Category Archives: South Africa

+++ (BBG) Bitcoin ‘Scam’ Has South Africa’s Police Chasing Billions

(BBG) A unit of the South African Police Service said it’s started an investigation into an alleged cryptocurrency investment fraud that has affected more than 28,000 people and led to losses of more than 1 billion rand ($80.4 million).

The allegations involve “BitCaw Trading Company, commonly known as BTC Global,” the police unit said in an emailed statement on Friday. “Members of the public are believed to have been targeted as part of the scam and encouraged by BTC Global agents to invest with promises of 2 percent interest per day, 14 percent per week and ultimately 50 percent per month.”

“BitCaw Trading was not involved in the BTC Global scam and we are shocked to see our name connected with it,” Andrew Caw, who set up BitCaw Trading, said in messages via Facebook on Friday. “BitCaw Trading assists people with buying & selling Bitcoin as well as other Bitcoin related services. We do not manage third-party money or offer any kind of investment” and BitCaw didn’t set up BTC Global, he said.

BTC Global’s services are suspended, according to that company’s website. In a statement on the site it blames its financial woes on a former employee. No contact details are given for BTC Global.

“We are as shocked and angry as everyone,” the BTC Global team said in the statement. “If you feel you’ve had a crime committed against you, you need to follow the legal procedures to deal with the matter.”

Bitcoin prices have declined 45 percent this year and 58 percent since the high of $19,511 reached on Dec. 18. It was 0.9 percent lower at $7,485 as of 9:14 a.m. in New York.

P.O. (BBC) Jacob Zuma: Former South African president faces corruption trial

Former President Zuma has been linked to corruption cases for years.
The only question is the amount of time it has taken to charge him.
But, “better late than never”

FCMP

(BBC)

Former South African President Jacob Zuma pictured in a suit in January 2018Image copyrightAFP/GETTY IMAGES
Image captionJacob Zuma faces counts of corruption, money laundering, fraud, and racketeering

South Africa’s former President Jacob Zuma is to face prosecution for 16 charges of corruption relating to a multi-billion-dollar arms deal.

The case centres on a 30bn rand ($2.5bn; £1.7bn) deal to modernise the country’s defence in the late 1990s.

The charges – which Mr Zuma denies – include counts of fraud, racketeering and money laundering.

Mr Zuma, 75, was forced to resign as president last month by his party, the ruling African National Congress (ANC).

He was facing his ninth no-confidence vote in parliament before he left office.

Chief Prosecutor Shaun Abraham said he believed there were “reasonable prospects of a successful prosecution” in the case.

French arms supplier Thales will also face charges, a prosecutor said. Thales declined to comment, reports the AFP news agency.

Mr Zuma is alleged to have sought bribes from Thales to support an extravagant lifestyle. His financial adviser at the time was found guilty of soliciting those bribes in 2005 and Mr Zuma was later sacked as deputy president.

Original charges against Mr Zuma were controversially dropped shortly before he became president in 2009.

He now faces one charge of racketeering, two charges of corruption, one charge of money laundering and 12 of fraud.

Shaun Abrahams, head of the National Prosecuting Authority, said a trial court was the appropriate place for the matter to be decided.

He dismissed representations made by Mr Zuma asking that the charges be dropped.

The former ANC chief had argued that the charges against him were characterised by misconduct, “irrational behaviour” and media leaks on the part of prosecutors, Mr Abrahams said.

Mr Zuma has always denied the allegations against him.

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Long court battle awaits

Analysis by Milton Nkosi, BBC News, Johannesburg

As Jacob Zuma is no longer president, he cannot use state resources to support his defence.

But let’s not get too ahead of ourselves – Mr Zuma is known for fighting every single battle right until the end.

Therefore, expect some pushback even after this heavy blow.

He is, by law, allowed to challenge this decision. In other words we might see a delay before any trial actually starts.

