SA expatriates find currency more valuable

For South African expatriates working in the UAE or elsewhere in the world, the political and economic turmoil in the country has made their dirham or dollar earnings more valuable at home.

On Saturday, the South African Rand (ZAR) was trading at R13.76 to a dollar (Dh3.67) — down from R12.32 when it first became apparent that the country’s former finance minister, Pravin Gordhan, would be removed from his position. Gordhan had established himself as a responsible guardian of the public purse in the minds of many international investors and South African businesses.

In the wake of his firing, investment rating agencies, Standard and Poor’s and Fitch, have both downgraded South Africa’s credit rating to below investment grade — often referred to as “junk status”. The third major ratings agency, Moody’s, is also reviewing the country’s investment rating. In its statement, Fitch said: “[It is our] view that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances.” It highlighted concerns about government plans for an expensive nuclear energy build programme, state-owned enterprise debt and increased demands for social spending.

The new finance minister, Malusi Gigaba, described the credit ratings downgrade as a “setback”, but tried to assure the agencies that South Africa would continue to be responsible in its economic policies and spending plans. A long-serving politician with reported links to Zuma associates, Gigaba has a mixed record of success in his past cabinet posts. And, given South African President Jacob Zuma’s penchant for removing fiscally responsible finance ministers for spurious reasons, it will take a while for Gigaba to rebuild trust between the government and investors. Gordhan was removed in part because of “irreconcilable differences” with the president and because of an “intelligence report” — of which the minister of state security claims to have no knowledge — that implicated him in efforts to undermine Zuma. The report is now a subject of investigation.

In the meantime, South Africa faces higher costs of debt, more pressure on the budget for essential social services and a tougher business environment. Bad news for a country with persistently high unemployment, inequality and poverty.