tag:theconversation.com,2011:/us/topics/junk-status-25207/articlesJunk status – The Conversation2021-03-17T15:08:10Ztag:theconversation.com,2011:article/1571512021-03-17T15:08:10Z2021-03-17T15:08:10ZWhy, 31 years after independence, Namibians aren’t in a festive mood<figure><img src="https://images.theconversation.com/files/390150/original/file-20210317-13-fqjs2b.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Hundreds of Namibians protested against growing gender-based violence in October 2020. The Afrikaans wording on the placard says 'We are tired'. </span> <span class="attribution"><span class="source">Hildegard Titus/AFPvia Getty Images)</span></span></figcaption></figure><p>Namibia celebrates its 31st independence day <a href="https://www.sahistory.org.za/dated-event/namibia-gains-independence">this month</a>. But Namibians are not in a festive mood. A <a href="http://www.afrobarometer.org/press/trust-political-institutions-decline-namibia-afrobarometer-survey-shows">2019 survey</a> by Afrobarometer, the independent African research network, showed a significant loss of trust in the country’s governance. </p>
<p>Worse: 2020 became <a href="https://ippr.org.na/publication/namibia-qer-quarter-4-2020/">“a year like no other”</a>
since independence in 1990, as the COVID-19 pandemic compounded the effects of a prolonged recession <a href="https://www.namibian.com.na/159400/archive-read/Namibia-goes-into-technical-recession">which began in 2016</a>.</p>
<p>The legitimacy of the former liberation movement, the South West Africa People’s Organisation (<a href="http://www.swapoparty.org/history.html">SWAPO</a>), has steadily been eroded due to a combination of factors. These have included socioeconomic decline, SWAPO’s increasingly outdated populist narrative, financial scandals and elite self-enrichment. In addition, opposition has grown in the form of electoral support for new parties. </p>
<p>After independence from South Africa <a href="https://muse.jhu.edu/article/434032">in 1990</a> it won elections by huge <a href="http://www.tfd.org.tw/export/sites/tfd/files/publication/journal/155-173-How-Democratic-Is-Namibias-Democracy.pdf">margins</a>, enabling it to entrench its power. Like other <a href="https://theconversation.com/how-liberators-turn-into-oppressors-a-study-of-southern-african-states-57213">former liberation movements</a>, its legitimacy centred on the idea that citizens owed the party unconditional loyalty in return for liberation. </p>
<p>But heroic narratives tend to have a sell by date. Since 2015 it’s become increasingly clear that SWAPO has lost appeal among the <a href="https://www.namibian.com.na/60296/archive-read/Born-free-and-in-search-of-political-answers">younger generation</a> as the struggle for liberation passes into history. This generation expects good governance and measures it not in rhetoric but in delivery. After all, they were born into an independent state. Their number as voters is about to become a majority. </p>
<h2>Downward spiral</h2>
<p>The election results of 2019 and 2020 indicated the decline in support for the erstwhile liberation movement.</p>
<p>The National Assembly and presidential elections <a href="https://namibian-studies.com/index.php/JNS/article/view/8638">in November 2019</a> marked a turning point. SWAPO’s National Assembly votes dropped from 80% in 2014 to now 66%. For the first time since 1995, it no longer holds a two-thirds majority. Beneficiaries were the official opposition <a href="https://www.facebook.com/pg/OfficialOppositionNamibia/posts/">Popular Democratic Movement</a> and the new <a href="https://www.lpmparty.org/">Landless People’s Movement</a>, which came third. </p>
<p>President Hage Geingob was re-elected for a second (and last) term with only 57% of the vote (2014: 87%). His votes were snatched by <a href="https://www.facebook.com/DrItula/">Panduleni Itula</a>, a party rival posing as an independent candidate. He personified the internal party power struggles. After being expelled, he founded his own party, the <a href="https://www.facebook.com/ipcpatriots/">Independent Patriots for Change</a>. </p>
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Read more:
<a href="https://theconversation.com/namibias-democracy-enters-new-era-as-ruling-swapo-continues-to-lose-its-lustre-151238">Namibia's democracy enters new era as ruling Swapo continues to lose its lustre</a>
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<p>The November 2020 <a href="http://democracyinafrica.org/democracy-beyond-swapo-in-namibia/">elections</a> for the regional and local authorities shifted the ground further. In the <a href="https://ippr.org.na/blog/the-changing-political-landscape/">changing political landscape</a> only SWAPO’s traditional stronghold in the northern region suffered limited damage. The results everywhere else were disastrous.</p>
<p>On average, SWAPOs’ aggregate votes in all regions dropped from 83% in 2015 to 57%. In the 57 local authorities the party won only 40% of all votes (2015: 73%). It maintained control over just 20 of the 52 local councils it previously held.</p>
<p>Most urban centres, including the capital Windhoek, were seized by other parties or coalitions. Main winners were the Independent Patriots for Change and the Landless People’s Movement. Notably, the Popular Democratic Movement could not improve its scores significantly.</p>
<h1>Economy on the rocks</h1>
<p>Namibia recorded annual economic growth rates of up to <a href="https://countryeconomy.com/gdp/namibia">6% until 2015</a>. But the global economic crises and the ailing neighbouring economies of Angola and South Africa, in combination with a lasting drought, created severe setbacks. Since 2016 Namibia has been in <a href="https://www.namibian.com.na/159400/archive-read/Namibia-goes-into-technical-recession">recession</a>. </p>
<p>The World Bank has Namibia classified as a <a href="https://www.worldbank.org/en/country/namibia/overview">upper middle-income</a> country. The annual <a href="https://tradingeconomics.com/namibia/gdp-per-capita">average per capita income</a> peaked at US$ 6,274 in 2015 and dropped to US$ 5,766 in 2019. This contrasts – despite the crisis – favourably <a href="https://data.worldbank.org/indicator/NY.GDP.PCAP.CD?locations=ZG">with US$ 1,596 in 2019 for sub-Saharan Africa in general</a>.</p>
<p>But the relative wealth is anything but fairly distributed. Inequality remains at staggering proportions. According to the latest United Nations Human Development Report, over half of employed Namibians earn <a href="https://www.namibiansun.com/news/over-half-of-namibians-earn-less-than-n1-400-report2021-03-01">less than US$95 (N$ 1,400) a month</a>. Even among those in paid employment this amounts to less than the average per capita income for sub-Saharan Africa.</p>
<p>The full effect of the COVID-19 pandemic on <a href="https://www.namibian.com.na/207841/archive-read/Over-12-000-workers-retrenched-in-2020">rising unemployment</a> remains to be seen. Public debt has risen to over <a href="https://www.namibiansun.com/news/govt-debt-rises-to-n117bn2020-05-27/">two-thirds of GDP</a>. The economy contracted by an estimated 8% in 2020 and regressed to <a href="https://www.namibian.com.na/94491/read/Economy-to-slump-back-to-2013-levels">2013 levels</a>. Economists assume that a <a href="https://www.republikein.com.na/nuus/tough-decades-ahead-for-nam2020-11-05">return to the 2015 level</a> won’t be achieved before 2024. </p>
<p>Credit rating agency Moody’s <a href="https://allafrica.com/stories/201708140763.html">downgraded</a> Namibia to “junk status” in August 2017. It has negatively <a href="https://www.namibiansun.com/news/more-junk-from-moodys2020-12-07">adjusted</a> Namibia’s status since then, most recently in December 2020, to three notches below junk. A further downgrade <a href="https://informante.web.na/?p=302250">looms</a>.</p>
<h1>Corruption</h1>
<p>Namibia was rocked by a <a href="https://www.occrp.org/en/investigations/sidebar/the-spoils-of-fishrot-tracking-the-property-holdings-of-key-figures-in-namibias-biggest-bribery-scandal">bribery scandal</a> over fishing quotas in November 2019. The <a href="https://www.aljazeera.com/news/2019/12/1/exclusive-corruption-in-namibias-fishing-industry-unveiled">#fishrot</a> scandal implicated two ministers and leading officials of state-owned enterprises. They are awaiting trial in prison. Evidence suggests that other leading party members are also implicated.</p>
<p>Instead of tackling the issue head on, President Geingob decided on an evasive approach. He declared 2020 a <a href="https://www.namibian.com.na/196809/archive-read/The-Year-of-Introspection">“year of introspection”</a>. But an increasingly infuriated public witnessed further cover-ups and denialism. </p>
<p>The government commissioned an internal report into shady deals by the state-owned diamond trading company <a href="https://www.namdia.com/">Namdia</a>, but its contents have <a href="https://www.namibiansun.com/news/president-parks-namdia-report2021-01-22">not been disclosed</a> since it was submitted to Geingob in 2018. </p>
<p>Another state-owned enterprise, <a href="http://www.airnamibia.com/">Air Namibia</a>, became a showpiece of mismanagement, using up enormous state subsidies and bailouts while <a href="https://www.namibian.com.na/99425/read/Scale-of-AirNams-debts-revealed-in-liquidation">amassing liabilities</a>. It was eventually <a href="https://www.africanews.com/2021/02/11/pressed-by-losses-and-debt-namibia-s-national-airline-folds//">liquidated</a> in February 2021.</p>
<h2>Battle for legitimacy</h2>
<p>As the election results of 2019 and 2020 show, even a dominant party regime needs to use its authority and space to show that it serves the interest of the people. If people feel <a href="https://theconversation.com/southern-africas-former-liberators-offer-rich-lessons-in-political-populism-70490">neglected</a>, their loyalty will decline. </p>
<p>Other parties also have to earn legitimacy and show that they are not more of the same. </p>
<p>The Popular Democratic Movement as the official parliamentary opposition party has not gained from SWAPO’s decline in the November 2020 elections. Instead, two new parties – the Landless People’s Movement and the Independent Patriots for Change – are setting the tune. </p>
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<a href="https://theconversation.com/southern-africas-former-liberators-offer-rich-lessons-in-political-populism-70490">Southern Africa's former liberators offer rich lessons in political populism</a>
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<p><a href="https://www.namibiansun.com/news/intra-party-cracks-widen-in-opposition2021-03-12/">In-fighting</a> rages in all parties of political influence. Whether it’s a sign of decline among the established parties or one of ascendancy among the new kids ones, the fight over their future seems in full swing. </p>
<p>New dynamics suggest that the political culture is damaged. Parliament has seen <a href="https://futuremedia.com.na/chaos-in-national-assembly/">physical contests</a>, insults and <a href="https://twitter.com/KalondoMonica/status/1370295633748373505">sexist remarks</a>.</p>
<h2>Lingering question</h2>
<p>Days before Namibia’s independence on 21 March 1990, a poem on a wall in what used to be a compound for contract labour asked: </p>
<blockquote>
<p>Now that the Namib sings</p>
<p>And the tear of the Katatura child washed away</p>
<p>Who will keep the fire burning?</p>
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<p>After 31 years of independence, the answer remains pending.</p><img src="https://counter.theconversation.com/content/157151/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Henning Melber has been a member of the South West Africa People’s Organisation (SWAPO) since 1974. </span></em></p>The legitimacy of SWAPO, the former liberation movement that has governed since 1990, has been eroded amid growing corruption and a deepening economic crisis.Henning Melber, Extraordinary Professor, Department of Political Sciences, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1297622020-01-12T13:57:17Z2020-01-12T13:57:17ZRamaphosa fails to show leadership as difficult and decisive year looms<figure><img src="https://images.theconversation.com/files/309547/original/file-20200112-103974-14erqv4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">President Cyril Ramaphosa's speech failed to inspire confidence.</span> <span class="attribution"><span class="source">EFE-EPA/ANC handout</span></span></figcaption></figure><p>On the eve of the statement marking the 108th birthday of the governing African National Congress (ANC), South Africa’s finance minister Tito Mboweni <a href="https://twitter.com/tito_mboweni/status/1215441642892746752?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1215441642892746752&ref_url=https%3A%2F%2Fwww.iol.co.za%2Fbusiness-report%2Feconomy%2Ffinance-minister-tweets-warnings-about-sas-structural-economic-reforms-40357595">tweeted</a>: </p>
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<p>If you cannot effect deep structural economic reforms, then game over! Stay as you are and you are downgraded to Junk Status! The consequences are dire. Your choice… </p>
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<p>Similar sentiments have been voiced by many well respected commentators concerned about the state of South Africa’s economy as well as its politics – and the ability of the ANC to provide effective leadership to <a href="https://www.news24.com/Analysis/the-anc-at-108-the-sick-man-of-south-african-politics-20200109">address the major challenges it faces</a>. </p>
<p>South Africa faces perhaps many more challenges than it did in the build up to the new constitution of 1994. These include a <a href="https://theconversation.com/tough-times-and-bad-advice-are-holding-back-south-africas-economy-125990">moribund economy</a> and a governing party that is faction-ridden and ideologically disorientated. This is blamed for enabling much of the massive corruption and nepotism in the country best described as <a href="https://beta.mg.co.za/article/2018-09-14-00-definition-of-state-capture/">“state capture”</a>.</p>
<p>What South Africa needs is a reformer who can redirect its politics to address issues related to economic growth and development, political stability, social cohesion, service delivery and several issues related to governance, management and administration. </p>
<p>It should all start with President Cyril Ramaphosa and the ANC, which he leads.