And even when the trial begins, it will be long and drawn out.

But for now his political enemies, particularly the opposition, are celebrating that he is closer to facing a judge in court than ever before.

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Mr Zuma weathered an array of corruption allegations during his nine years in power.

In 2016, a report by South Africa’s anti-corruption watchdog alleged that the billionaire Gupta family had exploited their ties with him to win state contracts.

Both the Guptas and Mr Zuma deny any wrongdoing.

The same year, South Africa’s highest court ruled that Mr Zuma had violated the constitution when he failed to repay government money spent on his private home.

An anti-corruption body found he had spent $23m (£15m) on refurbishments including a swimming pool and an amphitheatre. He has since repaid some of the money.

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Zuma’s corruption charges: A brief history

  • First filed in 2005 when Mr Zuma’s financial adviser, Schabir Shaik, was jailed for fraud and corruption.
  • Mr Zuma went on trial in 2006 but the case collapsed when the prosecution said it was not ready to proceed more than a year after he was charged.
  • South Africa’s National Prosecuting Authority (NPA) controversially dropped the charges in 2009, shortly before he won the presidency.
  • Political opponents campaigned tirelessly for him to face trial.
  • South Africa’s High Court reinstated the charges in 2016 and Mr Zuma lost a Supreme Court appeal to overturn them.
  • The country’s chief prosecutor, Shaun Abrahams, has now decided to pursue a case against the former president.
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The controversial arms deal

In 1999, the South African government announced its largest-ever post-apartheid arms deal, signing contracts totalling 30bn rand ($5bn; £2.5bn) to modernise its national defence force

The deal involved companies from Germany, Italy, Sweden, the UK, France and South Africa

Allegations of bribery over the deal dogged the governments of both President Jacob Zuma and and one of his predecessors, Thabo Mbeki.

Schabir Shaik was found guilty in 2005 of trying to solicit a bribe from Thint, the local subsidiary of French arms firm Thales, on behalf of Mr Zuma. He was released on parole on health grounds after serving just over two years

Another official, Tony Yengeni, who was chairman of parliament’s defence committee at the time of the deal and chief whip of the ANC, was convicted of fraud in 2003. He was also freed on parole after serving five months of a four-year sentence.

 

(GUA) Cyril Ramaphosa declared president of South Africa

(GUA) Former anti-apartheid activist turned businessman replaces Jacob Zuma, who dramatically resigned on Wednesday night.«

Cyril Ramaphosa arrives at Parliament in Cape Town to be sworn in as president on Thursday.
 Cyril Ramaphosa arrives at Parliament in Cape Town to be sworn in as president on Thursday. Photograph: Mike Hutchings/AFP/Getty Images

Cyril Ramaphosa has been elected president of South Africa by a parliamentary vote less than 16 hours after the resignation of his rival Jacob Zuma, following days of defiant refusal to leave office.

Ramaphosa – who, as deputy president, became interim leader immediately after Zuma’s late-night resignation on Wednesday – is being sworn in as head of state by South Africa’s chief justice in Cape Town.

The ruling African National Congress has a substantial majority in parliament and the vote is effectively a formality. Though deeply divided, the ANC has already closed ranks after the crisis of recent days and has rallied around Ramaphosa, 65, who was pictured jogging and posing with local residents on the Cape Town seafront early on Thursday morning.

 A. former anti-apartheid activist turned successful businessman, Ramaphosa is the standard bearer for the moderate, reformist faction of the ANC. Zuma, 75, represented the party’s more populist, nationalist elements, commentators say.

The former president’s resignation put an end to an intense political crisis that threatened to inflict significant damage on the ANC, which has ruled South Africasince the country’s first free elections in 1994.

In a televised address to the nation late on Wednesday, Zuma said he was a disciplined member of the party, to which he had dedicated his life.

“I fear no motion of no confidence or impeachment,” he said. “I will continue to serve the people of South Africa and the ANC. I will dedicate my life to continuing to work for the execution of the policies of our organisation.

