COST OF GRAFT
Economic wrecking ball
● A fighter from day one. That is the legacy former president Jacob Zuma left when he resigned on Wednesday, 18 months before his second term would have finished.
Zuma’s inclination to fight won admiration from a small clique of hangers-on, but for the rest of South Africa it was costly. On his watch, the economy went from bad to worse.
Unemployment was at 26.7% in the fourth quarter of last year, from 23.2% when Zuma was inaugurated as president in May 2009.
South Africa was not spared the impact of the global financial crisis of 2008-09.
The infrastructure boom ahead of the 2010 Soccer World Cup provided a brief respite and South Africa increased spending to boost the economy after the recession. The result was a growing debt-to-GDP ratio, for which Zuma cannot carry all of the blame.
But in the past five years, government debt has spiralled out of control, with the debt-to-GDP ratio now at just over 50%. High debt service costs in the public sector attributed to South Africa’s political risk premium have became an increasing burden. The result has been what some economists call a disastrous debt trap, exacerbated by the drain that state-owned enterprises have become on the public purse. Many large parastatals, such as Eskom, have become highly inefficient and poorly governed, generating no returns for investors in recent years.
Should Eskom, which has already drawn on R250-billion in government guarantees, default on its debt, the government’s exposure is around 5% to 6% of the country’s GDP, said BNP Paribas economist Jeffrey Schultz.
One barometer for how the country has suffered under Zuma’s presidency is the rand.
At the time of his rise to power in 2009 the rand was a relatively strong R10.32 to the dollar. But in the years that followed, particularly in Zuma’s second term, it weakened to a record R16.86. That was in 2016, after Zuma shocked the market when he fired finance minister Nhlanhla Nene on December 9 2015 and replaced him with Des van Rooyen.
The rand would not smile on Zuma again — until this week, when it firmed to R11.56 following his resignation.
“The true costs of Zuma’s presidency may never be fully quantified,” said Jannie Rossouw, head of the School of Economic and Business Sciences at the University of the Witwatersrand.
A rand value may eventually be put on the funds stolen in corrupt dealings, but it will be harder to measure the lost opportunities.
In recent years policy and political uncertainty, reflected in the mining industry for example, has led to divestment from South Africa.
And in 2015, then home affairs minister Malusi Gigaba introduced new regulations that required tourists to apply for visas in person for biometric data to be collected, and for parents and guardians travelling with minors to provide unabridged birth certificates.
More than 13 000 people are estimated to have been turned away from South Africa for failing to meet the new regulations.
This and other policy blunders were among the reasons for the slowdown in economic growth from about 3% in the mid2000s to 2% in the third quarter of 2017.
Had growth been maintained at 1.5%, the economy would have been 15% bigger than it is now.
Zuma’s outrageous cabinet reshuffles, which put three finance ministers in office in the space of a year, kept investors on edge.
“I expect people will someday write PhDs trying to quantify what Zuma cost South Africa,” Rossouw said.