SA is now junk - thanks to Jacob Zuma - TechCentral

SA is now junk – thanks to Jacob Zuma

Jacob Zuma

South Africa lost its investment-grade credit rating from S&P Global Ratings for the first time in 17 years in response to a cabinet purge by President Jacob Zuma that investors worry will thwart an economic recovery.

S&P knocked the foreign-currency rating to BB+, the highest junk score, on Monday and warned that a deterioration of the nation’s fiscal and macroeconomic performance could lead to further reductions. The local-currency rating was reduced to BBB- from BBB. The outlook on the both ratings was kept at negative, signalling that the next move could be downward.

Zuma sacked finance minister Pravin Gordhan, who pushed for budget restraint, in a stunning cabinet reshuffle last week that could split the ruling ANC. Investors regard the firing as a blow to an economy growing at the slowest pace since the 2009 recession and grappling with 27% unemployment.

“The downgrade reflects our view that the divisions in the ANC-led government that have led to changes in the executive leadership, including the finance minister, have put policy continuity at risk,” S&P said. “This has increased the likelihood that economic growth and fiscal outcomes could suffer.”

After Zuma’s midnight cabinet purge, the rand suffered its worst weekly slide since December 2015, while dollar debt due in October 2028 fell the most since November.

The rand extended losses and weakened 1,4% to R13,59/US$ by 5.45pm in Johannesburg on Monday. The yield on rand-denominated government bonds due December 2026 rose 12 basis points to 9%.

Investors already demand a bigger premium over Treasuries to hold South African dollar-denominated debt than Russia or Brazil, both junk credits.

“Zuma has been playing Russian Roulette with our investment-grade rating through his actions,” Colin Coleman, the head of sub-Saharan Africa at Goldman Sachs Group, said in an interview on Bloomberg TV last week after the cabinet reshuffle.

Gordhan, who was replaced by former home affairs minister Malusi Gigaba, was removed after a months-long battle with Zuma over government spending. He’d been trying to ward off a downgrade with plans to narrow the budget shortfall to 2,6% of GDP by the fiscal year ending in March 2020, from the current 3,4%.

“The rating action also reflects our view that contingent liabilities to the state, particularly in the energy sector, are on the rise,” S&P said. “Higher risks of budgetary slippage will also put upward pressure on South Africa’s cost of capital, further dampening already modest growth.”

Pressure has been growing on Zuma to step down after he recalled Gordhan from a trade trip in London on 27 March where he was holding meetings with investors and ratings companies. Gigaba, who has no financial or business experience, is the nation’s fourth finance minister in 15 months.

“A downgrade wouldn’t be permanent,” Gigaba told reporters Monday in the capital, Pretoria, before the ratings announcement.

South Africa, the continent’s most-industrialised country, has enjoyed investment-grade standing at Moody’s since 1994, when the ANC came to power under Nelson Mandela. The other two ratings companies upgraded it above junk in 2000.  — (c) 2017 Bloomberg LP

13 Comments

  1. Vusumuzi Sibiya on

    Just as it is the President’s prerogative to appoint and dismiss cabinet ministers; we need to allow all MPs to exercise their duty in upholding the parliamentary oath they’ve taken…

    For now this should be purely handled as a matter for the government of the country as enabled through the NA; and MPs should also exercise their prerogative just as the President has done without consultative influence.

    This is why people are deployed to such positions; and not to just sleep in those comfortable seats in Parliament.

    The ANC can deal with the consequences at a conference thereafter but it’s
    time for those in the position of being able to act; to do so…

    The responsibility of a leader in such a position is 1) To the parliamentary oath one has taken 2) To act in the best interest of the country which will also translate to being in the best interest of their political party; and 3) To place their party in the strongest position.

  2. Chubby Lenin on

    Can we just move all African nations to being British colonies, now? They would all be better off. Zuma is turning SA into just another African dictatorship.
    Let’s put Pakistan under British rule, too. Get the Islamic wing-nuts out of power there; no more anti-blasphemy laws and other ideas that died a Millennia ago (except in Islam).

  3. If Zuma was a REAL man and had his nation’s best interests at heart he would go to the Union Buildings today and hand in his resignation. (Closely followed by that Klown Malusi Gigaba)
    Will he? Of course not, he’s not a real MAN and he sure as s*&t hasn’t got his nation’s interests at heart that’s for bloody sure!
    He now gets a gold plated pension and Gigaba another wardrobe of Gucci suits and Dior ties.
    Shame on the pair of them, shame on both of you.