He had the opportunity to set the tone this weekend when he <a href="https://www.youtube.com/watch?v=_NqtWFqmOH0">delivered</a> the ANC national executive committee’s January 8 statement to mark the party’s birthday. Such <a href="https://www.sahistory.org.za/article/anc-january-8th-statements">statements</a> are viewed as being important because they provide direction for cabinet discussions ahead of the new legislative sitting of parliament as well as the <a href="https://www.gov.za/state-nation-address">state of the nation address</a> delivered in February every year by the President. </p>
<p>Ramaphosa was expected to lay out the political direction for South Africa during 2020. Unfortunately, his speech failed to hit the mark. It didn’t offer any radical new ideas on the structural reforms hinted at by Mboweni. Ramaphosa showed a complete lack of party as well as political leadership. His inability to be bold and decisive about what needs to be done suggests that he is increasingly becoming a victim of his own party’s inability to deal with the difficult circumstances of the current negative state of affairs in the country.</p>
<h2>What was missing</h2>
<p>There was nothing new in the speech outside of the existing policy and strategy of the ANC. The core of his presentation were the usual talking points about rebuilding the state, reinforcing the state-owned enterprises, the battle against corruption and state capture, social cohesion, and economic growth and development. </p>
<p>Despite an emphasis on making state companies, specifically the power utility Eskom work, and making progress with land reform, no fresh proposals were made. More rhetoric, a lack of strategic vision and political survival at all costs seems to be the name of the game. </p>
<p>This is a far cry from what’s needed.</p>
<p>Even more difficult times lie ahead for Ramaphosa. His <a href="https://ewn.co.za/2020/01/11/january-8-statement-the-anc-s-priorities-for-2020">promise</a> that this year will see decisive action against those implicated in widespread corruption – among them influential party leaders – will no doubt add to his precarious position in the party. </p>
<p>The ANC’s 108th birthday bash provided fresh evidence that Ramaphosa faces a very difficult political environment in the party. There were expectations that about 35 000 people would turn up. In the event only 11 500 arrived to hear him deliver his speech. Some party leaders bemoaned the <a href="https://twitter.com/niehaus_carl/status/1215963887935291394">poor attendance</a>. </p>
<p>This shows that, beyond any doubt, 2020 is going to be dominated by the battle for control of the ANC. That battle will gain a lot of momentum towards the party’s <a href="https://www.news24.com/SouthAfrica/News/no-ngc-can-remove-ramaphosa-mantashe-20190510">national general council</a> which is due to be held in the <a href="https://www.news24.com/SouthAfrica/News/no-ngc-can-remove-ramaphosa-mantashe-20190510">middle of this year</a>. The national general conference is held midway between party conferences, to debate the <a href="http://www.sabcnews.com/sabcnews/understanding-the-ancs-national-general-council-ngc/">“strategic organisational and political issues facing the movement”</a>. </p>
<p>There are already those who are already beginning to shows signs of mounting a challenge against him. These include those implicated in <a href="https://www.sastatecapture.org.za/">state capture</a>, among them <a href="https://www.businesslive.co.za/bd/national/2019-08-28-state-capture-inquiry-hears-about-ace-magashule-and-the-asbestos-heist/">ANC secretary-general Ace Magashule</a>, as well as other disgruntled members of the ANC presenting themselves as a “coalition of the wounded”. </p>
<p>The outcome of this battle will have far reaching implications for the future for South Africa, and its ability to deal with its numerous challenges.</p>
<h2>Decisive year ahead</h2>
<p>The year ahead promises to be a very difficult but also a very decisive year for South Africa. Is Ramaphosa the man to take the country into a new dawn, or is he going to be the victim of a well-organised campaign to disrupt his intended initiatives? </p>
<p>This year will provide the perspective on the way forward. If strong forces within the ANC get their way, someone other than Ramaphosa will present the January 8 statement in 2021. </p>
<p>For ordinary South Africans, this presents a very difficult scenario, with the strong possibility that the economy will slide into recession.</p>
<p>This, plus amending article 25 of the constitution to enable the expropriation of land without compensation, will result in even lower investment levels, higher levels of political instability and bigger challenges in terms of food security. </p>
<p>This does does not augur well for the future of the country and the well-being of its citizens.</p><img src="https://counter.theconversation.com/content/129762/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andre Duvenhage does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The year ahead promises to be a very difficult but also a very decisive year for South Africa. Is President Ramaphosa equal to the challenge?Andre Duvenhage, Research Director, North-West UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1217652019-08-22T12:05:23Z2019-08-22T12:05:23ZSouth Africa is close to ‘junk status’ from all three rating agencies. What could follow?<figure><img src="https://images.theconversation.com/files/288705/original/file-20190820-170910-bysrwg.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4608%2C2911&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Moody's, the only rating agency that keeps South Africa above junk, is scheduled to review its credit rating in November 2019.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The rating agency Fitch recently <a href="https://businesstech.co.za/news/finance/331713/fitch-cuts-south-african-outlook-to-negative-on-eskom-bailout/">revised</a> the outlook on South Africa’s long-term foreign-currency issuer default rating down from “stable” to “negative”. A credit rating outlook indicates the potential direction of the country’s rating over the intermediate term, typically six months. </p>
<p>Fitch pointed to the expected increase in the government debt-to-gross domestic product (GDP) ratio. This would make it more difficult to <a href="https://www.african-markets.com/en/news/southern-africa/south-africa/fitch-revises-outlook-on-south-africa-to-negative-affirms-at-bb">stabilise public debt</a>. The country’s public debt has been increasing due to lower-than-projected tax revenue growth on the back of weak economic growth and the R59bn bailout for the power utility, Eskom.</p>
<p>South Africa’s long-term foreign-currency government bonds are rated BB+ by Fitch and BB by Standard & Poor’s. This means that the government bond is classified as substantially risky. Moody’s rating is Baa3, representing a moderate credit risk investment grade.</p>
<p>There is no indication that South African will soon curb its <a href="http://www.sabcnews.com/sabcnews/kganyago-cautions-sa-against-approaching-imf/">historically high and rising debt levels</a>. Credit rating agencies have sounded the alarm about South Africa’s finances over the past five years. They have consistently called on government to stabilise the rising debt-to-GDP ratio, address high unemployment and low economic growth rate, and to restructure state-owned enterprises. </p>
<p>A lack of significant reforms led to the country being downgraded to junk status by both Standard & Poor’s and Fitch in April 2017. Only Moody’s has kept South Africa one notch above junk status. But for how long?</p>
<p>The revision by Fitch is significant. Looking at the experiences of some other countries in Africa as well as Brazil, <a href="https://tradingeconomics.com/country-list/rating">the data suggests</a> that when two of the three major ratings agencies downgrade a country to “junk”, it usually takes between six months to two years for the final agency to follow suit. Considering that both Fitch and S&P downgraded South Africa two years ago, it is likely that Moody’s will downgrade South Africa soon.</p>
<p>This would see South Africa’s government bond falling out of the Citigroup World Government Bond Index – a major global index that tracks investment-grade debt. All fund managers with investment grade mandates will be forced to offload South Africa’s debt. In turn this would wipe out capital inflows at a time when the country is in need of more foreign investment to close its current account deficit. </p>
<h2>What’s happened elsewhere</h2>
<p>Circumstantial evidence from other countries that were recently downgraded to unanimous “junk status” shows that the after effects can hasten an economic crisis.</p>
<ul>
<li><p>In 2001, Egypt was rated “junk” by Moody’s, then downgraded to junk status by S&P in May 2002, followed by Fitch in August 2002. This was driven by a 10% of GDP budget deficit and a 58.4% of GDP government debt. Egypt has not yet recovered its investment grade rating. Instead it has slid even deeper into junk status as government debt kept rising, reaching 108% of GDP in 2017.</p></li>
<li><p>Tunisia lost its investment grade in May 2012 by S&P followed by Fitch and Moody’s in December 2012 and February 2013. The causes were <a href="https://www.chathamhouse.org/expert/comment/face-protests-tunisia-needs-bold-economic-reforms">declining economic growth</a>, rising unemployment (reaching 18.9%), widening budget deficit (growing to -5.5% of GDP), and government debt of 47.7% of GDP. After the downgrade, Tunisia’s economic growth is still wallowing below 2%, unemployment remains high, the budget deficit worsened and government debt has risen to 71% of GDP in 2017. </p></li>
</ul>
<p>It can be argued that South Africa isn’t easily comparable to other African countries because it raises most of budget from tax and other revenues, has deep and liquid financial markets, and most of its debt is in local currency. A country like Brazil, which has similar characteristics, might offer a more useful comparison. </p>
<p>Brazil was downgraded by Fitch in December 2015, followed by S&P in September 2015 and Moody’s in February 2016. The downgrade was driven by an economic recession of -3.8% and the government deficit rising to over 10% of GDP. After the downgrade, the country’s government debt to GDP ratio rose by 12% to 77%.</p>
<p>The other common characteristic of these countries is that they have all signed up to arrangements with the International Monetary Fund (IMF).</p>
<p>In November 2016, Egypt received a US$12 billion loan from the <a href="https://www.imf.org/external/np/fin/tad/extarr2.aspx?memberKey1=275&date1key=2017-06-30">IMF to support</a> its three-year austerity-based economic reform programme, which included local currency devaluation, fuel and energy subsidy cuts and the introduction of value-added tax.</p>
<p>In June 2013, the IMF granted Tunisia a US$1.73 billion bailout and extended another loan of US$2.8 billion in May 2016. This amount has not been fully disbursed due to <a href="https://www.middleeastmonitor.com/20190207-tunisia-union-agree-salary-increases-for-civil-servants/">lack of progress</a> in implementing agreed austerity measures and reforms.</p>
<p>Brazil last received an IMF bailout of US$30.4 billion between 2003 and 2005. The current political administration has been resistant to an IMF bailout, believing that the economy will rebound once reforms are implemented without external support. The central bank, however, <a href="https://www.bbc.com/news/business-48386415">forecasts</a> further declines in economic growth and a rise in debt to GDP ratio to 102% by 2023.</p>
<h2>Storm warnings</h2>
<p>There is growing frustration that the ongoing fractional battles in the governing African National Congress are hampering President Cyril Ramaphosa’s ability to make the difficult reform decisions needed to resuscitate the South African economy and avoid a debt trap. These would include reducing the public sector wage bill, restructuring state owned enterprises (including some privatisation), and cutting state spending. </p>
<p>This political paralysis makes the impact of an impending Moody’s downgrade more apparent. Thereafter, whether or not South Africa will have to seek an IMF bailout will depend on the governing party’s ability to withstand two storms. </p>
<p>The first is the significant social and economic instability that is likely to follow a unanimous downgrade to junk status. The second is the extent to which the governing party can withstand the substantial resistance from the left against an austerity budget.</p>
<p>If these two storms lead to even greater political dysfunction and policy paralysis then, in the near future, the IMF will end up making the tough decisions for South Africa.</p><img src="https://counter.theconversation.com/content/121765/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Gossel receives funding from the National Research Foundation and UCT. </span></em></p><p class="fine-print"><em><span>Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>How South African manages the fallout from its likely downgrade by Moody’s in November will determine whether the country will be forced to turn to the IMF for a bailout.Misheck Mutize, Lecturer of Finance, Graduate School of Business (GSB), University of Cape TownSean Gossel, Associate professor, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/900952018-01-14T15:19:09Z2018-01-14T15:19:09ZRamaphosa takes on ANC leadership role with alacrity: and clarity of intent<figure><img src="https://images.theconversation.com/files/201839/original/file-20180114-101518-lwtkib.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ANC President Cyril Ramaphosa celebrates the party's 106th anniversary with its deputy general secretary Jesse Duarte and president of South Africa Jacob Zuma.</span> <span class="attribution"><span class="source">Reuters/Siphiwe Sibeko</span></span></figcaption></figure><p>Cyril Ramaphosa, the newly elected President of South Africa’s governing African National Congress, made his position clear when he delivered a much anticipated <a href="https://city-press.news24.com/News/anc-president-cyril-ramaphosas-january-8th-statement-20180113">speech</a> to mark the ANC’s 106th birthday over the weekend.</p>
<p>The statement has historically set the tone for government and informed the annual state of the nation address delivered by the president of the country at the opening of parliament in February. It also outlines the five-year mandate of the ANC’s decision making body, the <a href="https://www.timeslive.co.za/politics/2017-12-21-anc54-these-are-the-80-members-elected-to-the-nec/">National Executive Committee</a>. </p>
<p>Ramaphosa’s speech had particular significance because even though he’s been elected as the new president of the ANC he won’t take over the reins of state until 2019 when President Jacob Zuma is due to step down after the next round of national elections. That’s if the normal pattern of succession unfolds. <a href="https://www.timeslive.co.za/politics/2017-12-18-the-anc-has-a-new-leader-but-south-africa-remains-on-a-political-precipice/">Rumours are rife</a> that Zuma will be forced to step down before then.</p>
<p>Given the controversies swirling around Zuma and the legacy of his presidency, South Africans wanted to gauge, among other things, what the ANC considers to be the main challenges facing the country. And how it plans to face them. </p>
