We’ve seen this horror show before. On 9 December 2015, when Number One replaced the competent, principled and likeable Finance Minister Nhlanhla Nene – Pravin Gordhan’s deputy between 2009 and 2014 – with the unknown Des Van Rooyen, the rand and the Johannesburg Stock Exchange (JSE) fell hard.
There was an uproar from within the ANC, opposition parties, business and investors. With pressure mounting, Zuma made a reluctant call to Gordhan, begging him to return as Minister of Finance – again – and Gordhan agreed. Des Van Rooyen became known as the ‘weekend special’. His term as finance minister lasted less than five days, but its effects were long-lasting.
The news of Van Rooyen’s appointment caused the rand to fall from R14.60 to almost R15 to the US dollar overnight. As foreign investors in South Africa started selling their shares, SA government bonds, and other assets in the country, the rand fell further. By the end of the month it fell to R15.20, and by mid-January it reached R16.90 – a fall of 16%. It took more than four months for the rand to recover to the pre-‘weekend-special’ level. The appointment of Des Van Rooyen also increased the borrowing costs of government, and wiped R169.6 billion off the JSE.
The effects of this self-serving idiocy – replacing a competent and trusted finance minister with a pliant and inexperienced henchman – harmed us all, not just the rich white people who still own most of the economy and like to complain about the black government.
The weaker rand increased the price South Africa paid for its imports such as oil, clothing, household goods, and electronics, resulting in higher overall prices across the economy. This higher inflation meant we could buy less with our salaries, savings or pension. We were all left poorer, but the poor suffered the most. For poor people it’s having to choose between paying for a taxi to work and buying maize meal for supper; while for better-off folk it’s shopping at Checkers instead of Woolies.
Higher inflation and the weak rand meant that the South African Reserve Bank had to increase interest rates to try and keep inflation down. But increasing interest rates, although necessary, meant that families had to endure additional costs due to Zuma’s moronic move. Households were left worse off as loan repayments for cars, houses, furniture, clothing and food increased. The higher interest rates also increased the cost of investment in the economy. Investors thinking about investing in businesses or factories may have decided not to – jobs that could have been created were not.
The effects of Zuma’s move also harmed all South Africans through its effect on the national budget. The weaker rand meant the country had to pay more for expenses incurred in foreign currency, such as payments for imported medical equipment and pharmaceuticals, and foreign debt repayments. The weaker rand and higher government borrowing costs reduced the budget available to meet government’s social obligations such as providing clean water, employing more nurses, doctors and policemen, building schools and increasing pensions and child-support grants.
All of this occurred due to Zuma’s ‘weekend special’. Fifteen months later, under the veil of night when the cowards come out, Zuma did it again. This time he went all the way, firing five ministers and moving another five to different portfolios.
In addition to firing the learned, humble and committed Minister of Finance Pravin Gordhan, Zuma (or whoever is instructing him – Ajay Gupta? Vladimir Putin?) also fired the principled and hard-working deputy finance minister Mcebisi Jonas.
As was the case with the axing of Nhlanhla Nene, the double-axing of Gordhan and Jonas immediately caused the same harmful effects. The rand, after improving over the past four months, fell over 3% against the dollar, government interest rates have increased and credit-ratings agency Fitch noted that the axing of the finance minister could harm the country’s credit ratings.
These are just the initial reactions. As the days and weeks proceed, we are likely to see the rand fall even more, and government’s borrowing costs increase further – even if by some miracle Zuma reverses his decisions.
With Zuma’s new appointments at the ministry of finance and other key ministries, the effects on the economy are likely to be far worse than the ‘weekend special’.
Zuma and his associates’ continuous attempts to use state procurement to enrich themselves is well known. Dodgy deals at Eskom, Transnet, Prasa, SAA, Denel and SASSA among other state entities have already cost the South African public billions of rands.
Nhlanhla Nene, Pravin Gordhan and Mcebisi Jonas with the support of a fearless and competent National Treasury have stood in their way. They have now been eliminated, and the fate of Treasury is unknown. They have been replaced by Zuma yes-men with track-records of incompetence and corruption.
The new finance minister, Malusi Gigaba, made a mess of state-owned enterprises, in particular SAA, when he was minister of public enterprises. He then went on to hurt tourism with his unabridged birth certificate brain fart.
The new deputy finance minister, Sifiso Buthelezi, was the chairman of the board of Prasa when dubious deals were made there, including awarding a contract worth more than R3.5 billion to a company that is owned by SAA chairperson Dudu Myeni’s 23-year-old son and registered at the offices of the Jacob Zuma Foundation.
Such a combination, appointed by a compromised president and against the wishes of the ANC, Cosatu, the SACP, the opposition, business and investors will be catastrophic for the country.
Expensive, unnecessary, and often ridiculous deals that waste the public’s money, which Treasury had opposed, will now be approved. New Minister of Finance Gigaba announced that the country plans to procure expensive, unnecessary and unaffordable nuclear power stations estimated to cost around R1 trillion.
As billions of rands belonging to the public are directed towards a few individuals and families, we will all lose. Fewer resources will be available to meet the needs of the country, create employment and transform the economy. As the country’s financial position worsens, a downgrade to the country’s credit rating is inevitable. The country’s borrowing costs will increase and more money will be diverted away from schools, hospitals, and roads towards paying rapidly increasing interest costs. The economy will perform worse, more people will join the ranks of the unemployed (who currently number 9 million South Africans) and government may have to increase taxes to make ends meet. Investors will choose to put their money in Botswana or Brazil instead of South Africa.
We’ll all be worse off and have to tighten our belts. Poor black folk will be hurt the most. But Jacob, Ajay and friends will be fine, as will be the white monopoly capitalists.