South Africa Shakeup Sparks Downgrades

The former minister of Home Affairs is not popular in the financial sector.

Malusi Gigaba, Finance minister

Credit ratings downgrades by Standard & Poor’s and Fitch have followed a major South African cabinet reshuffle, which included the replacement of well-regarded Finance minister Pravin Gordhan with Malusi Gigaba, minister of Home Affairs.

Confidence in Gigaba’s leadership of the treasury is likely to be low, given his less-than-impressive performance as minister of Public Enterprises and subsequently minister of Home Affairs, says Azar Jammine, chief economist at Johannesburg consulting firm Econometrix.

Gigaba has pledged to pursue “radical economic transformation” while maintaining fiscal rectitude. “The two appear to be incompatible in the absence of enormous savings through the elimination of corrupt practices,” Jammine says. “Gigaba’s record as an independent actor who might fight corruption casts doubt on such an outcome materializing.”

Last year economic growth was well below 1%. “It was not because of a massive slump in consumer spending, government spending or a surge in imports, but rather because of a decline of almost 4% in the level of capital investment, much of it driven by private sector businesses, including foreign ones, [due to] a progressive decline in business confidence in the face of uncertainty surrounding economic policy,” Jammine says, pointing specifically to now-confirmed concerns about Gordhan’s vulnerability. “Now that perceptions of state capture have gathered momentum, the likelihood of capital investment being forthcoming is even less than before.”

The appointment of an economic adviser who recommends nationalization of mines, banks and insurance companies and supports land expropriation without compensation will do little to improve confidence, the economist notes.

“The only ray of hope,” Jammine says, “lies in the possibility that the likely acceleration in the decline of the economy may lead to the kind of political pressure which could bring about a change in leadership [and] reverse the country’s economic fortunes from a longer-term point of view.”