“No life should be lost in my name. The ANC should never be divided in my name. I have therefore come to the decision to resign as president of the republic with immediate effect.”

The announcement ended an extraordinary day in South African politics, which began with a dawn raid on the business family at the centre of recent corruption allegations levelled at Zuma.

Then, at noon on Wednesday, ANC officials announced they would vote for an opposition party’s no-confidence motion in parliament on Thursday.

Late in the afternoon, Zuma gave an angry and rambling TV interview that sought to justify his refusal to obey his party’s order to step down.

But his late-night speech was more confident and warm. Zuma started with a joke about the late hour and his trademark chuckle. He expressed his gratitude to the ANC and South Africans for the privilege of serving them at the “pinnacle” of public life, before saying “thank you” and “goodbye” in three local languages.

Zuma, a former anti-apartheid activist who has led the ANC since 2007 and been South Africa’s president since 2009, was due to leave power next year. His tenure has been marred by economic decline and multiple charges of graft, undermining the image and legitimacy of the party that led the struggle against apartheid.

The crisis of recent days has further damaged the ANC, as well as angering many South Africans who are becoming increasingly impatient with the party’s opaque internal procedures.

In December, Ramaphosa won a bitterly fought ANC leadership election. Party strategists wanted Zuma to be sidelined as quickly as possible, to allow the ANC to regroup before campaigning starts for elections in 2019.

The party suffered significant setbacks at municipal polls in 2016 and could be forced into a coalition government at the national level, experts say.

As president, Ramaphosa will have to balance the need to reassure foreign investors and local businesses with the intense popular demand for dramatic measures to address South Africa’s deep problems. The former trade union leader has said South Africa is coming out of a “period of uncertainty, a period of darkness, and getting into a new phase”.

Richard Calland, an expert in South African politics at the University of Cape Town, said the departure of Zuma from office would give Ramaphosa “the chance to rebuild government and the party at the same time”.

President elect Cyril Ramaphosa and Former Minister of Finance Trevor Manuel catching up at 6 am for a POWER walk on the Sea Point promenade this morning. No red socks and very few bodyguards. @eNCA . These are my running friends!

In recent days, the rand has strengthened and many analysts have revised upwards their predictions of South Africa’s economic growth.

After Zuma’s address on Wednesday night, the ANC immediately closed ranks. Jessie Duarte, the party’s deputy secretary general, told reporters the ANC was “not celebrating” at a “very painful moment”.

(Reuters) South Africa to grant Grace Mugabe diplomatic immunity: government source

(Reuters) South Africa is planning to grant diplomatic immunity to Zimbabwe’s first lady Grace Mugabe, allowing her to return to Harare and avoid prosecution for the alleged assault of a 20-year-old model, a government source said on Friday.

South African police have put border posts on “red alert” to prevent Mugabe fleeing and said she will not receive special treatment, after Gabriella Engels accused Mugabe of whipping her with an electric extension cable.

But a senior government source said there was “no way” Mugabe, 52, would be arrested because South Africa would weigh the need to seek justice against the diplomatic fallout.

“There would obviously be implications for our relations with Zimbabwe. Sadly the other countries in the region are watching us and how we are going to act,” the source said, asking not to be named.

“What is likely to happen is that she will be allowed to go back home, and then we announce that we’ve granted diplomatic immunity and wait for somebody to challenge us.”

The source acknowledged the view widely held by legal experts that Mugabe is not entitled to diplomatic immunity because she was in South Africa for medical treatment, and said her immunity might be challenged in court at a later date.

Rights group Afriforum, which is advising Engels, said it would be illegal for Pretoria to give Mugabe immunity and branded the plans a “disgrace”.

Harare has made no official comment on the saga, which erupted on Monday, and requests for comment from Zimbabwean government officials have gone unanswered.