<p>Ramaphosa didn’t disappoint. It was clear – as well as remarkable – that the ANC’s members and its leaders have begun to unite behind a man they now <a href="http://www.dispatchlive.co.za/news/2018/01/12/ramaphosas-new-social-media-names-buffalo-silili/">affectionately call Silili</a> - a derivative of the name Cyril. This was clear from the welcome he was given by ordinary people as he did a walkabout in the Eastern Cape town of East London as well as the reception he got from the tens of thousands of ANC supporters who came to hear him in the stadium. <a href="http://www.huffingtonpost.co.za/2018/01/13/crowd-boos-zuma-4-times-at-anc106-celebrations-in-east-london_a_23332489/">The hostility</a> Zuma elicited from the crowd stood out in sharp contrast.</p>
<p>In addition, Ramaphosa is looking comfortable in his new role. It was evident from the speech he delivered that he feels confident enough to speak his mind on some of the big issues facing the country. Take this comment on state owned enterprises and corruption.</p>
<blockquote>
<p>We need to act with urgency and purpose to restore state owned enterprises (SOEs) as drivers of economic growth and development. Several key SOEs are in financial distress, threatening not only their own operations, but the national fiscus. Many of these enterprises have experienced serious governance lapses and poor delivery of their mandate. These challenges have been exacerbated by state capture, through which billions of rands have been illegally diverted to individuals.</p>
</blockquote>
<p>But there’s no gainsaying that Ramaphosa faces a tough year ahead as he navigates what is essentially a transitional period for the ANC, and for the country. </p>
<h2>Ramaphosa’s trademark</h2>
<p>Ramaphosa clearly meant to get off to a strong start. As he began his speech, he sounded like a disciplinarian busy extolling the virtues of starting on time. He pointed out that both the gala dinner the evening before and his speech ran to schedule. This was no mean feat – it’s not uncommon for ANC events to start hours later than scheduled.</p>
<p>There was another sign of the kind of leadership he intends to impose on the ANC: he regularly went off script to emphasise a rules-based approach to transforming the economy. So the dismantling of monopolies and oligopolies in the private sector will be done through the expanded mandate of the Competition Commission to create a more competitive economy. </p>
<p>Ramaphosa also appeared to be able to straddle difficult discussions with ease. He addressed hot topics, staying true to the policy decisions taken by the ANC conference. </p>
<p>Take the issue of the Reserve Bank and a decision by the ANC conference that its ownership structure should be changed from private to public ownership. Ramaphosa affirmed the independence of the bank but also called on government to ensure its full public ownership. </p>
<p>But it isn’t going to be an easy five years. These policy decisions, as well as others, will be difficult to implement. It will be interesting to see how Ramaphosa and his national executive committee navigate these waters. </p>
<h2>Room for manoeuvre</h2>
<p>The difficult work begins now. </p>
<p>Ramaphosa’s rules-based logic is likely to provide him with political mileage. In particular, it’s likely to earn him the confidence of a divided national executive committee. </p>
<p>The other thing that’s likely to give him room for manoeuvre is his emphasis on unity and party cohesion. This should help him counter perceptions that he’s cut from money rather than from the ANC’s culture and traditions given his cosy relationship with South Africa’s captains of industry as a result of his long stint in the private sector.</p>
<p>The time between now and the 2019 national elections is, in effect, a transitional period that needs to be characterised by strong backroom negotiations on a range of difficult issues. These include the removal of Zuma, as well as some of his problematic cabinet members, and the recapitalisation of state owned institutions. </p>
<p>There is a lot of confidence-building that the ANC leadership has to do. Zuma has weakened the ANC – as well as the government. And the South African economy has been haemorrhaging for the past 10 years. Confidence has been hit by the weakening of state owned enterprises such as South African Airways and the country’s energy utility Eskom, <a href="https://theconversation.com/public-enterprises-played-a-big-part-in-south-africas-credit-ratings-downgrade-75745">downgrades</a> by international rating agencies, corruption in the private and public sectors, investigations into state capture and widespread incidences of racism. </p>
<p>If Ramaphosa fails to hold the party together while simultaneously digging the country out of the hole that it’s in, a big question mark will continue to loom over the ANC’s elective fortunes in 2019.</p><img src="https://counter.theconversation.com/content/90095/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thapelo Tselapedi receives funding from the Centre for the Study of Democracy at the University of Johannesburg.
</span></em></p>Cyril Ramaphosa seems to be on the way to uniting a fractious ANC. But he’s got a rough road to travel before he can claim any victories.Thapelo Tselapedi, Politics lecturer, Rhodes UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/761292017-04-16T05:21:43Z2017-04-16T05:21:43ZNo need to despair even as the dream of South Africa feels like a nightmare<figure><img src="https://images.theconversation.com/files/165238/original/image-20170413-25862-16hh64n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A protester waves the South African flag during a mass protest demanding President Jacob Zuma step down. </span> <span class="attribution"><span class="source">EPA/Kim Ludbrook</span></span></figcaption></figure><p>Like many, this Easter I feel that the dream of South Africa feels more like a nightmare. Personal interests, corruption, private gain, entitlement, a vicious contempt for the poor and the common good, a culture of blatant lies and cronyism — and possibly worse — dominate our public landscape.</p>
<p>This past week, the nightmare got worse as the full impact of President Jacob Zuma’s recent actions <a href="https://theconversation.com/stakes-for-south-africas-democracy-are-high-as-zuma-plunges-the-knife-75550">(the cabinet reshuffle)</a> unfolded, leading to the country’s <a href="http://ewn.co.za/2017/04/07/breaking-fitch-downgrades-south-africa-to-junk-status">credit downgrade</a>. They have devastated our hopes for the kind of foreign investment which we desperately need to grow our economy and create new jobs. </p>
<p>The impact of the president’s actions on consumer confidence and trust is immeasurable. Tens of thousands of jobs are directly affected by just a 10 percent drop in consumer confidence. If we cannot turn the situation around, we face the prospect of employees being fired; shops shuttering; malls closing; the poor unable to afford bread, paraffin, electricity and the cost of burials; possible hyperinflation — it’s as if we are entering the <a href="https://www.bloomberg.com/news/articles/2016-10-21/new-zimbabwe-currency-stirs-memory-of-500-000-000-000-inflation">Zimbabwe moment</a>.</p>
<h2>Hope amid gloom</h2>
<p>In this hour we grieve because the <a href="https://www.goodreads.com/quotes/110264-i-tell-you-naught-for-your-comfort-yea-naught-for">words</a> of writer and philosopher <a href="http://www.online-literature.com/chesterton/">GK Chesterton</a>, used to such effect by the anti-apartheid cleric <a href="http://www.sahistory.org.za/people/father-trevor-huddleston">Trevor Huddleston</a> as apartheid’s grip intensified in the 1950s, are again apt now:</p>
<blockquote>
<p>I tell you naught for your comfort,
Yea, naught for your desire,
Save that the sky grows darker yet
And the sea rises higher.</p>
</blockquote>
<p>Our nightmare is similar to that under which the ancient Hebrews once lived. In our case, while we aren’t being disadvantaged by colonial slavery any longer and apartheid is over; some of our institutions, part of our economy and some among our leaders have become slaves to a new form of oppression. </p>
<p>It’s a moral and economic oppression that manifests itself in the form of one family’s <a href="https://theconversation.com/why-patronage-and-state-capture-spell-trouble-for-south-africa-64704">capture of our country</a>, and a president whose integrity, soul and heart have been <a href="http://www.news24.com/SouthAfrica/News/download-the-full-state-of-capture-pdf-20161102">compromised</a>.</p>
<p>The promise of <a href="https://theconversation.com/why-easter-is-called-easter-and-other-little-known-facts-about-the-holiday-75025">Easter</a>, which Christians around the world and here in South Africa celebrate, can be likened to what I call the new struggle in South Africa. In that struggle, the realisation of the promise of Easter is measured not only by how soon we replace the current administration, but by how well we ready ourselves for what comes next. </p>
<p>How do we prepare ourselves for the future after the end of a deeply corrupt regime? After Zuma has fallen, will those who benefit from his patronage fall too? Because if we change leaders but the patronage system that the current leadership has produced doesn’t change; if state-owned enterprises, the prosecution and law enforcement agencies remain captured by corrupt interests, we are no better off.</p>
<p>Over the past days, hundreds of thousands of South Africans have <a href="http://ewn.co.za/2017/04/08/south-africans-strengthen-calls-for-president-zuma-to-step-down">issued a call</a> to the country’s political leaders. They have called on them to come out from the places that hold them in bondage to the death of greed, in bondage to the lust for and the seduction of power, in bondage to the shadow of moral corruption that has enveloped South Africa.</p>
<h2>Time for selfless leadership</h2>
<p>Ordinary South Africans have called to their leaders, to those who are economically, socially and morally deaf; to those who ignore the crisis of distrust that has cast the longest and darkest shadow the country has ever seen in the democratic era, ordinary South Africans have said:</p>
<blockquote>
<p>Don’t stay in places that will pull us all into a culture that wounds or kills us. Don’t be overtaken by the culture into which our president and some of our elected officials have descended. Don’t ignore the pleas, cries and profound sense of pain and suffering that plague our wonderful and beautiful nation.</p>
</blockquote>
<p>South Africa needs real leaders who must be ready to sacrifice all to ensure dignity, equality, opportunity and freedom for all of our people. We cannot and should not ever be afraid to raise our voices for honesty, truth and compassion, and against injustice and lying and greed. </p>
<p>It’s time to take sides. Silence encourages the tormentor, never the tormented. Nothing strengthens authority as much as silence. Neutrality helps the oppressor, never the victim. As Archbishop Emeritus Desmond Tutu <a href="http://www.oxfordreference.com/view/10.1093/acref/9780191804144.001.0001/q-oro-ed3-00016497">has said</a>,</p>
<blockquote>
<p>If an elephant has its foot on the tail of a mouse and you say that you are neutral, the mouse will not appreciate your neutrality. We need to rise up, to stand up and speak up for our rights, our children’s rights and our grandchildren’s rights.</p>
</blockquote>
<p>Let us acknowledge that the old order, the economic system which makes us one of the <a href="https://theconversation.com/factcheck-is-south-africa-the-most-unequal-society-in-the-world-48334">most unequal</a> societies on earth, must go. Let us challenge the narrative of the corrupt, who use that old order as a fig leaf behind which they hide their greed. As I have said before, we need to overcome the skewed racial ordering of our economy and the obscene inequality which it produces. Not by indulging the rapacious greed of a few politically connected individuals, but by building a new, fairer society which distributes wealth more equitably for all.</p>
<p>Let the different interest groups and elements of our society which are committed to these ideals — whether rich or poor, whether black, white, coloured or Indian, whether Christian, Communist, Muslim, Hindu or Jew — let us all find one another in a powerful, united coalition which puts first the interests of the poor and thereby the interests of all of us.</p>
<h2>Working for a just South Africa</h2>
<p>While former presidents Nelson Mandela’s and Thabo Mbeki’s administrations made mistakes, their record shows that if government pulls together representatives of different interest groups, we can find rational, workable solutions to our most difficult problems. In that spirit, let us turn this moment of crisis into a moment of opportunity and convene a convention on the emotive land issue, along the lines of the Convention for a Democratic South Africa <a href="http://www.sahistory.org.za/article/codesa-negotiations">(Codesa)</a> to negotiate a solution. And, in the light of the downgrades of our credit ratings, an economic Codesa too.</p>
<p>In this new struggle, let us reject the participation of white racists who don’t believe that black people are capable of running a country or an economy. They are not welcome on marches and protests. Let us also not be distracted by hurtful and anachronistic <a href="https://theconversation.com/zille-tweeting-and-inanity-more-reasons-for-white-south-africans-to-shut-up-75326">comments on colonialism</a>. </p>
<p>Let us also reject those who want an unequal, tribal, sexist and racialised South Africa, and who exploit the views of a minority of racists to portray their opponents as stooges and to threaten white compatriots for exercising their civic rights.</p>
<p>To all politicians, we appeal to all of you to rise above your petty everyday squabbles and obsessions and to recognise this as a turning point in our history. I want to issue a special challenge to our Members of Parliament: when you are called upon to decide on whether you have confidence in our president, vote for the country’s future, and not for your own pockets. You should know that:</p>
<blockquote>
<p>South Africa will be watching.
The world will be watching.
Vote your conscience.</p>
</blockquote>
<p><em>This is an edited version of <a href="http://archbishop.anglicanchurchsa.org/">the sermon</a> by the Most Reverend Thabo Makgoba, Archbishop of Cape Town, prepared for delivery at the Easter Vigil at St George’s Cathedral on April 16, 2017.</em></p><img src="https://counter.theconversation.com/content/76129/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Thabo Makgoba was awarded the Ernest Oppenheimer Memorial Trust Scholarship to study for his PhD. He is the Archbishop of Cape Town. </span></em></p>The promise of Easter, which Christians around the world celebrate, can be likened to the new struggle in South Africa for a new leadership and government that cares about the people.Thabo Makgoba, Anglican Archbishop of Cape Town and chancellor, University of the Western CapeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/761182017-04-12T16:56:03Z2017-04-12T16:56:03ZANC military veterans and the threat to South Africa’s democracy<figure><img src="https://images.theconversation.com/files/165248/original/image-20170413-25898-1lzqft3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">ANC military veterans guard the party’s headquarters.
