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    You are at:Home » South Africa Hurtles Into Crisis

    South Africa Hurtles Into Crisis

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    By Admin on 21 December 2015 Economics

    Reckless decision

    A single political decision can have grave implications for a country’s economy. This is what seems to be happening in South Africa.  On Wednesday, President Jacob Zuma sacked Finance Minister Nhlanhla Nene without warning or reason. Since then, two more people have occupied the position. By Friday of that week, the economy was in shambles.  Foreign investors have begun to extract their capita from South Africa.  The Rand is in free fall, touching historic lows.  Unemployment figures are rising alarmingly. In a measure that is sure to send a warning signal to emerging economies, international ratings agencies downgraded South Africa to just one level above junk status.

    Africa’s second largest economy and a member of the fastest growing emerging nations suddenly finds itself on the brink of implosion. South Africa was already experiencing economic difficulties, but the sudden dismissal of the Finance Minister completely shattered investor confidence. It has also triggered a political crisis, adversely affecting the credibility of the African National Congress (ANC), the party of Mandela which has ruled since the fall of Apartheid.

    Pillars of stability

    There are grave doubts about President Zuma’s leadership. Fears that he is guilty of undermining democratic institutions have lead to calls for his resignation. Even more controversial than his axing of the popular Finance Minister was his initial choice of successor, David van Rooyen, an obscure ANC backbencher, whose sole experience of government to date has been at municipal level. He has since been replaced by the more experienced Pravin Gordhan.

    In the opinion of domestic critics and global analysts alike, Zuma’s move was both ill-advised and opaque. The president failed to provide a credible justification for dropping Nene. By most accounts, the former Finance Minster was seen to be managing the Treasury well. Through effective coordination with the country’s central bank, Nene was able to lend a sense of stability to the economy as a whole. The Treasury and the Ministry of Finance were widely regarded as the only remaining  credible pillars of governance in a state of institutional decay. They functioned like bulwarks against the growing tendency towards dangerous populism and nepotism within the ANC and from the President himself.

    Economic turmoil

    What perhaps sealed the fate of Nene was his refusal to provide more funding to a controversial aviation deal between South African Airways and the Airbus company. Also, the axed Finance Minister was known to be stoutly against the financing of a potential international nuclear deal. Nene felt this would only benefit a few individuals, and not the country as a whole. The feeling is growing that South Africa urgently needs new, ethical leadership and fresh ideas to pull the country out of the brink. South Africa’s economy is in turmoil. The Rand has dropped to historic lows, unemployment has risen to over 25 percent, GDP growth has slowed to 1.4 percent and endemic power cuts are hobbling industry. Unless a miraculous transformation takes place early in the new year, the only option left would be to seek a rescue package from the International Monetary Fund.  South Africa’s situation sends a clear message for all markets, that one reckless decision can bring an economy to its knees overnight.

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