Zimbabwe’s 93-year-old President Robert Mugabe arrived early in Pretoria for a regional southern African summit this week to help resolve his wife’s legal problems, the source said.

Grace Mugabe is expected to attend the summit as part of a “first spouses” program.

Engels said she was assaulted by Mugabe on Sunday evening as she waited with two friends in a luxury Johannesburg hotel suite to meet one of Mugabe’s adult sons.

A lawyer for Mugabe identified by Reuters refused to comment.

(Fin24) S&P downgrades SA to junk status

(Fin24) Cape Town – Ratings agency S&P Global Ratings on Monday downgraded South Africa to sub-investment grade and said a massive Cabinet reshuffle shortly after midnight on Friday has put policy continuity at risk.

The decision follows a Cabinet reshuffle which claimed the jobs of Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas.

Barely 24 hours into his new job as Minister of Finance, Malusi Gigaba clarified two important aspects of his new appointment which represent major shifts from his predecessor. Both aspects of the new Gigaba era should leave South Africans concerned and calling for greater scrutiny than ever before on government, political analyst Daniel Silke earlier wrote on Fin24.

“Firstly, Gigaba unambiguously placed the highly contentious nuclear power build project firmly back on the agenda.

“The second aspect of the first 24 hours of Gigaba’s reign is perhaps more worrying. At his first media briefing, Gigaba expressed a more populist view of not only economic policy but also his world view,” Silke wrote.

The rand reacted immediately to trade at R13.71/$. By 17:53 it changed hands at R13.67 to the greenback.

S&P said the executive changes initiated by President Jacob Zuma have put at risk fiscal and growth outcomes.

“We assess that contingent liabilities to the state are rising,” the global ratings agency said in a statement.

S&P lowered the long-term foreign currency sovereign credit rating on the Republic of South Africa to ‘BB+’ from ‘BBB-‘and the long-term local currency rating to ‘BBB-‘ from ‘BBB’.

It also lowered the short-term foreign currency rating to ‘B’ from ‘A-3’ and the short-term local currency rating to ‘A-3’ from ‘A-2’. The outlook on all the long-term ratings is negative.

In addition, S&P lowered the long-term South Africa national scale rating to ‘zaAA-‘ from ‘zaAAA’, and affirmed the short-term national scale rating at ‘zaA-1’.

“The downgrade reflects our view that the divisions in the ANC-led government that have led to changes in the executive leadership, including the finance minister, have put policy continuity at risk.

“This has increased the likelihood that economic growth and fiscal outcomes could suffer. The rating action also reflects our view that contingent liabilities to the state, particularly in the energy sector, are on the rise, and that previous plans to improve the underlying financial position of Eskom may not be implemented in a comprehensive and timely manner.

“In our view, higher risks of budgetary slippage will also put upward pressure on South Africa’s cost of capital, further dampening already-modest growth.”

+++ (BBG) South Africa Junk Rating Might Be Hours Away and Last Years

…”a relegation that could take years to undo”…

(Bloomberg) South Africa might be just hours away from losing its investment grade at S&P Global Ratings — a relegation that could take years to undo.

With a credit assessment due on Friday, the country’s foreign-currency debt is at risk of being rated junk by S&P for the first time in more than 16 years. Only six of 20 countries reduced below investment grade by S&P over the last three decades have regained it, and that took from 13 months to more than 11 years, data compiled by Bloomberg show. Seven of 12 economists surveyed by Bloomberg last month said the nation’s foreign-currency rating will be downgraded to junk on Friday, while three foresee it happening in June.

Political turmoil in Africa’s most-industrialized economy, including now-dropped fraud charges against Finance Minister Pravin Gordhan, has overshadowed efforts to boost investor and business confidence. The slowest gross domestic product growth this year since a 2009 recession will complicate Gordhan’s pledge to narrow the budget deficit and to limit government debt, while promised structural reforms have been hampered by infighting in the ruling African National Congress and government departments.

