Zuma’s effect on South Africa’s risk will be as hard to remove as the man himself: analysts
The damage done to the economy by nine years of Jacob Zuma’s presidency was so severe that even his decision to resign with immediate effect is unlikely to reverse the decision by ratings agencies to further downgrade South Africa’s credit rating.
According to Independent economist Dawie Roodt, there is still a strong possibility that Moody’s and Fitch will announce further downgrades later in the year, opening the door to higher interest rates.
This was echoed by the Financial Times’ Lex column – the oldest and arguably the most influential business and finance column of its kind – which argued that Zuma’s slow-going removal was only half the job facing new leader Cyril Ramaphosa.
“South Africa’s promise as the next great turnaround story — like Brazil — will not come true simply because the African National Congress orders Mr Zuma to go,” it said.
“The corruption, political infighting and mismanagement that have distinguished his time in power is entrenched.”
“The yield on benchmark 10-year bonds might have fallen 80 basis points to 8.4 per cent since Mr Ramaphosa was picked to succeed Mr Zuma. But it remains about 4 percentage points above inflation — a real yield that beats most emerging markets.”
According to the Lex column, four things need to happen to warrant a substantive rise in South African bond prices:
- a stingy budget;
- reassurance that Moody’s will not cut the only remaining investment-grade rating;
- a steady domestic inflation path;
- greater stability in global bond markets.
“All these outcomes are needed for South African bonds to become the emerging markets trade of this year,” it said.
Consumers
Neil Roets, CEO of debt counselling firm, Debt Rescue, said the next hammer blow to strike consumers will be finance minister Malusi Gigaba’s budget speech on 21 February during which he is expected to announce radical steps to plug the government’s R50-billion plus budget hole through increased taxes and possibly even a higher VAT rate.
“There is no doubt that although there is a sense of elation that we may be seeing the beginning of the end of state capture and widespread corruption, we are nonetheless in for a very rough ride before we will start picking the fruits of Cyril Ramaphosa’s presidency,” Roets said.
He added that while he fully expected the economic situation to improve over time, consumers would have to exercise patience.
“The damage done to every aspect of the economy by Jacob Zuma and his cohorts has been so severe and so deep rooted that it is going to take years rather than months to reverse.
“It will not be before we see the guilty put in jail and those in government and in state owned enterprise fired for misconduct that the economy will begin to recover.
“There is no doubt that there are massive amounts of investment capital parked overseas waiting to be brought to this country to be invested in multiple sectors of the economy. This, however, is not going to happen before investors are satisfied that the situation has been turned around and that South Africa has once again become a safe investment haven,” he said.
Roets added that there was growing evidence of tax avoidance and even illegal tax evasion and this is something the state cannot afford.
“There is also a likelihood of growing dissatisfaction with the government’s lack of service delivery which will manifest itself through increased violence and protest action.
“The harsh reality is that in order to get the country out of the hole in which it finds itself thanks to the massive maladministration of the Zuma government, we are all going to have to pull together and do our best to grow the economy based on sound economic principles of hard work and prudent investments,” Roets said.
Read: Rand cheers Zuma exit
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