South Africa’s President Jacob Zuma has fired his experienced Finance Minister without explanation and replaced him with an unknown, setting off market panics in the already economically troubled nation. Within 24 hours, the rand fell to a record low, bond yields skyrocketed, and banking stocks hit a 15 year high. Bloomberg reports:
The rand weakened for a sixth day in the longest streak of losses since November 2013 and bond prices dropped the most on record, pushing yields to their highest levels since July 2008. The country’s bank stocks tumbled the most in more than 14 years, dragging the market into a so-called correction, following the dismissal late on Wednesday of Finance Minister Nhlanhla Nene. The cost of insuring South African debt against default rose to the highest in more than 6 1/2 years.
The demise of Nene, who was pushing the government to contain spending, comes as South Africa’s $350 billion economy faces a credit downgrade to junk, the slowest expansion since the 2009 recession and rising debt levels. To add to the uncertainty, Zuma chose as his replacement David van Rooyen, a little-known lawmaker who investors say is unlikely to oppose the president’s plans to move forward with proposals to build a nuclear-power industry, bailout the state-owned airline and push other spending before local-government elections next year.
But otherwise it was an uneventful day.
South Africa, as we have written recently, is in big trouble. Like many African nations, it’s facing a commodities bust. But unlike many of its neighbors, it has a relatively stable economic and political history. But governance has been decaying as the ANC, in power since Nelson Mandela won the first truly democratic election in South Africa’s history back in 1994, falls victim to special interests and crooked politicians. South African democracy remains vibrant, but the ANC is a much weaker and less effective political organization than it was on Mandela’s watch. A culture of lawless greed has taken hold in some sections of the political establishment, and many observers believe that President Zuma, who has had his own brush with scandal, does not have his heart in the fight to save South Africa from corruption.
With all its troubles, South Africa remains the most successful example of a multi-party, non-tribal democratic society in sub-Saharan Africa. But the potential for a grim downward spiral exists: bad governance can lead to worse economic performance, and the resulting poverty, unemployment and despair leads voters to choose even worse politicians with even worse ideas. We must hope at this point that the shock of economic crisis will inspire the country’s leaders to raise their game.