On April 3, the rating agency Standard &amp; Poor’s Global (S&amp;P) downgraded South Africa to junk status following the reshuffling of several cabinet ministers, including finance minister Pravin Gordhan and his deputy Mcebisi Jonas. President Jacob Zuma’s reshuffling received mixed reaction from the people, but even worse, the downgrade that followed rocked the country’s markets. And more was to come; four days later, Fitch Ratings announced the second downgrade.
Azar Jammine, Chief Economist at Econometrix, says the downgrades can hurt the economy in three ways.
<div id="attachment_5619" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-5619" class="wp-image-5619 size-medium" src="/wp-content/uploads/2017/05/march-047-300x201.jpg" alt="" width="300" height="201" />Zuma must fall protest</div>
“When business confidence is low, businesses don’t invest in capital formation. If you reflect on what happened in 2016, the economic growth rate was just 0.3% but when you look at the breakdown thereof you see that consumer spending grew by nearly 1%, government spending grew by nearly 2%, exports exceeded imports, so why was growth why so low? The answer is because capital investment fell by 4%, and one fears that we are going to see more of this going forward,” he says.
“People are focusing a lot on the impact on the rand, but in fact that’s neither here nor there. All that happened thus far the rand has retraced some of the gains that it made in January and February. At this current exchange rate, the impact in boosting inflation and interest rates will not be too severe. What is has done is to get rid of any hope of a cut in interest rates, and to that extent has dampened the business confidence.”
“The third way in which downgrades are likely to impact negatively is through the increase in the long-term interest rate which is going to raise government’s cost of servicing its debt. Government and parastatals have to borrow R260 billion ($19 billion) or about 5.5% of GDP in the coming year. Now, already, long term interest rates have risen by 50 basis points and the impact on cost of servicing debt in the longer term will be substantial, around R15 billion ($1.1 billion) to R20 billion ($1.45 billion), which will be taken away from the ability of government to spend on all sorts of vital areas of infrastructure and social requirements.”
Jammine isn’t writing off any possibility of a third downgrade from  credit rating agency Moody’s. He doesn’t expect to see improvement under the new Minister of Finance, Malusi Gigaba, who has little experience in finance.
“If the new minister carries on the way he has about the radical economic transformation, then that dashes the hopes of credit agencies regarding adherence to fiscal discipline. The moment you have that, the ratings agencies are going to downgrade you, and that’s a big concern. If S&amp;P and Moody’s local currency debt decline to junk status, then South African government bonds will fall out of the Citigroup World Government Bond Index.”
Iraj Abedian, an economist and CEO at Pan African Investments and Research Services, also has doubts about Gigaba.
<div id="attachment_5618" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-5618" class="wp-image-5618 size-medium" src="/wp-content/uploads/2017/05/march-17-300x201.jpg" alt="" width="300" height="201" />Zuma must fall protest</div>
“He’s been a weak leader in the ministries he led before and his current comments on the downgrades have been contradictory. It seems he doesn’t understand the gravity of the problem, he has little time to allow himself to learn basic economics, but we can hope he transforms himself for the benefit of the country and the people,” he says.
Abedian says South Africa can return to normality within five years only if Gigaba doesn’t listen to clueless politicians and rather pays attention to the markets’ demands.
Jammine, however, says we haven’t seen the worst yet. There’s a huge burden on Gigaba to try and convince the markets that he’s not going to go crazy with government spending. He fears the new minister doesn’t understand the implications.
“First, he said you don’t go and downgrade a country just because of the change of one person, and then after that he said he knew about the downgrade, so the statements were totally contradictory. In the same way, he says we are going to be committed to radical economic transformation and then argues that we are committed to fiscal discipline, this also tends to be contradictory.”
If the minister cannot heed to the advice of economists, there’s a risk of a long spell of recession and social upheaval as the living standards of ordinary people in South Africa deteriorates, says Jammine.
Ordinary South Africans are aware of the damage that Zuma’s reshuffle has done. More than 100,000 marched on the streets to show the president their displeasure.
“It’s bad news as the people started to ask whether South Africa is going the route of Zimbabwe or Venezuela, for example,” says Jammine.
“What you have right now is a huge divide between what the president himself has termed ‘clever blacks’ and white monopoly capital, who are seen to do all this to benefit themselves. They are being accused of making a big brouhaha about the ratings downgrades in order to persuade people the impact would be bad for the poor. The reality is that it would be worse for the poor than the middle [and] upper income groups because a fall in the value of the rand tends to push up the share prices of the companies listed on the stock exchange that have huge investments overseas. Secondly, higher interest rates improve the returns on pensions people hold. So pensioners and those who have a lot of shares will do well out of this.”
The South African Reserve Bank Governor Lesetja Kganyago lambasted politicians who questioned the credibility of rating agencies when they should be taking the people into their confidence.