“If South Africa does get a downgrade, I think we are looking at at least three to five years before it could possibly get upgraded again,” Per Hammarlund, chief emerging-market strategist at SEB SA in Stockholm, said by phone. “Given the way politics are moving now, it seems as if the political paralysis will continue and that doesn’t bode well for economic reforms.”

Negative Outlook

Fitch Ratings Ltd. on Nov. 25 changed the outlook on its BBB- rating, which is one level above junk, to negative from stable and warned that continued political instability could result in a downgrade. Later the same day, Moody’s Investors Service, which rates South Africa’s debt at the second-lowest investment grade level, with a negative outlook, said in a credit opinion political infighting that generates policy uncertainty and impedes structural reforms could lead to a cut.

While a reduction to junk on the foreign-currency rating may hurt sentiment and add to woes for the rand in a year of emerging-market uncertainty — fueled by Brexit and the election of Donald Trump as U.S. president — it won’t necessarily lead to significant forced bond selling by foreign investors. South Africa’s local-currency ratings, which are usually referenced for inclusion in global benchmark indexes such as Citigroup’s World Government Bond Index, are still above junk, even after Fitch cut its assessment to the lowest investment-grade level in July.

“We think S&P will look to downgrade the country’s local-currency rating on Friday from the current BBB+,” Jeffrey Schultz, a senior economist at BNP Paribas Securities in Johannesburg, said an e-mailed note. “Such a move, we believe, would serve as a warning signal that S&P is uncomfortable with the direction in which South Africa’s debt-to-GDP ratio is moving and that should structural economic reforms not materialize to boost growth before June next year, a foreign-currency downgrade is inevitable.”

Higher Risk

A cut by S&P would move the company’s rating of the nation’s foreign-currency debt to the same level as Russia and Portugal. Investors already consider South Africa more risky than Russia, with the cost of insuring against non-payment of debt for five years using credit-default swaps 15 basis points higher than for that country. The rand strengthened 0.3 percent to 14.07 per dollar by 8:15 a.m. in Johannesburg.

Gordhan, 67, has led efforts to stave off a downgrade while wrangling with President Jacob Zuma over the management of state-owned companies and the national tax agency. A failed bid at the ANC’s National Executive Committee meeting this week to oust Zuma increased speculation he will be replaced as the nation’s president.

The economy will probably expand 0.4 percent this year, according to the central bank. That will make it difficult for Gordhan’s to meet his target to narrow the budget deficit to 2.5 percent of gross GDP by 2020, from a projected 3.4 percent this year, and to rein in gross government debt that’s forecast to peak at 53 percent of GDP in the year through March 2019.

“The past has shown that regaining an investment-grade rating isn’t easy,” George Herman, head of South Africa investments at Citadel Investment Services in Cape Town, said. “We need some structural changes in the economy to improve growth, but those are going to take tough political decisions.”

+++ (BBG) Goldman Sachs Sees ‘Sharpening of Knives’ in S. Africa’s ANC

(BBG)

Divisions within the governing African National Congress are deepening and a potential downgrade of South Africa’s debt rating to junk isn’t fully priced in by markets, according to Goldman Sachs Group Inc.

The rand slumped as much as 4.3 percent against the dollar on Tuesday, the most since June, and bond yields rose to the highest in more than a month after prosecutors said Finance Minister Pravin Gordhan must appear in court on Nov. 2 on fraud charges. Five-year South African credit-default swaps, an indication of risk, climbed 15 basis points on Tuesday to 265, the highest level since July 8 and above those of Russia, Brazil and Turkey, which all have junk credit-ratings.

“There is clearly a sharpening of the knives between the various factions within the ANC,” Colin Coleman, a partner and head of Goldman Sachs Group in South Africa, said in an interview on Bloomberg TV. The reaction to the news on Tuesday in the country’s financial markets was “less than expected,” meaning that the risk of South Africa losing its investment-grade status hasn’t been fully factored in, he said.

