Our triumphant Olympians barely had time to unpack their bags and soak up the adulation of a nation buoyed by their performance – as well as by the strengthening rand and the successful outcome of the local government elections – when the celebrations came to a screeching halt. President Jacob Zuma declared himself in charge of state-owned enterprises while Finance Minister Pravin Gordhan still faces possible arrest – with little effective support from the President. There are allegations of corruption and bribery by the Passenger Rail Agency of SA (Prasa), and Eskom and the Treasury are in a spat over coal contracts with the Guptas.
The immediate effect has been a severe impact on that most fragile of financial assets, our currency. The rand has retreated since the start of the most recent round of political shenanigans, wiping out much of its gains following the election results. Fortunately, however, we haven’t reached the low point to which the rand plummeted in the wake of the last big political shock – the announcement of the axing of then Finance Minister Nhlanhla Nene in January.
What does all this mean for investors? Is it all doom and gloom? Without wanting to sound alarmist, I think we’ll have to accept that things may well get worse before they get better. We will have to brace ourselves for a continued period of uncertainty.
Whatever happens now, we’re highly likely to see a ratings downgrade to ‘junk’ by the end of the year. The three top ratings agencies, due to return to South Africa in December, are no longer likely to give us the benefit of the doubt, which they still appeared willing to do after Nenegate. A downgrade will naturally have enormous implications for our economy, business enterprise and investment. Despite a second-quarter GDP spike of 3.3%, our economy just cannot hope to grow over the long term under the present circumstances.
There has been huge commitment from the business community, in collaboration with Treasury, to get South Africa on the right track, including another roadshow planned for October to reassure investors, just before the mid-term Budget Review. No matter what national campaigns are launched, however, they won’t be worth much as long as our President continues his open warfare on Treasury and persists in making irrational decisions such as increasing his control over the parastatals.
It’s clear from recent events, however, that the President does not appear as strong as he used to be. His support base may have weakened somewhat following his party’s poor performance in the municipal elections, and we’re witnessing more influential leaders than ever before expressing misgivings about his leadership. At a funeral service for former Sports Minister Makhenkesi Stofile, ANC stalwarts and business leaders – including AngloGold Ashanti Chairperson Sipho Pityana – slated both the ANC and President Zuma. There have also been increased calls in the media for the current ANC leadership to stand up and take a stronger stance, or they will not be able to claim to be part of the post-Zuma era.
Let’s follow the example of the UK – where, after the initial Brexit vote shock and resulting anger, fear and general disbelief, the Brits have collectively decided to knuckle down and make things work in their country. Let’s take our cue from their determination and get back to business, not back to bedlam.
