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‘The dam wall has given way’

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Rand

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.

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Written by Johan Fourie

December 10, 2015 at 10:36