Recent political turmoil in South Africa has come at a cost, with ratings agency S&P Global saying a controversial Cabinet reshuffle and growing pressure on the president to resign have lowered the country’s sovereign credit rating to “junk” status. Economists predict that will result in higher interest rates and higher prices on imported goods. It could, however, also give the South African leaders the opportunity to finally carry out their promise of radically transforming the economy away from minority ownership and toward a more equitable model.
The ratings agency did not mince words in its downgrade announcement, pinning the blame for South Africa’s poor credit rating squarely on controversial political decisions made by President Jacob Zuma.
On Tuesday, new Finance Minister Malusi Gigaba reassured the nation that under his leadership, South Africa’s economy would remain steady.
“We acknowledge that yesterday’s announcement was a setback. Despite our current challenges, now is not a time for despondency. We have many strengths that we can leverage to grow our economy inclusively,” said Gigaba.
News of the downgrade has sent the currency, the rand, tumbling. Top ratings agency Moody’s has also said it is considering downgrading South Africa, a move which will likely scare away international investors over fears that the nation won’t be able to honor its debts.
The latest dustup began last week, when the president suddenly announced sweeping changes to his Cabinet. The reshuffle included the dismissal of a well-regarded finance minister who had challenged the president, as well as several other ministers who openly called for Zuma to resign as he sank deeper in public opinion amid long-simmering corruption scandals.
The Cabinet changes were met with widespread disapproval — and not just from the usual suspects. In a rare break of party unity, Zuma’s own deputy president and the secretary-general of the party Zuma leads, the African National Congress, publicly criticized the reshuffle.
But, says associate economics professor Christopher Malikane of the University of the Witwatersrand, this downgrade could take pressure off South Africa to strive for the same financial policy goals as developed nations. South Africa’s history of oppression has left it with high levels of inequality, largely along racial lines, which is something the ANC has long vowed to address through a program of “radical economic transformation.”
This downgrade, Malikane said, could free up the government to do just that.
“The silver lining aspect of it, in my view, has to do with the fact that that this thing is now behind us. The leadership now has to be serious about articulating a clear program of transformation. If they had implemented this program anyway, they would have been downgraded because they would have tampered with the ownership structures that exist in the economy. Now that the downgrade has happened, I think it’s a green light for them to proceed and transform the economy in a radical way, but in a transparent and a well-articulated way so that investors know what concretely is going to happen going forward,” he said.
Political analyst Ralph Mathekga said he thinks Zuma and his supporters will dodge the fallout from this downgrade by simply reframing the argument.
“The ratings agencies are working on the paradigm that the ANC is beginning to reject openly, or at least some within the ANC. And by the end of the week you’re going to have to discuss, whether we like it or not, the discussion will be whether we should even worry about the ratings agencies,” he said.
The political turmoil is sure to continue. Zuma is facing growing clamor from the opposition for a no-confidence vote in parliament, which gained more momentum after the country’s top trade union coalition — a longtime ally of the ANC — said Tuesday that they, too, want him to resign.