While a downgrade to junk is evident in the swaps market, it hasn’t been “fully priced in,” Coleman said. There is a reasonable prospect that South Africa could keep its investment-grade status by remaining “focused on the structural reform agenda” being led by Gordhan, he said, adding that such an outcome would result in a rebound in the value of the country’s assets. “If the finance minister is removed, that will lead to a certain cut.”

S&P Global Ratings and Fitch Ratings Ltd., which will both review their credit assessments in December, kept their assessments at one level above junk in June, and S&P kept its outlook at negative. The companies said the government must take decisive steps to bolster growth and end political turmoil.

Gordhan is leading joint efforts by the government, business and labor unions to re-ignite economic growth headed for its slowest expansion since the 2009 recession. The ANC, which has led South Africa since Nelson Mandela swept the party to power after the end of apartheid in 1994, will hold a conference in December 2017, when President Jacob Zuma is scheduled to step down as head of the party. He is set to leave office in 2019 after two terms.

‘No Case’

The charges relate to Gordhan approving the early retirement of a former colleague at the revenue service and then allowing him to be rehired on a contract basis during Gordhan’s first stint as finance minister. Gordhan was reappointed in December to the position he held from 2009 until 2014 after Zuma was forced to reconsider his decision to replace Nhlanhla Nene as finance minister with a little-known lawmaker.

Gordhan, 67, on Tuesday called the summons politically motivated and said “there is no case.” The minister has repeatedly clashed with Zuma, who had dismissed his request to fire the nation’s current tax chief, Tom Moyane, for insubordination and delayed his attempts to install a new board at the loss-making state airline. The president reaffirmed his support for Gordhan and urged the prosecutor “and other institutions concerned to conduct the matter with the necessary dignity and respect.”

Gordhan Safe

The rand extended losses against the dollar on Wednesday, weakening 0.8 percent to 14.4827 by 12:47 p.m. in Johannesburg, the lowest level on a closing basis since Sept. 2 and the worst performer among 31 emerging market and major currencies. Yields on South African local-currency bonds due December 2026 rose three basis points to 8.96 percent. Banking stocks fell the most in seven weeks on Tuesday.

The rand’s reaction on Tuesday was “less than could’ve been the case,” Coleman said in a text message response to questions. The currency, which fell to a record low of 16.8717 in in January is still far off its worst levels and “may have run more,” he said. “The market’s not thinking Pravin will be fired.”

The matter “has to go to the courts,” Coleman said, adding that Gordhan needs to be kept in the post because markets have confidence in him and he has support from the business community to drive the economy. “What we need in South Africa more than anything is growth and jobs,” he said.

++ (BBG) Zuma Violated South African Constitution, Top Court Rules

…Hips…

(BBG) A ruling by South Africa’s top court that President Jacob Zuma violated the constitution doesn’t mean he’s leaving office anytime soon. He can still count on his African National Congress’s parliamentary majority to shield him from impeachment or a no-confidence vote.

Backed by the majority in the ANC’s decision-making National Executive Committee and with his party holding a 62 percent majority in the National Assembly, Zuma, 73, retains plenty of support as he faces the biggest challenge of his seven years in office.

“President Zuma also benefits from continued control over the intelligence and security services, and enjoys crucial political support from rural traditional leaders and key party fundraisers,” said Robert Besseling, the executive director of risk advisers Exx Africa. “As long as Zuma retains such support, he is unlikely to face a significant challenge to his presidency.”

The Constitutional Court ruling was the latest setback Zuma has faced since his decision in December to fire his respected finance minister, Nhlanhla Nene, sparked a sell-off in the rand and government bonds. Since then, senior ANC officials have gone public with charges that the Guptas, a wealthy Indian family who are friends with the president and in business with his son, offered them cabinet posts in exchange for business concessions. His position may weaken further if the main opposition parties, the Democratic Alliance and the Economic Freedom Fighters, take control of major cities, including Pretoria and Johannesburg, in municipal elections due after May.

