Content for class "past" Goes Here



By Prof Antony Arkin

In a reckless attempt to tighten his grip on power, President Jacob Zuma, who faces 783 charges of fraud and corruption, last month fired Pravin Gordhan and Mcebisi Jonas, the finance minister and his deputy. They were widely credited with controlling public debt and resisting Zuma’s plan to spend one trillion Rand ($73bn) building nuclear plants that South Africa does not need and cannot afford. Large segments of the South African public suspect Zuma of wanting to loosen the controls that have kept the Treasury honest, even as corruption has flourished elsewhere in government.

In a Passover video message to the Jewish community titled “Let Our People Go” Chief Rabbi Warren Goldstein called on all South Africans to join him in a protest march “to say no to corruption and state capture”. The National Religious Leaders’ Council, on which Rabbi Goldstein sits, called on the President to resign. “Zuma has lost all moral legitimacy to govern and therefore should do the honourable thing and step down”.

In a widely anticipated response to the cabinet reshuffle two of the big credit-rating agencies Standard and Poor and Fitch have downgraded the government’s credit-rating to junk for the first time since 2000. Junk rating means a higher risk of non-payment or default. Junk means a red flashing light which signals Stay Away! Most large international investors, such as pension funds, explicitly prohibit their asset managers from investing in any bonds rated as junk. We can expect some investors to disinvest immediately, while others will demand higher interest for the risk of lending money to South Africa.

Interest rates could soar. They are already higher than those of Russian debt. The Rand could plummet still further. South Africa’s tentative economic recovery would stall, depressing growth from its forecast level of about 1% this year into recession. Paying more in interest means there is less money available for spending on infrastructure, health, education, welfare, police and all the other services the government is supposed to provide for the taxes you pay. If the government cannot balance their books through borrowing, the only other source of revenue is taxes. Hence, expect taxes to go up.

On a personal level, your retirement fund or pension is currently at least partly invested in low-risk government bonds. If those bonds are dumped by international investors, you will lose a lot of money. The aftershocks of any downgrade are a general negative sentiment of all investors towards South Africa. This means that the value of equities and the Rand will fall in sympathy. You will have less in savings and less to retire on, while paying more taxes for fewer government services. All South Africans will be poorer, and in particular it will put increased pressure on the most vulnerable sectors of our society.

The two rating agencies downgraded our foreign-denominational debt to junk because they believe the ANC has lost control of the Presidency. The new finance minister is a Zuma protégé. According to the Economist Malusi Gigaba plans “radical economic transformation” and to take back the Treasury from “orthodox economists (and) international investors”. The National Treasury is likely to embark on a reckless spending spree, which means that there is less money to repay debt or to channel money into projects that will grow the economy. We join Rabbi Goldstein in demanding a better country. “Let us be free
from the tyranny of corruption, let us be free to create the country of
our dreams”.