“We are going to engage the credit ratings on their own terms. When you lose your investment grade ratings, your government is going to pay more to raise debt and when your government does that, your banks are going to pay more to raise debt and they will pass those costs to businesses and household and then it doesn’t become nice. It is going to affect the poor and the middle class who rely on credit,” says Kganyago at the monetary policy forum.
Jammine agrees the poor will suffer from this as there will be job losses and rises in inflation. So, what can the government do?
“The best thing the government could do is reinstate Pravin Gordhan and Mcebisi Jonas, or to put someone in Gigaba’s place. Gigaba has a very poor reputation in the way he managed the ministries of public enterprise and home affairs previously.”
“You may shout about the credibility of the agencies until the cows come home, the fact is the international investors do pay attention to these credit rating agencies… you can try and pretend they don’t count, but they will cost you a lot of money.”
Despite the upheaval seen on the streets, it is not the first time South Africa has faced economic meltdown and certainly won’t be the last. In 1994, the new government inherited a treasury with huge amount of debt that rose sharply as a result of a massive increase in defence spending.
<div id="attachment_5624" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-5624" class="wp-image-5624 size-medium" src="/wp-content/uploads/2017/05/AnitZumaMarch_JC-3-300x200.jpg" alt="" width="300" height="200" />Zuma must fall protest</div>
“Nelson Mandela and his minister of finance that he appointed in 1996, Trevor Manuel, realized that the only way to get back on course was to actually cut back on government spending rather than increasing on populist needs. That restored a lot of confidence in the South African economy but it took a long while. But it was only after the 2001 crisis that South Africa’s economy started picking up, but we did see credit ratings gradually improving and Standard &amp; Poor’s actually put us on investment credit rating for the first time,” says Jammine.
It is said that one of the reasons the Gordhan was fired was that he defied Zuma’s wish to commission Russia to build a $70-billion nuclear plant in South Africa.
“That is also why people are concerned the President appointed Gigaba instead of Pravin – in order to sign a nuclear deal. The fear with the nuclear deal is that it will cost R1 trillion, that it will be unaffordable. Our total public debt is R2 trillion and it will increase our debt in one fell swoop 40% to 50%, something that will stifle the ability to spend on everything else. What is particularly worrisome to people is why there is this dramatic desire to embark upon a nuclear deal? There are strong suspicions, as has been the case with other smaller projects that the president is personally involved with, that the Russians are paying him to get this deal through,” says Jammine.
This time, the president may have overplayed his hand. South Africans of all colors and creeds united to defy him.
President Zuma Bites Back
<div id="attachment_5617" style="width: 610px" class="wp-caption alignnone"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-5617" class="wp-image-5617 size-medium" src="/wp-content/uploads/2017/05/GettyImages-667743392-300x200.jpg" alt="" width="600" height="400" />Presidents Jacob Zuma&#8217;s Birthday Celebration</div>
While tens of thousands protested outside at the gates of the Union Buildings in frustrationon april 12, President Jacob Zuma ate cake – after all, it was his 75th birthday.
Eighty kilometers away from the crowds chanting down his name, Zuma celebrated in Kliptown, Soweto – the place where the Congress of the People drew up the guiding Freedom Charter in 1955 – with dancing, singing and speeches.
&#8220;Do not be fazed by people who are saying we are marching, we are marching, today was declared a national day of action. What is it? Zuma must go. What has he done? He is not running the country properly, he must go. You can&#8217;t even pick up the essence for the protest, it&#8217;s complicated to be the opposition. I am trying to put you at ease because if they don&#8217;t protest they wouldn&#8217;t be the opposition,&#8221; says Zuma in Zulu, his mother tongue.
&#8220;Don&#8217;t let the opposition make decisions on your behalf; you would have lost your way, because regardless of who the next leader is they will never be satisfied.&#8221;
Sitting next to him in a lavish armchair were some of his closest allies – Deputy Secretary General of the ANC Jessie Duarte, Water and Sanitation Minister Nomvula Mokonyane and Social Development Minister Bathabile Dlamini.
Zuma seemed unconcerned that key figures of the ANC were absent, among them the likes of  Deputy President Cyril Ramaphosa, Secretary General  Gwede Mantashe, and Treasurer General Zweli Mkhize.
The president chose to send a clear message to those who have been calling for him to step down. He said he would be willing to do so if called upon by the ANC.
&#8220;Even if you said tomorrow I should step down from my duties, I will gladly do that with a pure heart, but what I want to tell you my leaders is that I will be ANC until the day I die.&#8221;
It is not the only event in which Zuma has shrugged off opposition. Two days before, at the Chris Hani wreath laying ceremony in Thomas Nkobi Memorial Park, east of Johannesburg, he criticized the 60,000-strong national march on April 7.
&#8220;There is a resurgence of racism in our country… Many placards and posters displayed beliefs that we thought had been buried in 1994, with some posters depicting black people as baboons. It is clear that some of our white compatriots regard black people as being lesser human beings or sub-human,&#8221; he said.