The controversies have undermined an administration already facing an economy that’s set to grow at the slowest pace since the 2009 recession and a possible credit-rating downgrade. Standard & Poor’s has a negative outlook on its BBB- rating, one level above junk. Moody’s Investors Service rates South Africa’s debt one level higher. The rand strengthened 1.4 percent against the dollar to 14.7334 as of 3:24 p.m. in Johannesburg. Yields on rand-denominated government bonds due December 2026 fell 5 basis points to 9.11 percent, the lowest in almost three weeks.

Strong Support

“The only thing that will lead to Zuma stepping down is if his supporters turn against him,” Bonita Meyersfeld, a law professor who heads the University of Witwatersrand’s Centre for Applied Legal Studies, said by e-mail. “I don’t think that will happen.”

In Thursday’s ruling by the Constitutional Court, Chief Justice Mogoeng Mogoeng said Zuma “failed to uphold, defend and respect the constitution and the supreme law of the republic” because he failed to abide by graft ombudsman Thuli Madonsela’s 2014 findings that he should repay some of the 215.9 million rand ($14.6 million) spent on his private home.

Zuma argued that he didn’t need to pay because he didn’t order the renovations that included a swimming pool and a chicken run at his home at Nkandla in the eastern KwaZulu-Natal Province. The president backtracked when the case came before the Constitutional Court, and his lawyers said he accepted Madonsela’s recommendations had to be implemented.

Special Investigations

The amount he must pay will be set by the Treasury, headed by Finance Minister Pravin Gordhan. He’s been engaged in a dispute with Zuma since the president refused to bow to his demand to fire tax chief Tom Moyane and backed a probe into a special investigations unit set up at the revenue service when Gordhan led it.

Zuma appointed Gordhan in December four days after his decision to replace Nene with a relatively unknown lawmaker sent the markets into a downward spiral.

The court ruling will strengthen Gordhan’s hand, said Dirk Kotze, a politics professor at the University of South Africa in Pretoria.

“Maybe this is one of the reasons why Zuma wanted to have a more sympathetic person as minister,” Kotze said. “There is almost no scope for President Zuma to justify his actions of the past.”

In its unanimous ruling, the court also found that the National Assembly violated the constitution for failing to hold the president to account and instructed Zuma to reprimand his police and public works ministers, who cleared him of any wrongdoing.

Constitutional Guardian

The ANC said it respected the ruling, calling the court “the guardian of the constitution,” while the government said Zuma was considering the judgment.

Zuma, a former intelligence operative who’s led the ANC since December 2007, has weathered a series of scandals over his political career. The former head of the ANC’s intelligence wing, he took office in May 2009 just weeks after prosecutors dismissed graft charges against him.

“This ruling has far-reaching political implications for the ruling African National Congress, especially in parliament,” Susan Booysen, a politics professor at the University of the Witwatersrand in Johannesburg, said by phone. “No longer does that party rule apply ‘to protect your president at any cost,’ but they actually have to scrutinize his conduct with regard to the prescriptions of the constitution.”

++(FT) Martin Wolf: How South Africa can escape the ‘Belindia’ trap

(FT) The legacy of injustice has shaped the country. Now it needs growth, of the right kind.

James Ferguson illustration - South Africa superhighway©James Ferguson

L

ast week, I visited South Africa for the first time in 15 years. In 2000, when euphoria over the transition to democracy gripped the world’s imagination, I was concerned that the economic challenges would prove overwhelming. Only brave, skilful and honest leadership could deliver a successful future. Inevitably, it has fallen short of these requirements. A downward spiral of populism and declining performance looms.