  4. CharlieTango on

    The current so-called ‘president’ of SA is not only a criminal, but he has committed economic sabotage against SA – and should be removed.

  5. CharlieTango on

    Leadership comes from the top – so when your leader doesn’t uphold his parliamentary oath, there is little chance of his sheep doing the same.

  6. Vusumuzi Sibiya on

    I did have my suspicions that BREXIT was indeed about those who longed for the good old colonial era…

    Just asking nicely isn’t going to help I’m afraid but perhaps if Britain made a good-will gesture of covering the costs for us to host the Common Wealth games in DBN; …it may just sweeten the deal.

  7. Vusumuzi Sibiya on

    Actually leadership comes from within all those who share a common goal and purpose –

    This
    is the year 2017 and it may not be be 200years ago in 1816 when King Shaka ascended the Zulu
    throne to exercise exceptional leadership prowess and build a mighty
    empire;

    …but the same determination to unifying the nation is still applicable and would still need to be forthcoming from every individual who shares the common goal and purpose.

    I
    had a listen to Juju addressing media at an EFF news briefing and for
    once as an EFF member he showed some of the intelligence he displayed in
    court when as an ANCYL leader he had to answer about the kill the Boer
    song.

    He said he admits to having supported Zuma to a
    first term in office but they were the first to then see his true
    colours and acted accordingly;

    Being able to admit
    that you were wrong doesn’t place you in agreement with the opposition;
    it only places you in a position of strength to then make the best
    decision going forward and one which is in the best interest of the
    country.

    This is something I have seen South Africa
    do time and time again; from CODESA to a successful 2010 FIFA WC and to
    nipping a presidential 3rd term attempt in the butt…

    It
    is now time once again to stand united as a country and prove that we
    won’t allow treasury to be captured by the Guptas just because they have
    one individual by the balls and are demanding payback.

  8. The Common Wealth games could easily be regarded as relic of colonialism, Scrap them altogether.

  9. Dude… When was the last time the cabinet held Zuma responsible and to account for anything? At all?

    If you think this ship will right itself then you are going on the long odds. A much more likely scenario is that we’ll see the lifeboats taking to water soon. And Zuma will have no trouble filling the empty seats since his criteria for replacements are rather simplistic. And so we’ll see the ship go down with a full compliment.

    Smiling and waving as they go – Trying to convince their voter base that nothing at all is wrong.

    And btw… Any sane person could have known that Zuma was not president material long before he got into office. He had too many criminal charges against him. And he has never been progressively minded. A person stuck looking in the rear-view mirror can never take a country forward for any longer than luck allows. So you can write Juju’s little change of heart on your forehead for all that its worth.

  10. Vusumuzi Sibiya on

    >>When was the last time the cabinet held Zuma responsible and to account for anything? At all?

    Actually it was not so long ago that he was indeed held to account and as you would recall it is what lead to Gordhan becoming Finance Minister once again –

    There’s no disputing that the country is deserving of better leadership than what we have presently and there are plenty of people who are capable within the ruling party as has been demonstrated by the efforts made by Gordhan in also refusing to bend to the pressure of state capturing thugs.

    >>So you can write Juju’s little change of heart on your forehead for all that its worth.

    No… agent Smith, it’s really not about writing anything on ones forehead but it is about the belief that one holds within their hearts that an outcome that is in the best interests of our country is possible and then speaking out to positively contribute towards that outcome being realized.

  11. Well I doubt Gordhan is ever coming back hey… Zoomer tried to capture the treasury and tried again. With an abundant lack of credibility and lack of good intention. Abundantly obvious as well.

    Did it cost him an honest cent the first time? I dunno… It might have cost his network of patronage some spoils for a while. What exactly to you believe the concept of “accountability” means? That there’s no consequences? When ever has accountability without actual consequences been worth a fart in a thunderstorm?

  12. Vusumuzi Sibiya on

    Well consequence is related to karma and irrespective of how powerful you believe yourself to be there’s no escaping karma;

    It’s always a better lesson learnt when one is given all the rope they need to hang themselves.

  13. That rope seems to be made from the hopes and dreams of millions SA citizens. Its expensive rope.

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