One Decision, Many Repercussions, Millions Angry

Sure, optimism shone forth in Cape Town like the late summer sun bouncing off Table Mountain, as more than 6,000 powerful people, including more than 20 government ministers, headed for the biggest mining gathering on the planet.
<img loading="lazy" decoding="async" class="alignleft size-medium wp-image-4586" src="/wp-content/uploads/2017/04/Chris-Bishop_JC-200x300.jpg" alt="" width="200" height="300" />
There were more mining companies this year, up 50% on last year, after more than five years of decline. The keen-eyed investors were back and looking for contenders across the continent. A fruitful place to be for the brave, like the motorbike riding maverick Mark Bristow who has spent the last 20 years making money digging gold in mines from Mali to Cote D’Ivoire. Two decades ago many fellow South Africans may have laughed at Bristow for taking risks far from home, in what many see as barren land for mining, but now they’re laughing on the other side of their faces. At the Mining Indaba, Bristow’s Randgold Resources announced it had increased gold production, for the fifth year in a row, plus it was debt free with more than $500 million in cash. Many mining companies would kill to be in that position.
Among the investors looking to blaze a trail across Africa is the Lagos-based African Finance Corporation that began life, in 2007, with a fund of $1.1 billion and now has assets of $3 billion, according to one of its directors, Osam Iyahen. It is a public-private fund, 42% owned by government, that invests in: oil; gas; resources; infrastructure and power. In January, it broke ground on a $200-million bauxite mine in the Boffa region of Guinea Conakry, just 15 kilometers from the coast, with plans to ramp up to 15 million tons.
“I think there has been a rebound in the industry this year,” says Iyahen in Cape Town.
“Last year was a bit of a disaster. People were not interested in talking about transactions; all they were worried about was protecting their downside. There was a lot of sulking going on.”
You could be forgiven for thinking the host nation is still sulking. South Africa, the biggest mining country on the continent, has been like a boxer on the ropes since the power cuts and global financial collapse of 2008. More than 60,000 jobs have been lost since 2012; capital expenditure ground to a halt and the South African industry lost R38 billion (about $2.8 billion) in 2016 alone, in a year when mining output fell 4.8%.
“We have to get our house in order in South Africa, capital is a coward and it goes to the place where there is least risk. We have to remember mining is a global game now and it is easier than ever for foreign investors to move capital around. Our grandchildren will live with the legacy of what we do now,” says Kieran Whyte, a lawyer and partner at Baker McKenzie, who specializes in energy and infrastructure.
The last few months of 2016 were better as commodity prices lifted, according to the Chamber of Mines, especially the risk haven of gold in the wake of the unpredictable, to put it kindly, presidency of Donald Trump.
“I think we are seeing the green shoots here, we just have to watch out for frostbite,” says Roger Baxter, the CEO of the Chamber of Mines, with a smile on the first day.
Baxter was alluding to two cold fronts: the first, the fact that South Africa – that mined more than a third of the world’s gold – is no longer the king of mining. In fact, in these troubled economic times, more and more nations, from West Africa to South America, are ready to accept foreign investors with open arms. A sign of the times is that, on the eve of the Mining Indaba, analysts in Cape Town were extolling the virtues of the copper, gold and coal mining nation of Chile.
The second frosty front is regulatory uncertainty. The South African government, which has met six times with the Chamber of Mines, has been working on amendments to its mining law since December 27, 2012. It promises to gazette the amended Mineral and Petroleum Resources Development Act (MPRDA) by the end of March; the Chamber of Mines feels it could be April.
<div id="attachment_4588" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-4588" class="size-medium wp-image-4588" src="/wp-content/uploads/2017/04/Mark-Bristow_JC-300x200.jpg" alt="" width="300" height="200" />Mark Bristow</div>
What is likely to be in the bill could cause conflict. It is expected there will be greater ministerial discretion and set in stone that all mining companies have to have 26% black ownership at all times. One of the problems is black shareholders, once they have passed their lock-in date, often cash in their stakes by selling to white shareholders, thus diluting the empowerment stake.
The Chamber of Mines, which represents almost all South African mining houses, disagrees strongly with this. It feels that once mining companies have borne the cost of financing black shareholdings it has done its job regardless of dilution. If this so-called “once empowered, always empowered” principle is accepted, many of the country’s biggest mining houses will be compliant overnight.
“I have never seen the Chamber of Mines so aggressive. Normally they get along to go along, but it seems the worm has turned,” says one mining insider in Cape Town.
It is all likely to end up in court where mining lawyer Peter Leon reckons they have a strong case.
“All they have to do is challenge section 100 of the MPRDA. This gives the minister the power to promulgate the act, but doesn&#8217;t give the minister the right to rewrite or amend the act. That would blow it out of the water,” says Leon.
There appears to be little sign of a U-turn by the government over an issue that could further confuse and deter investors.
“We don&#8217;t want to encourage a place where courts take the place of government. We don&#8217;t agree with the norm that if you don&#8217;t agree with us you take it to court,” says South African mining minister Mosebenzi Zwane.
It’s a cold front that could mean a Chile future.

