President Jacob Zuma. Picture: GCIS
This time, he's to blame - President Jacob Zuma. Picture: GCIS

The last time SA fell into recession, in 2009, it was because of the global financial crisis. This time around, economists and business executives agree, the cause is a person: the president.

There is no other factor to explain the recession
Iraj Abedian

Jacob Zuma’s erratic political moves are breeding policy uncertainty and reluctance to invest, helping explain why the economy of the continent’s most industrialised nation contracted for a second straight quarter in the three months to end-March. Finance, property and business services shrank for the first time since the second quarter of 2009.

Business confidence has yet to recover after falling to a more than three-decade low in September and the rand has been the world’s most volatile currency in the past year.

All the while, Zuma was waging a battle with Finance Minister Pravin Gordhan over how to manage the economy—until he fired him.

Pravin Gordhan. Picture: GCIS
fired - Pravin Gordhan. Picture: GCIS

Companies across industries say the political and economic instability is cutting sales, hurting profit forecasts and even inducing consumers to gamble less.

“There is no other factor to explain the recession,” said Iraj Abedian, CEO at Pan-African Investments and Research Services in Johannesburg. “The only factor is the political shenanigans, policy uncertainty and the lack of leadership, which has hollowed out confidence both in the consumer and the investment community.”

Gordhan, who had been driving efforts to trim the budget deficit, improve state firms’ performance and ward off junk credit ratings, was canned in a March 31 Cabinet shuffle, prompting two ratings downgrades to non-investment levels within a week and nationwide demonstrations.

All of us are disappointed by the firing of Gordhan, and the Cabinet reshuffle just breeds uncertainty and that’s not what we want
Graham O’Connor

Pioneer Food Group said it had ended talks about a potential transaction because of the downgrades. Since April last year, companies including Old Mutual, the continent’s largest insurer and which has a 173-year history in SA, packaging maker Nampak, and retailers including clothing and home furnishings specialist The Foschini Group and Dis-Chem Pharmacies, have warned that the political situation is clouding economic prospects.

“There’s been a massive loss of confidence,” Spar Group CEO Graham O’Connor said. “All of us are disappointed by the firing of Gordhan, and the Cabinet reshuffle just breeds uncertainty and that’s not what we want.”

Zuma spokesman Bongani Ngqulunga said that while other countries too had been struggling for growth and recovery from the financial crisis, there was little room for fiscal and monetary policy to support growth. SA's focus was structural reform, he said.

“Reforms usually challenge the status quo and are necessary to change the structure of the economy,” he said. “There is very little doubt that once the reforms process is complete our economy will be set on a higher growth trajectory.”

April was very tough. We put a lot of that down to a change in sentiment in the South African economy — everyone in SA got miserable
Marcel von Aulock

Companies were less optimistic. The “volatile sociopolitical outlook” would create more difficult trading conditions and, because many government departments and state-owned enterprises were in flux, “the finalising and closing of contracts is challenging”, Bidvest Group - which employs 114,000 people across its automotive, services and freight businesses - said on June 8.

Signs of improvement in the economy were “washed away” by March’s political events, Massmart, the retailer controlled by Wal-Mart Stores, said on March 25, noting the “unfavorable impact on sales” of discretionary products.

Nedbank, the lender controlled by Old Mutual, plans to reduce its full-year earnings forecasts, citing slower-than-expected revenue growth in the first quarter caused by the weak sociopolitical and macroeconomic environment, it said.

Marcel von Aulock. Picture: TSOGO SUN
uphill struggle - Marcel von Aulock. Picture: TSOGO SUN

People were so discouraged they were even cutting back on betting, said Marcel von Aulock, CEO of Tsogo Sun, Africa's biggest gaming and hotel company and owner of the Montecasino and Gold Reef City entertainment complexes in Johannesburg.

“April was very tough,” Von Aulock said, adding that the biggest impact was at casinos, where fewer people came to gamble. “We put a lot of that down to a change in sentiment in the South African economy—everyone in SA got miserable.”

Fewer people had jobs, too: unemployment rose to a 14-year high of 27.7% in the first quarter. SA’s growth slowed to 0.3% last year, the lowest rate since 2009, after low commodity prices, the effects of the 2015 drought and weak demand for locally made goods weighed on output.

The country is likely to miss its 1.3% growth target this year and may have to curb spending to stick to its budget framework, Finance Minister Malusi Gigaba said on June 15.

This is despite growth in agriculture, which is improving as the country recovers from the 2015 drought. Prices of commodities, the nation's biggest export, are rising, but neither was enough to prevent the downturn. 

Zuma, who is due to step down as ANC leader in December and whose term as the country's president ends in 2019, has survived a series of corruption scandals and presided over the party’s worst electoral performance since the end of apartheid in 1994 in municipal elections in August.

Zuma being replaced sooner rather than later will certainly help rebuild the confidence needed to turn the economy in a positive direction
Ivor Sarakinsky

In November, the graft ombudsman implicated Zuma in unethical conduct in a 355-page report about how the Gupta brothers, who are his friends and are in business with his sons, influenced his Cabinet appointments and contracts at state companies such as power utility Eskom.

Zuma, who has defeated numerous efforts to get him to step down, now is facing a no-confidence motion called by opposition parties in Parliament. The UDM has asked the Constitutional Court to order a secret ballot, which it hopes will enable ANC MPs, who occupy 62% of the 400 seats in the National Assembly, to vote against the president without fear of losing their jobs.

“Zuma being replaced sooner rather than later will certainly help rebuild the confidence needed to turn the economy in a positive direction,” Ivor Sarakinsky, a senior lecturer at the University of the Witwatersrand’s School of Governance in Johannesburg, said on June 13. “Investors just aren’t going to bring in money in under this kind of uncertainty.”

With assistance from Aarti Bhana, John Bowker and Simbarashe Gumbo

- Bloomberg


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