</span> <span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span></figcaption></figure><p>We may look back on the days in April 2017 when tens of thousands of South Africans marched demanding that President Jacob Zuma <a href="http://ewn.co.za/2017/04/06/anti-zuma-protest-gains-momentum-outside-parliament">should fall</a> as the beginning of something bigger.</p>
<p>There’s been a wistful glint in the eyes of ageing activists as they gear up for action again, predicting a return to the 1980s. Many have embraced the idea of the reconstitution of a <a href="http://www.sahistory.org.za/organisations/united-democratic-front-udf">United Democratic Front-style</a> multi-class, non-racial and popular anti-apartheid alliance of NGOs, community movements and religious groups to <a href="http://ewn.co.za/2017/04/08/south-africans-strengthen-calls-for-president-zuma-to-step-down">“Save South Africa”</a> from the capriciousness and corruption of the Zuma government.</p>
<p>We are told that Friday April 7, the day of the nationwide marches against Zuma, was the day when ordinary people stood up and said to the ANC: “Enough is Enough”! It was followed by another large demonstration of opposition political parties marching on the government’s seat of power in Pretoria, the Union Buildings, on April 12, which was also the president’s <a href="http://www.timeslive.co.za/politics/2017/04/12/Zuma-reveals-his-birthday-wishes-amid-protests1">75th birthday</a>. </p>
<p>Yet, while we should in no way underestimate this democratic stirring, we may look back and say that its greater significance was that it was this moment when it became manifest that Zuma’s faction of the ANC would be prepared to resort to violence to entrench its domination.</p>
<h2>Signs of intolerance of dissent</h2>
<p>Once the first marchers had marched, the ANC government sought to save face by proclaiming the day a <a href="http://ewn.co.za/2017/04/07/ayanda-dlodlo-thanks-anti-zuma-protesters-for-their-conduct">triumph for democracy </a> – which, of course, it was. Yet during the build-up to the march, the ANC had filled the air with threats of violence. </p>
<p>The most explicit warning was delivered by the newly installed Minister of Police, Fikile Mbalula. He did <a href="http://ewn.co.za/2017/04/04/mbalula-issues-stern-warning-to-violent-protesters">not want another Marikana</a>, he said, but implied the repeat of such an event, when police killed 34 striking miners, if protesters damaged property.</p>
<p>Other ANC officials, notably eThekwini mayor Zondile Gumede, issued <a href="http://www.timeslive.co.za/politics/2017/04/06/Durban-mayor-says-anti-Zuma-march-is-treason1">not-so-veiled threats </a> against those marching. Others sought to tie up the marchers’ right to march by <a href="http://ewn.co.za/2017/04/07/phahlane-insists-save-sa-march-is-illegal-despite-court-permission">denying permission</a>; others referred to marchers as <a href="http://www.timeslive.co.za/thetimes/2017/04/06/War-talk-from-MK-vets">“counter-revolutionary”</a>. </p>
<p>The most chilling threat was represented by the MK Veterans Association <a href="http://mkmva.anc.org.za/">(MKMVA)</a>, supposedly former members of the ANC’s armed wing uMkhonto we Sizwe (MK). Its press briefing before the marches took place stated that it was “mobilising” its members, who would be <a href="http://www.timeslive.co.za/thetimes/2017/04/06/War-talk-from-MK-vets">“combat ready”</a> to defend Luthuli House, the headquarters of the ANC. It was backed up by statements by the ANC Youth League that it was ready to defend the premises with <a href="http://www.iol.co.za/news/special-features/zuma/watch-ancyl-backs-zuma-amid-calls-for-his-head-8497214">all the weapons at its disposal</a>.</p>
<p>Given that the opposition Democratic Alliance (DA) had changed its initial plans to march upon Luthuli House, there was little or no need to “defend” the ANC’s headquarters from anyone. Even so, on the day, <a href="http://www.timeslive.co.za/politics/2017/04/07/MK-vets-gather-outside-Luthuli-House">some 700 MK “veterans”</a> assembled outside Luthuli House. </p>
<h2>Threat to democracy</h2>
<p>Dressed in military fatigues, the MK “veterans” explicitly presented themselves as the ANC’s armed wing ready to go into battle to counter the party’s enemies. In the event, they <a href="https://en.oxforddictionaries.com/definition/toyi-toyi">toyi-toyied</a> and demonstrated – and were fortunately denied the opportunity by the police to prove their metal in clashes with the DA or anyone else. Yet the threat of violence was immanent.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/165060/original/image-20170412-25859-1tm0mv1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/165060/original/image-20170412-25859-1tm0mv1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/165060/original/image-20170412-25859-1tm0mv1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/165060/original/image-20170412-25859-1tm0mv1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/165060/original/image-20170412-25859-1tm0mv1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/165060/original/image-20170412-25859-1tm0mv1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/165060/original/image-20170412-25859-1tm0mv1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Supposed veterans of the ANC’s military wing perform the toyi-toyi protest dance outside the party’s headquarters in Johannesburg.</span>
<span class="attribution"><span class="source">Reuters/Mike Hutchings</span></span>
</figcaption>
</figure>
<p>The real issue is how MK, as it’s presently constituted, views itself and is viewed by key elements amongst the ANC’s leadership as a militia ready to be deployed against its political opponents – internal as well as external. How many of those who presented themselves outside Luthuli House were genuinely former MK veterans we do not know. But, we can be pretty sure that many if not most - too young to have fought against apartheid – have been more recent recruits, with no genuine claim to membership.</p>
<p>We also know that under the national leadership of <a href="https://mg.co.za/tag/kebby-maphatsoe">Kebby Maphatsoe</a>, the deputy defence minister, the Veteran’s Association has been deeply corrupted. Major questions posed about its internal finances are the subject of a <a href="http://www.news24.com/SouthAfrica/News/mk-veteran-head-in-court-this-week-over-alleged-fraud-20160531">court case</a>. It’s been used to intervene violently in party <a href="https://theconversation.com/comrades-in-arms-against-apartheid-are-now-at-one-anothers-throats-64643">factional battles</a> on behalf of Zuma. Yet it has reserved its main animus for parties of opposition, regularly referred to by Maphatsoe as “the enemy”, “agents provocateurs”, and <a href="http://www.politicsweb.co.za/news-and-analysis/south-africa-first-an-organ-of-the-counterrevoluti">“counter-revolutionaries”</a>.</p>
<p>It would be a mistake to dismiss all this as harmless political theatre. Rather, it constitutes a very real and present danger. It’s worth recalling that Siphiwe Nyanda, a former leading member of MK who became chief of the South African National Defence Force, has already referred to the veterans under Maphatsoe as a <a href="http://www.sundayworld.co.za/news/2012/09/03/mkmva-is-divisive---nyanda-slams-anc-s-army-veterans">“private army”</a>. If he’s worried, then so should we be. Armed militias aligned to a political party, or a faction within it, have no place in a constitutional democracy.</p>
<h2>Shades of Zimbabwe</h2>
<p>We have no need to look further than Zimbabwe to recognise the threats to democracy posed by armed militias. Formed in 2000, the <a href="http://dev.icicp.org/wp-content/uploads/2013/11/Country-Profile_Zimbabwe.pdf">National Youth Service</a> was subsequently responsible for the military style training of some 80 000 youths. Many of them went on to join the ruling Zanu-PF’s affiliated militias the <a href="http://www.refworld.org/docid/45f147ce2f.html">“Green Bombers”</a>which wreaked havoc upon supporters of the opposition Movement for Democratic Change in the 2008 general election. </p>
<p>Subsequently, many were to be incorporated into security structures such as the military, police and prison service. They remain a major reservoir of violent support for Zanu-PF, which doesn’t hesitate to use to intimidate and liquidate its opponents. As we know, Zimbabwean elections have now become a <a href="https://theconversation.com/how-are-elections-really-rigged-mr-trump-consult-robert-mugabe-68440">farce</a>.</p>
<p>Following the ousting of Pravin Gordhan as South Africa’s finance minister in the recent <a href="http://www.gov.za/speeches/president-jacob-zuma-appoints-new-ministers-and-deputy-ministers-31-mar-2017-0000">cabinet reshuffle </a>, and the <a href="http://www.fin24.com/Economy/breaking-fitch-downgrades-sa-to-junk-status-20170407">downgrade by ratings agencies</a>, fears that South Africa under Zuma has embarked down a road which leads to Zimbabwe-style authoritarian kleptocracy have gained considerable ground. For the moment at least, such fears are probably exaggerated. </p>
<p>Although Zuma may be dominant within ANC structures for now, and although he will probably survive the forthcoming vote of <a href="http://ewn.co.za/2017/04/11/mbeki-calls-on-anc-mps-to-put-sa-first-in-vote-of-no-confidence-1">no-confidence</a> in the House of Assembly, his reshuffle has alienated many within the party. It has threatened his ability to secure the party presidency for his former wife, <a href="http://citizen.co.za/news/news-national/1394103/1394103/">Nkosazana Dlamini-Zuma</a>, at the party’s <a href="http://www.anc.org.za/content/54th-national-conference">elective conference</a> in December.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/165066/original/image-20170412-25898-vtmcu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/165066/original/image-20170412-25898-vtmcu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=388&fit=crop&dpr=1 600w, https://images.theconversation.com/files/165066/original/image-20170412-25898-vtmcu0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=388&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/165066/original/image-20170412-25898-vtmcu0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=388&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/165066/original/image-20170412-25898-vtmcu0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=488&fit=crop&dpr=1 754w, https://images.theconversation.com/files/165066/original/image-20170412-25898-vtmcu0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=488&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/165066/original/image-20170412-25898-vtmcu0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=488&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">President Zuma’s supporters from the ANC Youth League disrupt a memorial service for anti-apartheid and ANC hero Ahmed Kathrada in Durban.</span>
<span class="attribution"><span class="source">Reuters/Rogan Ward</span></span>
</figcaption>
</figure>
<p>Furthermore, the recent marches may have given backbone to some ANC MPs who fear the electoral consequences of the party continuing to cling to Zuma’s coattails. Yet the more desperate Zuma and his supporters become, the more the risk that they will turn to the MK Vets to help them. If, in turn, the Zuma faction was to prove triumphant in the leadership battle, it’s unlikely to hesitate to deploy MK vets (alongside its Youth League) against opponents during the lead up to the 2019 election.</p>
<p>Although the DA would go running to the courts, the militant <a href="http://www.effonline.org/">Economic Freedom Fighters</a> would be likely to respond to violence in kind, rendering the 2019 election campaign the most violent we will have seen since 1994. We are not there yet, and hopefully we never will be. </p>
<p>But, an economy which is about to hit the skids and which offers a massive pool of <a href="https://www.saldru.uct.ac.za/images/pdf/PresentationIZA.1-31.pdf">unemployed youths</a> available for political recruitment, is highly combustible. In such a context, were MKMVA to receive the covert (or not-so-covert) backing of the ANC, the prospect of a Zimbabwean scenario would loom ever larger.</p>
<p>If the white right wing was to reconstitute and parade in public in military uniforms, the ANC and all democrats would be rightly outraged. Equally, there should be no place in our democracy for MKMVA to play the role of soldier: that should be left to the South African National Defence Force.</p><img src="https://counter.theconversation.com/content/76118/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Roger Southall receives funding from the National Research Foundation </span></em></p>The militant talk and antics by the ANC’s ex-soldiers may seem like theatrics, but they are a chilling reminder of how Zimbabwe used armed militia to crash opponents and democracy.Roger Southall, Professor of Sociology, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/757042017-04-04T11:52:09Z2017-04-04T11:52:09ZWhat a downgrade means for South Africa and what it can do about it<figure><img src="https://images.theconversation.com/files/163792/original/image-20170404-5736-1i9jyhf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><span class="source">Justin Lane/EPA</span></span></figcaption></figure><p><em>Rating agency Standard & Poor’s (S&P) has <a href="https://www.bloomberg.com/news/articles/2017-04-03/south-africa-cut-to-junk-first-time-since-2000-after-zuma-purge">cut</a> South Africa’s foreign currency rating to sub-investment grade status. Two other global ratings agencies, Fitch and Moody’s, may well <a href="https://www.enca.com/south-africa/moodys-mulls-over-south-africas-investment-rating">follow suit</a>. The Conversation Africa’s editor Caroline Southey asked Professor Adrian Saville to explain the significance of the decision.</em></p>
<p><strong>How serious is this?</strong></p>
<p>Ratings downgrades are a clear signal to policymakers, investors, business and society more broadly that things are not on track. Although S&P’s decision to downgrade South Africa was only announced on Monday night after President Jacob Zuma’s <a href="http://ewn.co.za/2017/03/31/gordhan-rubbishes-zuma-s-reasons-for-firing-him">disastrous cabinet reshuffle</a>, it’s probably fair to argue that the decision was already in the price and that it has been there for some time.</p>
<p>To substantiate this claim, South African government bond yields have been priced similarly to the likes of <a href="http://www.coronation.com/Assets/za/Personal/Funds/FactsheetComprehensive/2017/February/2017-February-Global-Equity-Select-Fund.pdf">Brazil and Russia</a> for the best part of a year. Indeed, based on economic growth projections alone, South Africa has been failing S&P’s acid test for investment grade status for some time.</p>
<p>If anything, then, the decision to downgrade South Africa is overdue. In the same breath, even though S&P <a href="http://ewn.co.za/2017/04/03/read-the-full-standard-and-poors-statement-south-africa-credit-rating-junk-status">has expressed growing concern</a> about politics getting in the way of policy, strength in institutional fabric and policy consistency has given the country a stay of execution. All of this was put paid to by Zuma’s night of the long knives. </p>
