Johan Fourie's blog

I'd rather be a comma than a fullstop

‘The dam wall has given way’

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Last night South African president Jacob Zuma fired Finance Minister Nhlanhla Nene. More than anything else that has happened in a turbulent 2015, this event will likely affect the South African economy – and therefore, ordinary South Africans – the most. As expert economist Cees Bruggemans wrote this morning: ‘The dam wall has given way’.

Minister Nene was an excellent appointment one and a half years ago as Minister of Finance. He had a tough job: amidst global instability and weak growth prospects and domestic political pressure to continue the unfettered spending on everything from government salaries to South African Airways, he had to somehow find a way to reign in public spending. And he managed to do so, even as demands on the budget – like student fee protests demanding out-of-budget expenditure – increased. When he finally stood up to the gross mismanagement of SAA last week, meddling directly in the ability of Zuma to capture an even greater share of the budget, he was removed.

We are now in a free-for-all. The new Finance Minister has no credibility, and it is likely that he will succumb to the political pressure to spend on Zuma’s pet projects. Expect debt levels to rise and the interest on the debt to increase as the Rand depreciates (see picture of what has happened to the Rand in the last 24 hours). Inflation is likely to increase significantly, followed by higher wage demands and greater levels of unemployment. To balance the budget, the only alternative to the new Minister will be to raise tax rates significantly. Or to print money, although the Reserve Bank is the only institution not yet under the remit of Zuma. How long it will take for that to happen is now a valid if tragic question.

On my Facebook feed I see friends asking what they can do. Not very much, is the sad answer. For those who can, focus on export markets, as South Africa will be much cheaper for foreigners in the foreseeable future. Advertise a room on Airbnb. Sell your design, editing, programming, consulting, or whatever service it is you do to an international audience. Change that planned European trip to a Kalahari getaway. If you can, diversify your investment portfolio into offshore markets (although you should have done that before the free-fall started).

But to stop the rot we would need to change the source of the problem: our head of state and his political cronies. Much as it pains me to say this, what he has said and what he has done now makes it clear that Zuma has little regard for the welfare of ordinary South Africans; his only aim is to fill his own pockets and those of family and friends. However much we want to hope that he will somehow reverse this course, his willingness to remove a well-respected Minister of Finance with no justification except that he stood in the way of further enrichment suggests that he won’t.

While the upper classes were busy fretting over postcolonial memory and white privilege, Zuma has orchestrated the perfect coup right under our noses. He has captured the state. No ANC member in parliament can vote against him; their livelihoods depends on his goodwill. Even those members high up in the ANC executive who may be worried about the latest turn of the events are too isolated to do anything about it. No, the only change can come from the ballot box. Unfortunately, that opportunity is a distant three years away.

We have local government elections next year. But even a considerably poorer performance by the ANC at these elections are unlikely to have an impact on the macroeconomic policies of a ruling elite now clearly uninterested in anything besides their own prosperity. Perhaps protests like the #FeesMustFall movements this year will spur change, but mass (non-violent) action like that will only hurt working South Africans with minimal inconvenience to the elite. Zuma is a survivor, and no Twitter campaign is going to change that.

No, things are likely to get much worse before they get better. And that, sadly, is the best case scenario.


Written by Johan Fourie

December 10, 2015 at 10:36

11 Responses

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  1. […] wrote a post immediately after the appointment of Van Rooyen. Most of the points I raised there are now valid again. Zuma has captured Treasury […]

  2. One day before this we were warned about the potential for a crisis (see ZH article abstract below). Well done you stupid politicians – you have just brought it on;

    From JPM via ZH; A common metric to assess the adequacy of foreign exchange reserves is to look at external debt. Reserves of countries with a higher proportion of external liabilities in foreign currency are perceived to be more vulnerable, particularly if these liabilities have short-term maturity given rollover risks. Our colleagues in EM research highlighted that on aggregate the short term external debt profile looks manageable relative to FX reserves. Do some countries appear riskier than other?
    The IMF provides the split between domestic and foreign currency debt by maturity for most countries. Typically, the majority of external debt is denominated in foreign currency. Countries with proportionally high local currency external debt (more than 30%) include India, Czech Republic, Mexico, Poland, Thailand, and South Africa. In Figure 6, we look at reserves as a proportion of both short and long term external debt, in foreign currency where available. This proportion is high for short-term debt (i.e. more than 100%) in Argentina and Turkey. Countries that appear vulnerable on total external debt including long term debt are Argentina, Turkey, Hungary, Indonesia, Poland, Mexico, South Africa, and Brazil.
    The IMF proposed a framework (IMF, Assessing Reserve Adequacy, Apr 2015) to compare FX reserve adequacy across countries. In addition to short-term external debt, to capture short term refinancing needs, they augment their metric with exports, to reflect potential losses from drop in external demand or a terms of trade shock, broad money supply, to capture the risk of deposit flight, i.e. dollarization of deposits, and portfolio and other bank-related liabilities to capture the risk of capital outflows by foreign investors. We can see this reserve adequacy ratio in Figure 7, which presents the ratio of reserves to a weighted average of short-term debt, export income, broad money supply and certain foreign liabilities. Reserves in the range of 100-150 percent of the composite metric are considered broadly adequate for precautionary purposes. On their measure, countries that appear below the recommended band are Malaysia, South Africa and Turkey.