Beware, It’s Chile Out There

Umuntu ngumuntu ngabantu—this age-old Zulu proverb explains the spirit of ubuntu; translated it reads “A person is a person through others” but many paraphrase it to “I am because we are”.
You’ll find Ubuntu in any close-knit community where neighbors help each other with anything from sharing sugar and bread to babysitting and mourning. Ubuntu in business is called philanthropy. The Latin origins of the word means the love of humankind; the desire to promote the welfare of others, mostly, through the generous donation of money to good causes.
In a historic press event in a plush Sandton hotel in Johannesburg, South Africa’s richest black man, Patrice Motsepe announced that he and his wife, Precious, would donate half of their family fortune to philanthropic causes during their lifetime and beyond.
The room was full, from clergymen and traditional leaders to South African businesses’ top brass as well as ministers and union leaders. Among them were Pamodzi CEO, Ndaba Ntsele; Jessica Motaung, daughter of Kaizer Chiefs FC owner Kaizer Motaung; chairman of Shell SA, Bonang Mohale; Zulu nation Monarch, King Goodwill Zwelithini; basic education minister, Angie Motshekga and Archbishop Tutu’s daughters to name a few.
<div id="attachment_7" style="width: 209px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-7" class="size-medium wp-image-7" src="/wp-content/uploads/2017/03/280-261_1-199x300.jpg" alt="" width="199" height="300" />Patrice Motsepe, Johannesburg; 19 August 2011 &#8211; Photo by Brett Eloff</div>
“We want to build a track record where ordinary South Africans feel we’re making a humble contribution,” says the 8th richest African.
He assured the audience that he would make sure his children continued the tradition.
The move put the Motsepes on a list of elites who have pledged to give a majority of their wealth to philanthropy. They are the first Africans to join the Giving Pledge, founded by Bill Gates and Warren Buffett in 2010. Today, it has nearly 100 members including New York mayor, Michael Bloomberg; world-famous designer, Diane von Furstenberg; Facebook founder, Mark Zuckerberg and PayPal co-founder, Elon Musk.
Is this pledge a new trend in business or just an age-old tradition of ubuntu under a new light?
This is not the Motsepes’ first contribution, in 1999 they started the Motsepe Foundation, which to date has donated around R40-R50 million ($4.5-5.6 million) to business development. Last year alone they gave R20 million ($2.3 million) to major churches in South Africa. They say this move is just an acceleration of what they’ve established.
While the Motsepes have had a lucky turn of fortune, it wasn’t always that way.
“There were times when we had nothing… When I came back from America we had so many loans that we couldn’t pay our children’s school fees [and] we had to send them to good schools. But there was always belief because we come from parents who succeeded during the years when there was no black economic empowerment,” says Motsepe.
But many ask themselves whether other African entrepreneurs and companies will follow in Motsepe’s footsteps.
Philip Fauré, head of Citadel Philanthropy Advisors, says there are many wealthy entrepreneurs who are philanthropists but prefer to remain under the radar.
“Africans are more private than Americans,” says Fauré.
He also says that they avoid requests for money and security risks by doing things privately. However, he is quick to emphasize the difference between philanthropy and charity by using a fishing analogy—philanthropy is teaching one how to fish.
“Charity is never going to go away; aid is not the solution,” says Fauré.
He also says that philanthropy is a major industry worldwide, mostly in the States. He hopes that more prominent South African families will give publically.
There are a number of other African billionaires who are active philanthropists.
In 2012 alone, Johann Rupert, the third richest African and CEO of luxury goods group Richemont, gave his R3.6 million ($406,700) annual salary to charity. The Oppenheimers—the second richest family in Africa—donated R1 billion ($112.9 million) to support education in South Africa. In Nigeria, Africa’s richest man, Aliko Dangote, gave away around $35 million and Zenith Bank founder, Jim Ovia, gave away an estimated $6.6 million. And Zimbabwe’s richest man, Strive Masiyiwa, gave away around $6.4 million.
According to wealth management company Galileo Capital, if Motsepe plans to give away half of his wealth—bearing in mind his current net worth of $2.65 billion, interest and inflation—he will give away around $40 million annually to his philanthropic missions.

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One Decision, Many Repercussions, Millions Angry

Beware, It’s Chile Out There

To Earn Is Human; To Give Divine