<p>If anything, then, the ratings downgrade is confirmation of what’s been suspected for some time – that South Africa has lost its way from an economic perspective and that the country has also entered the political wilderness. It’s also worth suggesting that there’s a good possibility that S&P’s decision will galvanise the other two ratings agencies into taking a firmer – and less forgiving – stance on South Africa.</p>
<p><strong>What is the real impact going to be on ordinary South Africans, particularly poor people? In the short term and in the medium term.</strong></p>
<p>Arguably the immediate impact will be negligible. The sell-off in the rand, government bonds and banks are felt and seen in capital markets before they spill into the real economy. </p>
<p>But within a month the weaker currency could translate into higher fuel prices at the pump and this will quickly affect household budgets and business margins. </p>
<p>The impact will start to be felt more dramatically in about six months’ time. Exports and imports make up about a third of South Africa’s economic output. Its imports are price inelastic, meaning we take the prices that are given to us. Consequently, about one third of the economy will be subject to the effects of fairly rigid import price inflation. This will take about six months to pass into the economy. A back of the envelope calculation points to consumer price inflation being raised by as much as three percentage points, from a base of, say, 5% to as high as 8% (this is calculated by a rand decline of 10% multiplied by 30% of South African prices being imported). </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"849118546256949248"}"></div></p>
<p>In the same breath, and perversely, we could also see a near-term boost to some economic segments, especially export-oriented sectors, such as commodity producers and tourism. In time, though, the South African Reserve Bank will be obliged to raise interest rates to deal with higher consumer price inflation. </p>
<p><strong>What other negative economic consequences can the country expect?</strong></p>
<p>From these sequence of events, it follows that, in time, the ratings downgrade is followed by slower economic growth, higher consumer price inflation and higher interest rates. The combination of these factors is called stagflation. This environment is a poor outcome that will hold back economic progress and social transformation. </p>
<p>Of course, it would be naive to argue that this is entirely due to the ratings agencies’ call. Rather, this poor economic outcome was already on the cards. To explain, it’s important to recognise that the ratings agencies don’t have access to more or better information than the market at large and that their calls don’t drive market movements. Rather, their decisions tend to lag rather than lead the markets, and in this way, generally confirm what we already know.</p>
<p><strong>South Africa’s foreign currency debt now has sub-investment grade status, but not its domestic currency debt. Is this significant?</strong></p>
<p>At least two rating agencies must agree on sub-investment grade status and the rating must apply to local currency debt for a country to be ejected from the key <a href="https://www.yieldbook.com/x/ixFactSheet/factsheet_monthly_wgbi.pdf">global government bond index</a>. The sub-investment status attributed to South Africa immediately after the S&P call means that only one agency has rated the country sub-investment grade and this is on foreign currency debt.</p>
<p>This is not to say that the other shoe won’t fall. As things stand, it seems that is only a matter of time before the other agencies join S&P and that the call also extends to include local currency debt. </p>
<p><strong>What remedies could government apply now if it wanted to?</strong></p>
<p>By some measures, South Africa has been off the pace but not in bad shape. The fiscal deficit <a href="http://www.treasury.gov.za/documents/national%20budget/2017/review/FullBR.pdf">stands at</a> about 3.5% of gross domestic product (GDP) and general government debt <a href="http://www.tradingeconomics.com/south-africa/government-debt-to-gdp">is just over</a> 50% of GDP. Neither of these numbers is alarming. Even if we extend the debt net to include all “off balance sheet” obligations – especially via state-owned enterprises – South Africa’s state balance sheet and income statement are still in fair shape.</p>
<p>The real issues are the missing economic growth, entrenched unemployment, hopelessly skewed income distribution and urgently needed industrial invigoration. Under a debt downgrade the ability to repair each of these is compromised. Which means that the challenge rests not just in reestablishing robust policy, but also translating this into practice. </p>
<p>This will require the country to address the veil of uncertainty that shrouds political leadership and that’s left a jaundiced view on decisions that are key to the country’s well being. On this score, the evidence shows that countries that “get the message and get to work” can regain investment grade status fairly quickly – on average about three years. </p>
<p>Those that dither take three times as long – the best part of a decade – to regain investment grade status. Since 2010 Brazil, Croatia, Cyprus, Greece, Hungary, Portugal, Tunisia and Russia have been downgraded to sub-investment grade and none has yet recovered investment grade status. </p>
<p>Critically, a point that should not be lost is that as much as the ratings call is by an external agency, the repair required is domestic, and includes public and private sector facets. For instance, in all cases where countries have regained investment grade status quickly, have displayed two common attributes: The first is high private sector savings rates fuelling high domestic investment levels. The second is sound monetary policy that has been effective in managing the risk of consumer price inflation running away during the recovery.</p>
<p>South Africa has its work cut out for it. The ratings agency decision is not news. It’s a wake-up call.</p><img src="https://counter.theconversation.com/content/75704/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adrian Saville does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The ratings agency downgrade decision is not a surprise. It’s a wake up call. South Africa has its work cut out.Adrian Saville, Visiting Professor of Economics and Finance, Gordon Institute of Business Science, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/755502017-03-31T07:59:36Z2017-03-31T07:59:36ZStakes for South Africa’s democracy are high as Zuma plunges the knife<figure><img src="https://images.theconversation.com/files/163423/original/image-20170331-16307-tru6ql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's President Jacob Zuma has shafted and shifted 20 cabinet posts.</span> <span class="attribution"><span class="source">Aaron Ufumeli/EPA</span></span></figcaption></figure><p>South Africa has reached a crisis point in its political history that’s been looming on the horizon for more than a year. In the dark of night – literally – President Jacob Zuma demonstrated his ruthlessness by firing finance minister, Pravin Gordhan, amid a <a href="http://www.iol.co.za/news/politics/zuma-names-10-new-ministers-10-new-deputies-8424900">20-person</a> reshuffle of his government.</p>
<p>The magnitude of what has happened shouldn’t be underestimated. The Save South Africa campaign, echoing the sentiments of the country’s progressive-minded constitutionalists, described Gordhan’s dismissal as <a href="https://www.biznews.com/leadership/2017/03/31/comment-zumas-night-of-long-knives-gordhan-out-gupta-associates-in/">“an outrage”</a>.</p>
<p>There are two major concerns. The first is the impact on the economy, the second is a political and democratic one.</p>
<p>It’s not hyperbolic to suggest that what happens next – in the coming hours and days – will determine whether South Africa’s hard-won democracy will survive or whether it will join the club of post-colonial calamities that have scarred the continent’s past. The stakes couldn’t be higher.</p>
<h2>Threat to the economy</h2>
<p>In the last few months South Africa’s economy had begun to show the very first signs of <a href="http://m.fin24.com/fin24/Economy/live-gupta-bank-court-battle-set-to-begin-20170328">strengthening</a>. Gordhan, in fact, had just embarked on an investor roadshow to further encourage much-needed investment when, on Monday, Zuma ordered him to <a href="http://www.timeslive.co.za/politics/2017/03/27/BREAKING-Zuma-orders-Gordhan-to-return-from-unauthorised-UK-roadshow-cancels-Jonas-US-trip">return</a>.</p>
<p>Zuma has been waging a cold war against his finance minister for <a href="https://theconversation.com/prexit-as-south-africa-looks-over-the-abyss-who-will-blink-66969">over a year</a>, causing uncertainty and undermining attempts to convince markets and <a href="http://www.fin24.com/Economy/no-change-in-south-africas-credit-rating-moodys-20161126">rating agencies</a> alike that South Africa’s government was doing all it could to shake the country out of the economic rut into which it has fallen since the <a href="https://www.forbes.com/2009/01/14/global-recession-2009-oped-cx_nr_0115roubini.html">global economic crisis</a> almost ten years ago.</p>
<p>Gordhan and his team of public servants at National Treasury stood between Zuma and his cronies’ most nefarious and venal plans – such as a <a href="http://www.fin24.com/Economy/why-governments-nuclear-deal-will-destroy-sa-20160915">nuclear deal</a> with Russia. As South Africa’s former Public Protector (ombudsman) described in her seminal report, “<a href="https://www.da.org.za/2016/11/download-public-protectors-state-capture-report/">State of Capture</a>”, the Gupta family and other rent-seeking opportunists have been exploiting Zuma and his family’s weakness and taking control of important institutions and agencies of the state, such as the <a href="http://www.sars.gov.za/Pages/default.aspx">tax authority</a> (SARS), the <a href="https://www.npa.gov.za/">national prosecuting authority</a> (NPA) and state energy utility, <a href="http://www.eskom.co.za/Pages/Landing.aspx">Eskom</a>.</p>
<p>Gordhan has heroically withstood the intimidation and held the line. The rand has already <a href="http://www.sabc.co.za/news/a/69589e80409ab28eb279f242beef4d8c/Rand-plunges-after-Gordhan-sacked-20170331">plunged</a> on news of his removal. Market sentiment will collapse. And there’s a high likelihood that perhaps as early as next week, rating agency Moody’s will downgrade South Africa to <a href="http://www.fin24.com/Economy/junk-status-on-the-cards-after-zumas-night-of-long-knives-20170331">junk status</a>. This will, in turn, increase the cost of government borrowing and set in motion a sequence of economic events that will cause great harm to the poorest and most vulnerable members of society.</p>
<h2>Political and democratic concerns</h2>
<p>Gordhan’s removal is an act of <a href="http://ewn.co.za/2017/03/29/opinion-judith-february-president-zuma-is-holding-sa-to-ransom">democratic disregard</a> and political as well as economic recklessness. While the two main opposition parties, the <a href="https://www.da.org.za/">Democratic Alliance</a> and the <a href="http://www.economicfreedomfighters.org/">Economic Freedom Fighters</a>, both reacted by tabling motions of <a href="http://citizen.co.za/news/news-national/1471914/da-to-table-motion-of-no-confidence-in-zuma/">no confidence</a> in the national assembly, the focus will now be on how the social democratic and left-leaning members of cabinet – the “constitutionalists” – will respond to last night’s events.</p>
<p>They will be under pressure to resign <a href="http://www.news24.com/Columnists/AdriaanBasson/zuma-vs-pravin-is-it-checkmate-20170329">in solidarity</a> with Gordhan, but they will also be anxious about vacating the space to the nationalist populists who now hold a big majority in government.</p>
<p>But this is no longer about ideology. It’s as several senior ANC insiders have described to me in recent days as being about “the corrupt versus the non-corrupt”.</p>
<p>That there will be a fight back against Zuma’s reckless decision is beyond doubt. One of the fired ministers wrote to a friend late last night: “we will get the bastard”. But to “get Zuma” they will have to show the same ruthlessness and courage, and they will have to act decisively and fast.</p>
<p>All eyes will be on deputy president, <a href="http://ewn.co.za/2017/01/08/the-debate-over-who-should-succeed-zuma-as-anc-president-heating-up">Cyril Ramaphosa</a>, one of two contenders to succeed Zuma at the ANC’s five-yearly national elective conference in<a href="http://www.huffingtonpost.co.za/2017/01/22/the-battle-for-limpopo-is-on-head-of-anc-elective-conference/"> December</a> this year. </p>
<p>When Zuma told the ANC’s top six leadership of his decision to remove Gordhan earlier this week, Ramaphosa and Secretary General Gwede Mantashe <a href="http://www.news24.com/SouthAfrica/News/ramaphosa-mantashe-rejected-zumas-reasons-for-axing-gordhan-20170331">objected</a>. They rejected out of hand the “evidence” that Zuma put before them – a self-evidently <a href="http://citizen.co.za/news/news-national/1471284/gupta-manufactured-report-made-zuma-recall-gordhan/">fake piece of intelligence</a> that Zuma claimed showed that Gordhan was in London to persuade investment banks to help him topple Zuma.</p>
<p>As Gordhan flew through the night on Monday, events intervened: ANC stalwart and liberation hero, Ahmed Kathrada, <a href="http://www.enca.com/south-africa/struggle-stalwart-ahmed-kathrada-dies-aged-87">passed away</a>. Zuma was compelled to press the pause button on his reshuffle plans. At Kathrada’s funeral on Wednesday, many of the ANC’s top leadership gathered to hear former president Kgalema Motlanthe read out the letter from Kathrada that called for Zuma to <a href="https://www.enca.com/south-africa/standing-ovation-as-motlanthe-quotes-kathradas-call-for-zuma-to-step-down">resign</a>.</p>
<p>When Gordhan was acknowledged, the mourners <a href="https://www.businesslive.co.za/bd/national/2017-03-29-stoic-gordhan-gets-standing-ovation-at-funeral-of-anc-stalwart-kathrada/">rose </a> as one in support: a powerful, as well as emotional moment. Zuma was conspicuous by his absence: it had been made clear to him by Kathrada family that <a href="https://mg.co.za/article/2017-03-28-president-zuma-barred-from-kathrada-funeral">he was not welcome</a>.</p>
<h2>Is South Africa’s democracy under threat?</h2>
<p>The ANC has never been more painfully divided, to the point where it’s very future is threatened. It could split. It may not maintain its majority at the next national election in 2019. All bets are off.</p>