    December 12, 2015 at 16:00

  3. I immigrated to South Africa in November of 2015. Reading the news from here over the last year made it clear that I would be entering a nation experiencing governance problems I’d never encountered in the United States. To me, the arrest of sitting members of parliament by the executive seemed like a bigger breach than the sudden dismissal of the finance minister, though Nene’s firing has certainly been answered more immediately by economic damage. When I look at my new country, I see it is filled with amazing natural resources and an industrious population that knows tomorrow must be better than yesterday. If it can select leaders worthy of itself, South Africa will boom. I am sorry that the path to that tomorrow runs through this swamp, though.


    December 11, 2015 at 08:57

  4. I’m working in South Korea at the moment, and in the last 8 months my salary has increased by R5000 based off the fluctuations of the exchange rate alone. Which is great for me now, but returning to SA is looking less and less financially attractive.
    Ironically enough, the mix of student protests and political bullshit will only increase the amount of newly graduated, skilled workers leaving the country for greener pastures.
    Which makes the future definitely look bleaker for everyone who can’t abandon a sinking ship.

    Caroline Kemp

    December 11, 2015 at 07:13

    • Caroline you can’t take on the problems of the world. The best thing you can do for the poor is not be one of them. That was my whole point about Johan’s negativity. I love his writing (I share his interest in Economic History) but every now and them he shows that he is stuck in the SA system.

      Far from being trapped in South Africa, our skilled workers are globally flexible. That is why the 1% in South Africa are flying. That is the benefit of flexible exchange rates, the economic impact of 50% decline in your currency value is immediate.

      All over South Africa, entrepreneurs are waking up, rubbing their eyes and realizing that they have been asleep for most of this century. The opportunity are not in the job ques in Limpopo but in grabbing your slice of the global pie.

      Philip Copeman

      December 11, 2015 at 07:50

  5. History will be very unforgiving towards Zuma. He’s name will be a word of curse in the halls of parliament.


    December 10, 2015 at 18:08

  6. Hi Johan, No problem – although the overly bleak analyses of today will, given time, perhaps be seen to have been hopelessly optimistic in hindsight. Best, James

    *James Myburgh* *Editor & Publisher, * Skype name: james.myburgh +27 (0)11 447 9626 (office) +27 (0)86 671 4721 (fax) *Click here to subscribe to the Politicsweb newsletter*

    James Myburgh

    December 10, 2015 at 16:41

  7. I agree with this summary. Your last sentence is almost a mirror image of what I have been preaching over the past month. I am genuinely sad…

    Calumet Links

    December 10, 2015 at 10:49

    • We were all disappointed in the firing of South African Finance Minister, Nhlanhla Nene. To date he seems to have done little wrong in handling a really difficult situation that he has inherited. However we do not all share the despair of your blog, “The Dam wall has given way” (

      Johan I have been a lecturer and while the perks and the short working hours may seem like a win, sadly taking the King’s shilling will trap you into subservience to the regime. When all are losing their heads around you, if you can keep yours you will be a very rich man my son. The opportunities do not lie in working for the Government or looking for a tender opportunity. In a market of high unemployment the last thing you want to be doing is look for a job. As we all fall over the fiscal cliff the thing you want to be more than anything else is – a tax payer. While the rest of them que for handouts and jobs, the tax payers will be going business class!

      Given the current situation, there is a lot one can do….

      You have only to look at the recent Sunday Times Rich list to see the effect that 2015 has had on the rich, who have mostly done very well out of the current fortunes of South Africa. In particular the richest South African, Christo Wiese, has done better for himself than any other year in his 60 years of business, having raised his personal fortune to over R 100 Bn. In fact it would seem that anyone that has had a South African Base with International interests has done rather well this year.

      The advantage of a flexible exchange rate system is that business opportunities can change rapidly. South African graduates can now be employed at less than $ 1000 per month. This is akin to wages in Bangladesh, except that you can employ Afrikaners and Zulus at this rate! Even the dumbest of entrepreneurs have to be able to exploit South Africans at this rate. All you need is a product that can be exported or replace a foreign made import. The Internet puts global business in the reach of even the smallest entrepreneur. I cannot remember when in the 21st century, it has been better to start a global business.

      Give the following advice to your students:

      Employ some of your classmates, choose from the plethora of opportunities and start exporting. To see how its done, download a free copy of TurboCASH Accounting and start getting your head around what has to be done to be financially successful,

      Philip Copeman

      December 10, 2015 at 14:35

      • As a small stock farmer my biggest concern has been negativity , generally based around huge escalation on input costs and the numerous taxes calculated on a % of price charges regulated by government . Adding direct high taxation and apparent non support to established farming enterprises during inevitable climatic disasters , poor service delivery , deteriating roads and infrastructure etc etc . The persistent call for food security ( obviously for local consumption ) is understanding from a political power standpoint but must understand the consumer price will have to increase dramatically to offset the rocketing input costs of all very necessary imported vehicles and machinery etc . A change of mindset is imperative to find positivity and reason to not just survive but look for new opportunities . To implement this focus to — I concure with the previous writer , Phillip Copeman , If you are not already a producer of Export Products — Don’t delay implementing diversity and even total change . Even under the past exchange rate Wool and Mohair have been very rewarding — Please share any other product us farmers can incorporate into our business to get vision of POSITIVITY ! We will not over Supply and flood the World from South Africa . At least earning Revenue will give us better Financial Security.

        Ray Hoson

        December 11, 2015 at 02:00

      • Thanks Ray. Keep at it buddy.

        Philip Copeman

        December 11, 2015 at 07:30

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