollar earlier this week, and the Johannesburg Stock Exchange tumbled, with the banking sector suffering the losses of 5.12pc, or 46.3 bln rand ($3.3 bln) of capital carnage in the political fallout.
“For the first time ever, we felt obliged to highlight political risk and tension. This is not about political noise. Here we have political tension that can undermine structural reforms that can become a serious risk to South Africa’s credit story,” Konrad Reuss of S&P’s sub-Saharan Africa MD said.
The current S&P rating for South Africa is BBB-, the lowest investment-grade, outlook negative, meaning the nation is just a shot away from junk. Investors, however, are not concerned with weak economic growth and the nation’s fiscal performance as much as they are with the political developments, which they see as leading South Africa deeper into the Third World Zimbabwe situation, should the left-wing narrative and radical practices prevail.
“What has (changed)… is that political tension and turmoil has come to the fore,” Reuss said. “It is a game changer from South Africa 10 years ago. There is politics and then there are policies,” he added, also having mentioned that policies have worked well in South Africa thus far, whilst politics is stirring rife anxiety.
“We are not in that situation now,” Reuss said. “It is more than just political noise.”
“Political tensions have increased in South Africa since the removal of former Finance Minister Nhlanhla Nene on December 9, 2015, the Constitutional Court ruling against President Jacob Zuma on March 31, 2016 and periodic disputes between key government institutions and within the ANC,” S&P said in their June review of South Africa’s credit rating, keeping it unchanged at that point.
FM Gordhan, meanwhile, is charged with fraud during his previous tenure as head of the South African Revenue Service (SARS). The prosecutors believe that he inflicted 1.1 mln rand ($77,200) worth of damages to the public financial sector by having accepted early retirement of the SARS deputy commissioner, Ivan Pillay, subsequently re-hiring him as a consultant.
Whilst President Zuma, who has previously drawn widespread criticism and outrage for the alleged corruption and abuse of authority, voiced his support for Gordhan, Prosecutor Shaun Abrahams said that “there has been no political interference in this matter."
On the other hand, Gordhan’s measures aimed at fiscal prudence in order to save South Africa’s investment ratings, have allegedly conflicted with Zuma’s plans to boost budget spending in order to quench the popular outrage of widespread poverty and income inequality.
Regardless of the reasons and outcomes of the current turmoil, it will impact South Africa’s investment climate, business activity, and broader economic outlook.
"This will further erode confidence in the political and economic management of South Africa," Daniel Silke of Political Futures Consultancy said. "It will potentially affect our chances of sustaining the current rating agency levels."