<p>And, in the long run, this may not be a bad thing. As every hour has passed since Zuma won the ANC’s presidency in <a href="https://mg.co.za/article/2007-12-18-zuma-is-new-anc-president">December 2007</a>, it has declined as a progressive, stabilising force for good amid the turbulent, violent precariousness and social incohesion of South Africa’s noisy democracy.</p>
<p>Is that democracy now under threat? This is the biggest question now, which cannot be ignored.</p>
<p>Is South Africa sleepwalking towards the door marked “dictatorship”? Repeatedly, the analyst community has underestimated Zuma. Repeatedly, he’s fought back ruthlessly. He doesn’t conform to the “usual rules” or the same political calculations. He cares only about his interests and those of his sponsors and of a band of ‘comprador’ nationalists.</p>
<p>Zuma plunged his knife into Gordhan’s back with ruthlessness but also cowardice: he didn’t even have the decency to look his former comrade in the struggle, in the eye.</p>
<p>Democratic leaders don’t fire their finance ministers late at night, without even having the grace to contact the person being removed from office or without some kind of press conference. Close to midnight, the presidency published <a href="http://www.iol.co.za/news/politics/zuma-names-10-new-ministers-10-new-deputies-8424900">the list </a> of 20 new ministers and deputy ministers, while Zuma slipped away into the dark and onto his presidential jet to Durban.</p>
<p>There have been many other notorious “<a href="http://www.historylearningsite.co.uk/nazi-germany/the-night-of-the-long-knives/">nights of the long knives</a>”. Now Africa’s <a href="https://theconversation.com/south-africa-is-africas-largest-economy-again-but-what-does-it-mean-63860">biggest economy</a> has its own contribution to offer the annals of political history. Caused by a crisis in political leadership, Zuma’s ruthless display of power could prompt an economic crisis that could easily send South Africa into a <a href="https://www.bloomberg.com/politics/articles/2016-12-23/2016-was-awful-for-brazilians-and-2017-doesn-t-look-much-better">Brazil-style downward spiral</a> whose consequences are impossible to predict.</p><img src="https://counter.theconversation.com/content/75550/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Calland is a partner of The Paternoster Group and a Board member of the Open Democracy Advice Centre and a member of the Advisory Council of the Council for the Advancement of the South African Constitution. </span></em></p>The focus will now be on how the social democratic and left-leaning members of South Africa’s cabinet – the “constitutionalists” – will respond to the reshuffle.Richard Calland, Associate Professor in Public Law, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/714132017-01-17T17:10:19Z2017-01-17T17:10:19ZWhy junk status still hangs over South Africa<figure><img src="https://images.theconversation.com/files/153041/original/image-20170117-2750-1oupxky.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Although South Africa <a href="http://mg.co.za/article/2016-12-02-reprieve-for-south-africa-as-sp-leaves-credit-rating-unchanged">avoided a downgrade</a> to non-investment grade, or junk status, in 2016, the country is not yet out of the woods and may be downgraded this year. The reasons for this are ongoing political risk as <a href="https://theconversation.com/ministers-call-for-zuma-to-resign-signals-internal-rebellion-in-south-africas-cabinet-69663">factional battles</a> in the governing African National Congress intensify, policy inconsistencies and low economic growth. </p>
<p>The effects of a sovereign credit rating downgrade would be significant for all South Africans. It would drive up borrowing costs, which in turn would have a negative impact on the government’s finances. It could also lead to foreigners leaving South Africa’s capital markets as well as driving the rand weaker. And it would in-turn push interest rates up, which would hurt ordinary South Africans.</p>
<p>But there are some possible steps the country can still take to avert a downgrade. These would include underscoring that Finance Minister Pravin Gordhan is secure in his job, and cutting wasteful expenditure.</p>
<h2>Impact on the markets</h2>
<p>South Africa’s public debt stands at 50.1% of the country’s GDP, <a href="http://www.tradingeconomics.com/south-africa/government-debt-to-gdp">nearly double what it was in 2006</a>. If the government’s borrowing position is not controlled it runs the risk of running up debts that it can’t service. An over-borrowed government is also perceived to be risky, which increases the cost of additional borrowing because lenders demand a premium. On top of this the country’s fiscus is under pressure from low revenue collection as a result of the slowing economy. </p>
<p>A downgrade to junk status is also likely to trigger significant capital flight. This is because sovereign downgrades typically have a direct impact on bonds and other fixed income securities making them less attractive to foreign bond investors. The likely outcome is that they will take their money to markets that offer better returns. This would be bad news for the country as <a href="https://www.wits.ac.za/news/latest-news/in-their-own-words/2016/2016-11/south-africa-needs-tougher-exchange-controls-before-junk-status-hits.html">foreign investors hold</a> about R62 billion (USD4.5 billion) in government securities. </p>
<p>A downgrade may not affect equity holders to the same extent as bondholders. Of the 472 companies listed on the Johannesburg Securities Exchange, <a href="http://www.fin24.com/Markets/Equities/dual-listed-shares-shine-on-the-jse-20160510">39 are dual listed</a>. These have primary or secondary listings in South Africa, London and New York. Companies listed abroad will be less vulnerable because most of their earnings are from abroad and in foreign currencies. But companies listed solely in South Africa would be affected by the country’s poor economic performance and a weaker currency. This is likely to drive them to internationalise which would mean a loss to South Africa. In addition, their valuations would be negatively affected by the higher cost of capital.</p>
<p>As the bond market reacts to the sovereign downgrade, the ripple effect would extend to the rand, causing it to weaken against other major currencies. The rand averaged R14/USD at the end of 2016 but a downgrade this year would be likely to push it beyond its lowpoint of about <a href="https://businesstech.co.za/news/finance/116372/rand-vs-the-dollar-1978-2016/">R16.80/USD</a>, possibly beyond the R20/USD level in the medium term). It plunged to this level in December 2015 after President Jacob Zuma announced he was removing then Finance Minister <a href="https://theconversation.com/the-removal-of-south-africas-finance-minister-is-bad-news-for-the-country-52170">Nhlanhla Nene</a>. </p>
<h2>Ordinary people</h2>
<p>According to the World Bank <a href="http://siteresources.worldbank.org/EXTAFRSUMAFTPS/Resources/chapter2.pdf">South Africans are the biggest borrowers in the world</a>. The country’s National Credit Regulator Statistics has reported that approximately <a href="http://www.ncr.org.za/documents/pages/Annual%20Reports/NCR%20Annual%20Report%202015-16.pdf">20% of consumers are three months in arrears</a>. </p>
<p>A Adowngrade would drive up debt servicing costs. In addition, the fiscus would be under pressure due to higher interest costs on debt repayments coupled with lower economic growth. The government’s response would then be to raise taxes. The choices would between the politically unpalatable option of raising the value added tax rate, which would hit the rural poor and the lower-middle class urban consumers, or increasing personal taxes on the already <a href="http://www.fin24.com/Economy/sa-is-an-overtaxed-nation-says-outa-20160403">over-taxed working middle class</a>. As the <a href="https://www.washingtonpost.com/news/monkey-cage/wp/2016/08/12/here-are-4-reasons-that-south-africas-african-national-congress-lost-ground-in-this-months-election/?utm_term=.70e8eaf46612">recent local government elections have shown</a> this could also have political ramifications for the governing party.</p>
<p>With budget deficits for the past 20 years <a href="http://www.tradingeconomics.com/south-africa/government-budget">averaging -3.24%</a>, a rating downgrade would force the government to either embark on injecting new money into the economy or <a href="http://www.capetalk.co.za/articles/1576/south-africa-s-government-is-running-out-of-money-sairr">borrowing</a> more. Injecting new money into the economy would fuel inflation and exert pressure on the exchange rate. The central bank would then have to respond by raising interest rates, again hitting consumers.</p>
<p>Further borrowing is also risky as it could lead to a possible debt trap where the government is no longer able to service its debts. </p>
<h2>Momentous year</h2>
<p>This is a momentous year for the country, with the <a href="https://theconversation.com/zuma-lives-to-fight-another-day-but-fallout-from-latest-revolt-will-live-on-69587">factional battles</a> and ANC contestation gathering momentum, and for the world with the inauguration of President Donald Trump and uncertainties around <a href="https://theconversation.com/brexit-shows-economic-costs-of-pursuing-populist-policies-like-trumps-62407">post-Brexit</a> trade policies. In such an uncertain environment, South Africa must rectify the four mistakes that have led it to drift to the point of a downgrade. </p>
<p>First, government policy needs to be clear, consistent and growth-oriented. Second, rather than considering further borrowing or increasing taxes, the government must cut non-productive spending and restructure the non-viable state-owned entities (especially those that rely on bailouts or have become too large to manage). Third, the authorities need to ensure that <a href="https://www.businesslive.co.za/bd/national/2017-01-06-sarss-luther-lubelo-should-not-have-attacked-rating-agencies-says-gordhan/">business confidence</a> doesn’t deteriorate further. It can do this by desisting from issuing <a href="https://www.dailymaverick.co.za/article/2016-12-22-we-want-the-rand-to-fall-so-that-when-it-rises-we-will-control-the-economy-maine/#.WHYPZVN97IU">conflicting political statements</a> which cause investors to panic. And lastly, the presidency must quell the uncertainty around the finance minister’s position. </p>
<p>If South Africa continues to get <a href="http://blackopinion.co.za/2016/12/05/south-africa-ruled-rating-agencies/">these wrong</a>, it’s likely that it will be downgraded this year. Since it takes <a href="http://www.cnbcafrica.com/news/southern-africa/2016/06/03/south-africa-to-regain-investment-rating/">an average of seven years for a country to regain its investment grade</a>, South Africa would be stuck in a <a href="https://theconversation.com/south-africa-can-expect-zero-growth-its-problems-are-largely-homemade-62943">middle-income trap</a> until at least 2024. Under this scenario it would be unable to move out of low-level manufacturing, unemployment levels would remain high and the economy would remain stagnant.</p><img src="https://counter.theconversation.com/content/71413/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Gossel receives funding from the University of Cape Town. </span></em></p><p class="fine-print"><em><span>Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The effects of a sovereign credit rating downgrade would be painful for all South Africans.Misheck Mutize, Lecturer of Finance and Doctor of Philosophy Candidate, specializing in Finance, University of Cape TownSean Gossel, Senior Lecturer, UCT Graduate School of Business, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/693612016-11-24T11:27:14Z2016-11-24T11:27:14ZWhy credit ratings matter and why they can’t be ignored<figure><img src="https://images.theconversation.com/files/147339/original/image-20161124-15330-cbwrbg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa faces a possible downgrade by credit rating agencies.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>This article was first published in 2016 as South Africa faced a possible downgrade by rating agencies. The Conversation Africa’s Charles Leonard asked Mampho Modise to explain the significance of a rating agency downgrade.</em></p>
<p><strong>What do the agencies look at in the process of reviewing a country?</strong></p>
<p>In their rating <a href="http://faculty.nps.edu/relooney/3040_2.pdf">methodologies</a>, rating agencies have developed rating criteria for assessing the performance of key macroeconomic and socioeconomic indicators. By assessing the indicators, the rating agencies are able to determine the borrower’s ability and willingness to honour debt obligations. </p>
<p>Rating criteria focus on the following components and indicators: </p>
<ul>
<li><p><strong>Economic structure and performance:</strong> Real GDP, per capita income, headline inflation rate, gross investment as a percentage of GDP and gross domestic savings as a percentage of GDP.</p></li>
<li><p><strong>Government finances:</strong> Government revenue to GDP, government expenditure to GDP, government debt to GDP, debt interest payment to revenue and the budget balance as a percentage of GDP.</p></li>
<li><p><strong>External payments and debt:</strong> Current account balance as a percentage of GDP, the ratio of external debt to GDP and level of official reserves.</p></li>
<li><p><strong>Susceptibility to event:</strong> Political risk, socioeconomic risk, external vulnerability risk and institutional independence. </p></li>
</ul>
<p>When reviewing the sovereign ratings, rating agencies hold discussions with various stakeholders in government, labour, civil society and the private sector. The reason the private sector is included is for the rating agencies to get an independent view on government policies and strategies.</p>
<p><strong>What do they do with their results?</strong></p>
<p>Once their reviews are concluded, the agencies will announce credit rating opinions which will reflect the borrower’s credit worthiness. That is the likelihood that the borrower will pay back a loan within the confines of the loan agreement, without defaulting. </p>
<p>A high credit rating indicates a high possibility of paying back the loan in its entirety without any issues. A poor credit rating suggests that the borrower has had trouble paying back loans in the past, and might follow the same pattern in the future.</p>
<p>The credit rating opinions are used by various stakeholders and for different reasons.</p>
<p>Firstly, investors use credit ratings as a guide to their investment decisions. Credit ratings provide an independent and objective assessment of the credit worthiness of countries and corporations. This assists investors to decide how risky it is to invest money in a certain country or corporation. </p>
<p>Secondly, for corporations and governments who want to raise money in the capital market, a favourable rating means a country will be able to obtain funds at a lower cost.</p>
<p>Lastly, governments could also use credit ratings as a measure for gauging their performance relative to peers to effect improvements. </p>
<p><strong>Which political developments in South Africa are likely to have an impact on the reviews?</strong></p>
