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By Azar Jammine*
The incredibly far-reaching Cabinet reshuffle suggests that President Zuma has replaced all his opponents within the Cabinet with persons likely to reciprocate his patronage.
The replacement of Pravin Gordhan and Mcebisi Jonas as Minister of Finance and Deputy Minister in that portfolio by Malusi Gigaba and Sfiso Buthelezi is likely to feed the expectation of an abandonment of fiscal discipline in favour of further enrichment of a class of persons closely connected to the President.
It is also likely to lead to expectations of magnanimous expenditure in the guise of “radical economic transformation”. Confidence in Gigaba’s leadership of Treasury is likely to be low given his less than impressive performance as Minister of Public Enterprises and subsequently Minister of Home Affairs, where glaring mistakes were made.
In the short term, the economic benefits of more expansionary fiscal policy might prove stimulatory, but in the longer term, the likely erosion of disposable income through increased inflation and higher interest rates emanating from a falling Rand and credit rating downgrades to junk status, are likely to make most South Africans poorer.
In particular, one is concerned about the potential further steep fall off in capital investment arising from a loss of business confidence that will jeopardise the economy’s ability to lift itself onto a higher growth plane.
A cabinet reshuffle reflecting Zuma's betrayal of his oath of office.The ball is in the ANCs court. Act & survive or fail & fade.2019 awaits
— Adam Habib (@AdHabb) March 31, 2017
The goal of radical economic transformation is likely to prove even more elusive than it has been hitherto in the erroneous belief that there is an easy way to prosperity and social upliftment. Failure to recognise the importance of education and skills development as a means through which to improve productivity and achieve true empowerment, is likely to render attempts at fast tracking economic growth futile.
The only ray of hope lies in the possibility that the likely acceleration in the decline of the economy may lead to the kind of political pressure, even from within the ANC, which could bring about a change in leadership in such a way as to reverse the country’s economic fortunes from a longer-term point of view.
In the short term, one should brace for a much weaker currency and a reversal of recent optimism regarding prospects for inflation and interest rates. To some extent, but only to a limited degree, the kind of scenario panning out is indeed built into our forecasts. However, we might need to revise forecasts for inflation and interest rates upwards and economic growth downwards.
- Azar Jammine is the chief economist at Econometrix.
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