Blog

Lights Out in South Africa?
By admin December 14, 2015

Zuma

After news broke out last week of South African President Jacob Zuma’s abrupt decision to replace previous Finance Minster Nhlanhla Nene with new appointee, David van Rooyen, many within the establishment begun echoing concerns following turmoil in currency, credit and equity markets.

Bowing to market and political pressures on Monday, Zuma has now appointed his third Finance Minster in five days. Now we are left to ask – what is going on inside the continent’s second-largest economy?

In a statement made on the South African government news agency late on Sunday, the President reiterated his decision: “On the 9th of December 2015, I announced the appointment of a new Minister of Finance, Mr David van Rooyen. I have received many representations to reconsider my decision. As a democratic government, we emphasize the importance of listening to the people and to respond to their views.”

“In this regard, I have, after serious consideration and reflection, taken the following decision; I have appointed Mr Pravin Gordhan, the current Minister of Cooperative Governance and Traditional Affairs as the new Minister of Finance.”

This summer already witnessed a wave of turmoil across the country as a result of the $350 billion economy’s countless domestic problems that span from rising unemployment to electricity shortages to Mother Nature’s unfriendly effects on the agricultural sector. Many economists are predicting tougher economic times ahead, as rating agencies downgraded South African banks to one notch above ‘junk’ status last week following the continuous reshuffling over at the Ministry of Finance.

If the country is on the verge of losing its investment-grade rating, as is the case with Fitch’s recent revaluation of the nation’s public debt, “large numbers of foreign investors would be forced immediately to sell their holdings because many have rules prohibiting them from owning ‘junk’ bonds,” according to The Economist.  As a result of the downgrade, banks will drive an increase in their lending rates and “potentially force the country again to consider an IMF bail-out.”

There looks to be no shortcut to driving growth for the coming year. Some economists are beginning to joke South Africa is making Greece look more financially stable in comparison.

Commodity prices for some of the nation’s top exporting goods such as steel, coal and iron ore dropped by at least two-thirds, the worst slump in 40 years, cutting back production by large amounts and slashing jobs in turn.

It also doesn’t help that the ongoing power shortages have closed down factories and mines due to underinvestment by state owned electricity firm, Eskom.  Annual growth alone could likely fall short of 2 percent for a second year if the country doesn’t keep the lights on.  With unstable electricity supply and blackouts lasting 12 hours or more, why would investors stick around?

Politicians across the country are preparing for growing discontent to many failed policies that have led to this deleterious situation.

There is little to temper such wariness as the weak economy saw this summer stoke massive social unrest, with foreigners first to be targeted in recent xenophobic attack, leaving at least seven dead. Due to declining production, labor unions have also gone on strike in retaliation to unjust wages and unstable working conditions, which have caused many facilities to close down.

As the light flickers on and off in the country, so do the prospects of growth  The new Minister of Finance will have his work cut out for him in 2016 as investors  wonder what will happen to South Africa next, or even who may replace Mr. van Rooyen next week.


 

Find out more:

The big price plunge

South Africa gets a rating downgrade

South Africans are in for a serious blow – economist

Dark days ahead 

South Africans warned of tough economic times ahead

Worse in store for South African economy


Thanks for sharing !


Comments are disabled.