<p>A few areas of concern have been cited.</p>
<p>The outcome of the <a href="http://ewn.co.za/2016/08/25/ANC-Divided-Confused-No-plan--Except-in-Gauteng">2016 local government elections</a> is one. The rating agencies are concerned that a drop in the voter percentage could result in fiscal loosening to draw votes back to the ruling party.</p>
<p>Another concern is the <a href="http://ewn.co.za/2016/10/11/Finance-Minister-Pravin-Gordhan-issued-with-summons-for-fraud">charges</a> instituted against the Minister of Finance Pravin Gordhan and later <a href="http://www.bbc.com/news/world-africa-37822600">withdrawn</a>. This threatened the institutional stability and integrity of the National Treasury.</p>
<p>And the political disagreements on the findings of the <a href="http://www.news24.com/SouthAfrica/News/statecapturereport-live-the-public-protector-has-been-ordered-to-publish-the-state-capture-report-20161102">state capture report</a> threatened the institutional independence of the office of the Public Protector and the courts.</p>
<p>Finally, the upcoming <a href="http://www.news24.com/SouthAfrica/News/early-anc-elective-conference-a-non-starter-20160908">elective conference</a> for the governing African National Congress (ANC) in 2017 is raising a concern on policy continuity and predictability. </p>
<p><strong>Do the agencies operate in every country around the world?</strong></p>
<p>Not necessarily. Rating agencies can operate unsolicited. But major rating agencies such as <a href="https://www.moodys.com/Pages/atc.aspx">Moody’s Investors Service</a> (Moody’s), <a href="https://www.spglobal.com/">S&P Global Ratings</a>(S&P) and <a href="https://www.fitchratings.com/site/home">Fitch Ratings</a> (Fitch) are solicited by countries to provide credit ratings. </p>
<p>Moody’s operates in 36 countries, S&P in 28, and Fitch in more than 30 countries.</p>
<p><strong>What happens to a country downgraded to junk status?</strong></p>
<p><a href="http://www.fin24.com/Economy/sa-junk-rating-seems-inevitable-economists-20161118">Junk status</a> is associated with high risk. Therefore, high borrowing costs. This is the main reason why a sovereign has to avoid being downgraded into a junk, or sub-investment grade. </p>
<p>For fund managers (who are representing the investors) a downgrade to junk status means they will have to sell the assets (bonds) they hold. Their mandates require that they only invest in investment grade assets.</p>
<p>For an ordinary person it means paying more interest, leaving little money for savings and expenditure on rent, school fees and food.</p>
<p>For governments it means allocating more to debt servicing costs (interest payment). Less money will be available for social grants, investment priorities, creating jobs and ultimately reducing the GDP growth potential of the country. More interest payment also crowds out other critical spending. Social services is an example.</p>
<p><strong>Is it possible for a government to simply ignore their ratings?</strong></p>
<p>Not really. Solicited credit ratings ensure easy access to international capital markets. Favourable credit ratings imply low borrowing costs. The South African government has solicited credit ratings from the top agencies to ensure that it can easily and cheaply access foreign funding needed to accomplish its economic development agenda. </p>
<p>South Africa therefore can’t ignore the credit ratings assigned to it, especially given that foreign investors hold more than <a href="http://www.treasury.gov.za/documents/national%20budget/2016/review/chapter%207.pdf">30% of government debt</a>.</p>
<p><strong>Which agency is taken most seriously?</strong></p>
<p>Sovereign credit rating is the most concentrated industry. There are approximately <a href="https://theconversation.com/qanda-why-credit-rating-agencies-matter-for-developing-countries-51964">70 rating agencies</a> globally. But most investors base their investment decisions on the credit ratings published by Moody’s, S&P and Fitch. These three control approximately 95% of the rating business.</p><img src="https://counter.theconversation.com/content/69361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mampho Modise is affiliated with National Treasury</span></em></p>Credit ratings have an impact on government, as well as ordinary people. This article was first published last year as South Africa faced a possible downgrade.Mampho Modise, Post graduate researcher, University of PretoriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/692432016-11-22T20:01:03Z2016-11-22T20:01:03ZSouth Africa is skating on thin ice as rating agencies weigh their options<figure><img src="https://images.theconversation.com/files/147008/original/image-20161122-11000-1vlrf0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South Africa's Finance Minister Pravin Gordhan is fighting to stave off a downgrade by ratings agencies.</span> <span class="attribution"><span class="source">Siphiwe Sibeko/Reuters</span></span></figcaption></figure><p>Rating agencies are shortly expected to announce their decision on whether to retain South Africa’s sovereign credit rating, or to downgrade it. The current rank <a href="https://www.moodys.com/page/search.aspx?cy=global&kw=south+africa&searchfrom=GS&spk=qs&tb=1">assigned by Moody’s</a> is two notches above sub-investment grade (with a negative outlook). Fellow agencies Fitch and Standard and Poor’s both rank South Africa just one notch above “junk” status.</p>
<p>The country was able to avoid the downgrade to “junk status” in both May and June. But the scheduled reviews have reignited fears of a possible downgrade, a decision that would set the stage either for South Africa’s economic revival, or its demise.</p>
<p>Despite minor differences, all three agencies weigh up a number of ubiquitous and <a href="http://faculty.nps.edu/relooney/3040_2.pdf">well-defined criteria</a> when assigning a rank to a country’s sovereign debt. In the current review of South Africa they will be scrutinising growth prospects, the fiscal balance and its external debt levels particularly closely. </p>
<p>In their earlier reviews the rating agencies warned that South Africa’s annual growth rate would need to increase to at least 1% or it would risk <a href="http://www.moneyweb.co.za/news/economy/south-africa-can-avoid-credit-downgrades-gordhan/">falling to “junk” status by year-end</a>. Finance Minister Pravin Gordhan recently reiterated the warning. </p>
<p>Unfortunately, South Africa’s annual growth prospect has been revised down from <a href="http://www.treasury.gov.za/documents/mtbps/2016/mtbps/MTBPS%202016%20Full%20Document.pdf">0.9% to 0.5% </a>. The outlook for 2017 is more positive in that the growth rate is expected to increase to approximately 1.3%.</p>
<p>But to achieve positive growth in the coming year the government has no choice but to introduce much needed and widely advocated structural reforms. These are being spearheaded by Gordhan. He has also been leading ongoing negotiations between the National Treasury and rating agencies in a bid to ward off a downgrade. </p>
<p>The negotiations have resulted in a number of tangible measures being set. These include a more sustainable supply of energy, greater efficiency at state owned enterprises, market reforms that can lead to greater competition and labour market reforms. </p>
<p>But a number of structural factors still stand in way of meaningful progress. </p>
<h2>The hurdles</h2>
<p>The most notable is the skills mismatch which has led to a labour market that is rigid and inaccessible to many. Reforms will therefore have to be centred on more flexibility in wage contracts and more effective collective bargaining structures. Also key will be the creation of more jobs in the private sector, particularly among small to medium enterprises. They are viewed as being more labour intensive and can therefore absorb a higher share of the unskilled labour. </p>
<p>Success on these fronts will depend on a commitment from both large business as well as trade unions.</p>
<p>The fiscal balance is also an area of concern. Here the National Treasury must commit to reducing the consolidated budget deficit to at least 3% of GDP. And it must make a commitment to maintain this for the next two financial years. In addition, the debt-to-GDP ratio must stabilise to below 48%. Achieving this is going to prove challenging for two main reasons. </p>
<p>Firstly, poor performing state owned enterprises, for example, the power utility Eskom and South African Airways, are putting an undue burden on the state’s resources. Calls to privatise these entities have so far gone unanswered. </p>
<p>Equally important are the burgeoning public wage bill as well as exceedingly high wasteful expenditure. The most recent report released by the country’s Auditor General pointed to <a href="http://mg.co.za/article/2016-11-16-government-state-owned-entities-topple-billions-in-irregular-expenditure">shocking levels of wasteful expenditure</a> by municipalities totalling almost R50 billion in the 2016 financial year. Much of it has been attributed to blatant deviations from procurement guidelines. </p>
<p>How the National Treasury responds will certainly test its commitment to short-term cost cutting measures. It will also point to how it aims to achieve growth within a more prudent fiscal framework.</p>
<h2>Institutional strength</h2>
<p>An equally important criteria that ratings agencies assess is the country’s institutional strength. This considers whether a country’s institutional structures can support its ability and willingness to repay its debt. The government’s capacity to conduct sound economic policies that foster economic growth and prosperity are also considered.</p>
<p>Political tensions within the ANC will have a negative influence on the rating. Trumped-up charges levelled against <a href="http://ewn.co.za/2016/10/11/Finance-Minister-Pravin-Gordhan-issued-with-summons-for-fraud">Gordhan</a> combined with President Jacob Zuma’s attempts to delay the release of a report on state <a href="http://ewn.co.za/2016/10/27/jacob-zuma-seeks-to-postpone-court-hearing-into-state-capture-report">capture</a>, have not inspired confidence. There were silver linings in the fact that the country’s National Prosecuting Authority decided to drop the charges against <a href="http://www.bbc.com/news/world-africa-37822600">Gordhan</a> while a court ruled that report on state capture should be <a href="http://www.iol.co.za/business/markets/currencies/rand-rises-after-go-ahead-for-statecapturereport-2086288">released</a>.</p>
<p>But the continued deafening silence from Zuma as well as his ministers is bound to be noticed. The clear lack of leadership and the desire of some to hold onto power, adds political risk for which the country is likely to be judged harshly. </p>
<h2>The effect of a downgrade</h2>
<p>Asset markets have already priced in a possible downgrade. But a negative decision will still have major ramifications for South Africa. </p>
<p>A downgrade to speculative grade would imply that South African investments are considered to be high risk. Potential investors will demand a higher premium to take on the higher risk. In the worst case scenario the country will no longer be able to secure any credit. </p>
<p>The immediate response to a potential downgrade is that the country may experience short-term losses in the value of currency and the bond market. It may also experience an exodus of capital. But according to <a href="http://www.iol.co.za/business/news/sa-banks-able-to-deal-with-downgrade-2088635">the governor of the reserve bank</a>, banks are adequately capitalised and hence these developments are not expected to permanently effect the functioning of the domestic financial market. </p>
<p>In addition, the country’s resilience may come in the form of strong policy frameworks, a flexible exchange rate, relatively healthy corporate balance sheets and a large share of external debt being rand denominated. A better than expected commodity cycle could also help. These factors, combined with the Reserve Bank’s goal of keeping inflation in check (which offers some confidence in the stability of the country’s institutions) may just be South Africa’s saving grace.</p><img src="https://counter.theconversation.com/content/69243/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa has made some progress in fixing problems identified by ratings agencies. But there are a number of outstanding issues that might mean the country is given ‘junk’ status.Fatima Bhoola, Lecturer in Economics, University of the WitwatersrandNimisha Naik, Lecturer in Economics, Macroeconomics and Mathematical Economics, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/607152016-06-16T13:07:43Z2016-06-16T13:07:43ZHow investors see South Africa: lots of potential, not worth the hassle<figure><img src="https://images.theconversation.com/files/126344/original/image-20160613-29222-26djv1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">International investors are still rattled by President Jacob Zuma’s sacking of respected Finance Minister Nhlanhla Nene.</span> <span class="attribution"><span class="source">Reuters/Sumaya Hisham </span></span></figcaption></figure><p>South Africa has narrowly survived a downgrade of the rating of its government bonds. The reprieve, however, is temporary because government has been warned by the <a href="https://www.ted.com/talks/annette_heuser_the_3_agencies_with_the_power_to_make_or_break_economies/transcript?language=en">Big Three</a> rating agencies – Fitch, Moody’s and Standard & Poor’s – to pull up its socks. </p>
<p>South Africa’s <a href="http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/">current rating</a> – just about investment grade, heading south fast – puts it more or less on par with countries such as Italy and Spain. And even with a downward trajectory through speculative grade it is still several notches away from outright “junk” or “CCC”. </p>
<p>But a downgrade to sub-investment grade would slow inward investment and the economic fallout could become a self-fulfilling prophecy: as outflows increase, the economy slows.</p>
<p>Such meta-narratives are especially powerful during periods of global turbulence as is currently being experienced, with volatile commodity prices, the oil rout, the slowdown in China and speculative investors moving large amounts of short-term capital very quickly around the world. </p>
<h2>Why sovereign debt matters</h2>
<p>When governments need to raise money they may decide to do so by borrowing on international financial markets. Such loans, or sovereign bonds, are each assigned a rating by a credit ratings agency. The rating estimates the likelihood of a government’s creditors being repaid against a range of factors. These include hard economic data, political analysis, reputation and sentiment. </p>
<p>The yield of the bond can be roughly understood as the interest rate on a loan. The lower the credit rating, the higher the risk of a default and the higher the yield payable to investors for taking on that risk.</p>
