As dust settles on a weekend when Jacob Zuma was inaugurated as South Africa’s President and appointed his Ministers and their Deputies (71 in all – 28% of the ANC’s total MPs) concerns are already starting to emerge. Azar Jammine, chief economist at Econometrix an independent economic research company, worries that Zuma is sending all the wrong messages to global ratings agencies. In a note to clients headlined “Contradictions in Zuma’s Inaugural Speech and Cabinet Appointments: Ratings Agencies Might be Concerned” he figuratively scratches his head – like many of us. A host of questions stem from the weekend’s announcements, like what happened behind the scenes in the past fortnight that spiked the best candidate for Finance Minister in favour of a man who wasn’t on the ANC’s Parliamentary list two months ago? How the worst performer in cabinet could be given the sensitive Energy portfolio at a critical time in the development of oil and gas reserves – and the distribution of potentially lucrative licences? The appointment of an inexperienced Capetonian to take over Public Enterprises when Eskom is in crisis? The termination of Yunus Carrim who in a short spell was lauded as the best Telecommunications Minister the country ever had? Jammine looks more broadly in the summary of his note which he kindly agreed to allow us to republish. – AH
By Azar Jammine*
· At a wonderful Presidential inauguration ceremony, President Zuma suggested that this government would be entering a second transition characterised by radical socio-economic transformation. He also referred to increased government involvement in the economy. This appears to contradict his other message, viz.commitment to implementation of the National Development Plan (NDP), which, if anything, calls for less regulation and a more market-oriented approach.
@AzarJammine gives a brutal assesment of Zumas cabinet @alechogg surely he doea more than raises some red flags? http://t.co/h9s2zazDBK"
— Trent Miller (@TrentBMiller) May 26, 2014
· The President also pledged the government would improve efficiency and cut down wasteful expenditure. Here again there is a possible contradiction, because an increase in the size of the Cabinet, to a phenomenal 71 members, suggests further bureaucracy and increased expenditure. This will not go down well with ratings agencies who are concerned with the possibility of fiscal deficits increasing rather than decreasing as budgeted by the previous government. Inturn, there may be increased suspicion about the government’s ability to rein in its rising trend of public debt.
· Ratings agencies and international investors might also be concerned with the replacement of the erstwhile Finance Minister Pravin Gordhan with Nhlanhla Nene as Finance Minister. This is primarily due to the fact that Nhlanhla Nene is not perceived as having the same gravitas and sense of authority as Gordhan and therefore might be seen as unable to effect control of expenditure to the same extent. Against this, one welcomes Gordhan’s appointment as Minister of Corporate Governance, given the crucial role which local government will have to play in the implementation of government policies. One also welcomes the establishment of a Ministry for Small Business Development to promote such a critical area of job creation in a focused manner.
· There are also concerns with the reshuffling of Cabinet ministers which has seen somesuch ministers who were perceived to be effective being moved out of their previous positions, thereby jeopardising consistency and continuity in performance of ministries. Instead, the Cabinet is once again perceived to be made up of persons who have earned their positions not because of their ability but through loyalty to a president who might be schizophrenic about his ability to see through his term of office in the midst of rumours that he might be replaced before his five-year tenure is up.
· In conclusion, the most probable outcome is that the economy will keep muddling along over the next couple of years as it has been doing since the recession of 2008/09.
* Azar Jammine is the chief economist of Econmetrix
