South Africa's economy is reeling, and political meddling is only worsening the downward spiral. On Sunday night President Jacob Zuma replaced the country's finance minister -- again-- meaning South Africa has had 3 finance ministers in less than a week.
On Thursday the president removed Nhlanhla Nene as Finance Minister in favor of a relatively unknown parliamentarian, David van Rooyen. This surprise move set off an outpouring of criticism against Zuma. A broad range of people, including academics, church and labor leaders, and even members of his African National Congress (ANC) party sent open letters to the president questioning his judgment and his stewardship over the economy.
In particular, Zuma’s alleged favoring of state-owned South African Airways (SAA) was spotlighted, to such an extent that he publicly denied having a romantic relationship with chairwoman Dudu Myeni. But the press speculated that Nene was sacked in large part to his opposition to SAA’s preferred expansion plan of buying rather than leasing Airbus aircraft.
Under the deluge of criticism, Zuma finally backtracked on Sunday evening, firing van Rooyen and re-appointing Pravin Gordhan, the respected finance minister from 2009 to 2014. Rather than admit an error, to explain his reversal Zuma issued a lame statement, “As a democratic government, we emphasize the importance of listening to the people and to respond to their views.”
Zuma’s credibility has taken a huge hit, as has the rand. It had been trading around 14 to the dollar for most of November, but this fiasco spooked investors and led to a sudden drop over the past week, reaching a low of 16 to the dollar on Sunday evening. But following the news that Gordhan would be taking over the helm, the rand made a partial recovery to 15.27 to the dollar by midday on Monday.
The new finance minister has already sounded the right notes. "We will stay the course of sound fiscal management. Our expenditure ceiling is sacrosanct... We are not going to make reckless decisions," he said on Monday. But South Africa does not have much breathing room, as it continues to suffer from the worldwide drop in the price of commodities. The economy shrank by 1.3% in Q2, and narrowly avoided a recession by growing 0.7% in Q3. Overall growth for the year is likely to be under 1%.
However, South Africa’s economic troubles don’t end there. On December 4, both Fitch and Standard & Poors downgraded the country's bonds, and unemployment remains a sky-high 25.5%. Furthermore, loss-making SAA is on its seventh CEO in the last three years, and state-owned power utility Eskom has been a lightning rod for accusations of economic mismanagement due to its failure to provide reliable power.
So Gordhan has his work cut out for him, but at least one thing is certain: Zuma is finishing his second (and last) term in office, and is against any potential constitutional change allowing a third term. But he may stay on as ANC leader, becoming the power-behind-the-throne if the ANC’s candidate wins the next presidency. And thus, political risk will remain high.