Economic Consequences of South Africa’s Political Crisis

Earlier this week, South Africa’s debt was downgraded by S&P to junk bond status for the first time in 17 years, which will have a very negative effect on borrowing costs. The downgrade was prompted by a dramatic, middle-of-the-night cabinet reshuffle, when President Zuma sacked about one-third of his ministers including Finance Minister Pravin Gordhan, long-seen as a safety blanket to South Africa’s creditors.

Though Mr. Gordhan had been living on borrowed time, this still came as a shock.

Pravin Gordhan was not fired because of his political ambitions (he does not endeavour to lead the party nor nation), nor is he directly involved in with any of the successors currently maneuvering into position. The former Finance Minister had strong support among many prominent ANC members, including Deputy President Cyril Ramaphosa, who described the firing as “unacceptable.”

Supporters of the president argue that Gordhan was a hostile opponent of more inclusive economic policies. For example, Social Development Minister Bathabile Dlamini repeatedly clashed with Gordhan over how grants are awarded.

According to Gordhan, who says that he was informed of his firing by television, he “categorically and emphatically” denies any allegations from state intelligence reports that he was holding meetings abroad to undermine the government. Instead, many believe the cabinet reshuffle is more a function of changing dynamics within the ANC.

Read the full article on our Corporate Foreign Policy website.