<p>It’s important to note that sovereign bonds are just another asset class investors can consider in a universe of investable assets. A downgrade is not desirable as it may slow down institutional investment and make the economy more vulnerable to speculative activity. But some investors may very well have an appetite for risky sovereign debt if it means they can make a lot of money. </p>
<p>In fact, high-end brokerages such as <a href="http://www.forbes.com/sites/charlesschwab/2016/04/22/why-global-diversification-matters/#2571f7e63870">Charles Schwab</a> advise investors on investing in high-yield, sub-investment grade emerging market debt. This sort of speculative sentiment is exactly what <a href="http://www.theguardian.com/world/2012/nov/07/africa-economy-rising-growth">drove</a> the “Africa Rising” narrative. It also <a href="https://www.moodys.com/research/Moodys-Primary-issuance-by-African-sovereigns-year-to-date-has--PR_283968">drove</a> the introduction of ratings for previously unrated sub-Saharan sovereigns, as investors sought new sources of alpha in the low-growth fallout of the financial crisis in Europe.</p>
<p>Despite this, countries need to borrow to plug the gap between projected tax revenue and budgeted expenditure. However, as debt has to be repaid at some point in the future, any debt raised should be used to finance investment such as infrastructure, which expands an economy’s capacity and therefore potential for growth and increased tax revenue. In addition, the interest government pays on its debt is of paramount importance. </p>
<h2>What there’s to like, not to like about South Africa</h2>
<p>Rating agencies have cited maintaining investor confidence as one of the critical factors towards preventing a future downgrade for South Africa. So it’s important to know what investors were thinking about South Africa in the run up to the ratings, and what they’re thinking now.</p>
<p>The first point to make is that local institutional investors and financial institutions are also influenced by the global context. The political and economic developments of all countries are viewed proportionately to other markets. For example, in the case of South Africa, Investec Asset Management evaluates the country relative to other emerging markets. It recently <a href="https://www.investecassetmanagement.com/international/professional-investor/en/insight/investment-views/emerging-market-debt-indicator">did so</a> in relation to Brazil in particular.</p>
<p>Investec’s house view on the two countries is informed by two insights. The first is that South Africa and Brazil have political headwinds that are governance risks to long-term economic development, and may present watershed moments. The other is that the strength of institutions in these countries is often overlooked. An example of this is the South African <a href="https://theconversation.com/zuma-court-ruling-south-africans-witness-a-massive-day-for-democracy-57070">Constitutional Court’s ruling</a> on President Jacob Zuma’s spending on his private home in Nkandla.</p>
<p>Publicly available international perceptions also matter. An example is the World Economic Forum competitiveness ranking. South Africa is <a href="http://reports.weforum.org/global-competitiveness-report-2015-2016/competitiveness-rankings/">ranked</a> 49th out of 140 countries and only second to China among the Brazil, Russia, India, China, South Africa group. </p>
<p>Investors also like the country’s sound fundamentals. These include a sophisticated financial markets sector, and respect for property rights and the rule of law. And despite US government complaints about infrastructure gaps and the inaccessibility of officials, it still regards South Africa as an important gateway to the rest of the continent.</p>
<p>However, inequality, unemployment, power shortages, policy incoherence around black economic empowerment and labour relations remain risk factors. The UK government, for example, <a href="https://www.gov.uk/government/publications/overseas-business-risk-south-africa/overseas-business-risk-south-africa">singles out</a> corruption, fronting around empowerment deals and dubious tender processes. </p>
<p>International investors are also still rattled about President Zuma’s <a href="http://mg.co.za/article/2015-12-09-nhlanhla-nene-removed-as-finance-minister">unexpected decision</a> late last year to replace his respected finance minister, only to reverse the decision a few days later. </p>
<p>Another bugbear is Zuma’s weakened position and how <a href="http://www.financialmail.co.za/coverstory/2016/04/28/will-cyril-ramaphosa-be-sa-s-next-president">succession</a> within the ruling African National Congress will play out, particularly the realisation that Cyril Ramaphosa, currently the deputy, may not have enough power to become president. </p>
<p><a href="http://www.bloomberg.com/news/articles/2016-05-16/zuma-factor-stymies-gordhan-s-bid-to-rescue-south-africa-economy">The competition</a> between Zuma and Finance Minister Pravin Gordhan is also being watched closely, as Gordhan is seen as a business champion.</p>
<p>Overall South Africa, right now, is viewed as a terribly difficult place to do business, with overweening bureaucracy, a collapsing education system, poor policy and militant labour groups. Kenya and Nigeria are increasingly seen as more favourable destinations. </p>
<p>As one investment advisor in London pithily described South Africa:</p>
<blockquote>
<p>Lots of potential, not worth the hassle.</p>
</blockquote>
<p>South Africa is thus particularly vulnerable with its relatively liquid portfolio flows and sophisticated financial markets. In addition, the rand, with its high interest rate, is a particular favourite commodity currency for speculators in <a href="http://www.investopedia.com/terms/c/currencycarrytrade.asp">the carry trade</a>. And indeed, both Moody’s and Standard & Poor’s have worried aloud about the combination of low growth, high debt and political risk in the current global environment.</p>
<p>But some healthy scepticism and perspective is also in order. Yes, South Africa’s parliament is out of order, but there have been <a href="http://content.time.com/time/photogallery/0,29307,1912340_1913577,00.html">fisticuffs in South Korea</a> too. </p>
<p>And there is no such thing as “idiosyncratic emerging market risk” – a patently hypocritical concept. South Africa has had its recent share of protests, but the 2011 London riots were intense, with three days of <a href="http://www.huffingtonpost.co.uk/2011/08/09/london-riots-450-arrested_n_921816.html">violence</a> during which 450 arrests were made. Nor are emerging markets essentially “corrupt”. Take Italy, for example. And rent-seeking patronage networks and what the Chinese call <a href="http://www.investopedia.com/terms/g/guanxi.asp?layout=infini&v=5E&orig=1&adtest=5E"><em>guanxi</em></a> – networks of influence – are a feature of politics everywhere.</p>
<h2>Economic policy priorities</h2>
<p>The sooner South Africans realise they have frittered away the Mandela dividend in a cutthroat global economy, the better. But this realisation does not have to come at the expense of equal negotiating power in trade and investment. By growing the economy inclusively with a focus on human development, the business environment also becomes more sustainable. Investors know this too. </p>
<p>Economic policy requires a shift away from the short-termism of a gross domestic product evangelism that is subject to the vagaries of hot money in a panicked and turbulent global economy. If this continues to be the case, economic development will only ever elicit a Pavlovian response from rating action to rating action.</p><img src="https://counter.theconversation.com/content/60715/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Desné Masie does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>South Africa has narrowly escaped a downgrade of the rating of its sovereign bonds, but government has its work cut out as it seeks to restore investor confidence and lift economic growth.Desné Masie, Visiting Researcher in International Political Economy, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/553452016-02-25T13:13:10Z2016-02-25T13:13:10ZSouth African finance minister forced to walk a difficult political tightrope<figure><img src="https://images.theconversation.com/files/112929/original/image-20160225-15160-8khx3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">South African finance minister Pravin Gordhan had to tread carefully to please many competing interests in his budget.</span> <span class="attribution"><span class="source">shutterstock</span></span></figcaption></figure><p>The <a href="http://www.treasury.gov.za/documents/national%20budget/2016/speech/speech.pdf">budget</a> presented by South African Finance Minister Pravin Gordhan showed a great balancing act. </p>
<p>The minister gave welcome tax relief, found money for higher education and continued the country’s economic stimulus packages. He also announced a targeted reduction in government debt and budget deficits.</p>
<p>The budget didn’t commit the government to massive expenditure - that is it wasn’t expansionary. But it also didn’t take money away from key areas, so wasn’t contractionary either.</p>
<h2>Pressure from all sides</h2>
<p>To fully appreciate the pressures behind the balancing act, one has to bear in mind the various political economic and class interests at play in creating the <a href="http://www.treasury.gov.za/documents/national%20budget/2016/speech/speech.pdf">national budget</a>. </p>
<p>First, the <a href="http://www.anc.org.za/">African National Congress</a> has been <a href="http://mg.co.za/article/2014-05-11-the-partys-over-anc-sees-decline-in-support">losing support</a> in national general and local government elections since 2009. This, while it has continued to claim a role as the vanguard in advancing economic transformation to <a href="http://www.timeslive.co.za/sundaytimes/stnews/2015/05/17/Rise-of-South-Africas-ultra-rich-reveals-a-tale-of-two-nations">deracialise</a> ownership of the economy.</p>
<p>Pressure to use the national fiscus to achieve this goal, especially through expansionary macroeconomic policy, has always been there. The <a href="http://www.worldbank.org/en/news/press-release/2014/11/04/south-africa-lifts-36-million-out-of-poverty-thanks-to-its-fiscal-policies">World Bank</a> has attributed a reduction in extreme poverty in South Africa to its use of macroeconomic instruments including progressive taxation and social grants. The increase in social grants continues to provide a social security net to millions of South Africans, keeping them out of extreme poverty. </p>
<p>Additionally, expansionary fiscal policy was announced as a key strategy to stimulate economic growth when President Jacob Zuma’s administration came to power in <a href="http://www.biography.com/people/jacob-zuma-262727">2009</a>. </p>
<p>Secondly, on the political front there is Julius Malema’s <a href="http://effighters.org.za/">Economic Freedom Fighters</a>. The growth of this self-styled leftist organisation and its sustained attack on the revolutionary commitment of the ANC is a thorn in its flesh.</p>
<p>Thirdly, further pressure comes from the more liberal <a href="https://www.da.org.za/why-the-da/policies/job-business/economic-policy/">Democratic Alliance</a> official opposition. The party consistently puts out messages about fiscal discipline and a leaner administration. This, coupled with the reactions of neoliberal markets and the global economy, preclude the ANC from adopting more radical economic transformation.</p>
<p>Fourthly, the influence of business and markets cannot be overestimated. The governing party was reminded of the <a href="https://theconversation.com/zumas-about-turn-shows-power-of-the-south-african-media-and-the-markets-52315">power of the markets</a> when the economy lost billions of rands after Zuma fired his Finance Minister Nhlanhla Nene. </p>
<p>The ANC’s problems are further compounded by its leftist alliance partners, the <a href="http://www.sacp.org.za/">South African Communist Party</a> and the Congress of South African <a href="http://www.cosatu.org.za/">Trade Unions</a>.
They have been critical of the <a href="http://www.gov.za/issues/national-development-plan-2030">National Development Plan</a>, the ANC’s strategy to eliminate poverty and reduce inequality. They are opposed to any policies they deem to favour capital over labour.</p>
<h2>Boosting business confidence</h2>
<p>Low investor confidence and a strong business community lobby, which Gordhan referred to in his speech, must also have played a critical role. </p>
<p>He plans to reduce the debt ceiling by about R25 billion a year, with the deficit projected to reach 2.4% in 2018/19. This, and curtailing expenditure, point to a return to some level of macroeconomic discipline.</p>
<p>Investment in infrastructure aimed at stimulating the economy is continuing, with over R870 billion planned for the year. These coupled with the sector-specific microeconomic interventions bode well for economic growth in the medium to long term. The R2 billion allocated to the New Development Bank focused on investments in Africa should be welcomed. </p>
<p>Although inclusive economic growth was a key message of the minister’s policy statement, he had nothing to show for it in real terms. Radical economic transformation remains unaccommodated beyond rhetoric and sloganeering. </p>
<p>The minister has done well to promise that 23% of the R100 billion allocated to the Industrial Development Corporation <a href="http://www.idc.co.za/">(IDC)</a> would finance <a href="https://www.thedti.gov.za/economic_empowerment/Black_Industrialist.jsp">black industrialists</a> but opportunities to use the public purse for transformation have been missed once again. </p>
<h2>Need for leadership</h2>
<p>Granted, targets should be set for transformation outcomes for the <a href="http://www.idc.co.za/">IDC</a> but government should set transformation targets for itself also. There will be an outcry, especially from some powerful sectors, but it is high time government set transformation targets for its own total expenditure and that of the parastatals. </p>
<p>It has become clear in South Africa that for transformation to work, equality of outcome is as important as equality of opportunity. </p>
<p>Gordhan means well, especially in his attempts to curtail public sector expenditure. But his success requires strong leadership and strategic alignment across the entire public sector.</p><img src="https://counter.theconversation.com/content/55345/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ongama Mtimka is affiliated with Isidima Development Council. The NPC seeks to advance socio-economic transformation in the Eastern Cape. He also serves on the regional economic transformation committee of the South African Communist Party.</span></em></p>South Africa’s finance minister means well, especially in his bid to cut public sector expenditure. But his success requires strong leadership and strategic alignment across the entire public sector.Ongama Mtimka, Lecturer and PhD Candidate, Department of Political & Conflict Studies, Nelson Mandela UniversityLicensed as Creative Commons – attribution, no derivatives.