South Africa: President Zuma goes for the nuclear option

President Jacob Zuma reshuffled his cabinet on 30th March, sacking Finance Minister Pravin Gordhan and replacing some of his many critics with loyalists. The removal of Mr. Gordhan – who was seen as a rare voice of fiscal discipline – caused the rand to fall by about 4% against the USD. Previous statements from the ratings agencies had stressed the importance of maintaining the “current team” at the treasury, so South Africa will probably now lose its investment-grade rating. We have stressed, however, that the economy is on stronger footing than is often assumed. The narrowing current account deficit has cushioned the effect of this latest shock. Indeed, while the rand has fallen in recent days, it remains much stronger than it was at the start of 2017. It is also possible that Mr. Zuma has fatally weakened his own position by overplaying his hand and alienating key allies within the ruling African National Congress (ANC). The reshuffle has been opposed by many high-profile figures, including the deputy president and the ANC’s secretary-general. It is, as yet, not clear whether Mr. Zuma’s opponents have the numbers to remove him from office. But this week’s events seem to guarantee that the slow-burning conflict within the party will escalate in the lead-up to the December 2017 leadership conference at which Mr. Zuma’s successor will be chosen. President Muhammadu Buhari’s return to Nigeria following a long leave of medical absence in London probably boosted business sentiment. Other developments, however, have underlined the scale of Nigeria’s economic problems. Oil output, admittedly, rose a bit in February. This lifted export earnings and government revenue, though both remained weak by recent standards.