Edmar Bacha, a Brazilian economist, applied the label “Belindia” to his own country in the 1970s. Belindia combines Belgium, a small and rich modern country, with India, a large and poor one. Apartheid South Africa was even more Belindia than Brazil: a small, white rich country within a large, black, poor one. Whites lived even better than in Belgium, since they could hire cheap servants from their own India. South Africa was the second most unequal economy in the world, after Brazil. But the racial injustices that drove this inequality were vastly more poisonous.

This legacy of injustice has duly shaped post-apartheid South Africa.

Members of groups previously excluded from South Africa’s Belgium promptly entered it. This reduced inequality between whites and blacks, while increasing it among blacks. Yet today, pre-tax inequality is as high as 20 years ago. It is also the world’s highest. The inhabitants of its Belgium are also taxed more heavily, in order to transfer income and resources to those in its India. Public spending has doubled over the last decade in real terms, with particularly large rises in education, health and social protection. Access to electricity, water and sanitation has much improved. Despite the Aids disaster, life expectancy has risen to close to 60 and infant mortality has fallen sharply.

These choices were both inevitable and right. But neither insertion of a favoured few into the modern economy nor the transfer of resource to the rest can solve the country’s problems. Worse, it cannot even continue on its present path. The potential rate of economic growth is down to 2 per cent. There is a structural fiscal deficit of close to 4 per cent of gross domestic product, while government debt has risen from 22 per cent of GDP in 2008-09 to 44 per cent this year. At 33 per cent of GDP, government spending is high for a middle-income country. (See charts.)

Within the bounds of prudence, the largely zero-sum redistributive policies of the early democratic period are exhausted. So what are the options now? There would seem to be three.

First, the country could seek to stabilise the unsatisfactory status quo. This would mean managing the political fallout of a slow-growing and unequal economy blighted by mass unemployment and racial inequities. Worse, groups with the most votes would have the worst deal. This cannot be workable.

Second, politics could take an evermore populist turn, as politicians make promises of a better life to the discontented at the expense of the still contented. But this would make policy increasingly negative-sum: losses imposed on the successful would exceed gains for the less so by an ever-rising margin. Zimbabwe has demonstrated the folly of such an approach. But political entrepreneurs will choose it. Julius Malema of the opposition Economic Freedom Fighters is already doing so. The government will meet the threat by raising its own bids.

The third approach would be to adopt policies for faster, employment-generating growth. Harvard’s Ricardo Hausmann notes powerfully that “if South Africa had a labour force employment ratio similar to Latin America, employment in South Africa would be higher by 66 per cent”. This shows how far South Africa is falling short of what is needed. But faster growth of today’s modern economy, even if feasible, would never generate the jobs the country needs.

Fifteen years ago, I argued that the least bad option would be to allow the Indian parts of the country to develop under appropriate prices (including low wages). To accelerate growth there, the government would need to focus investment and subsidies upon it. One possibility might be to turn parts of the country into free economic zones. In essence, South Africa would do what China did under Deng Xiaoping: build a new economy around the old one.

The question, however, is whether it is still possible for politics to shift from an increasingly negative-sum orientation to a positive-sum one. The gains from growth must go to the disadvantaged. That is evident. But for that to work, there must be not only more growth, but also the right kind of growth.

The present difficulties of the economy, notably the collapse of the rand (down more than a fifth in real terms since 2010) are even an opportunity. This should improve the profitability of production for exports (including of tourism services). It would be wise for South Africa to follow other countries and intervene in foreign currency markets, if necessary, to keep the exchange rate competitive. Fiscal policy should be used in support of such a strategy.

These are, however, just details. The fundamental point is that if the country does not shift to a path of faster, employment-generating growth, the populist disaster seems increasingly inevitable. It may be too late to make the needed switch, particularly with President Jacob Zuma at the helm. But the stagnation and high unemployment of today are a politically unsustainable combination. Change will come. Let it be in the right direction.How-South-Africa-can-escape-the-‘Belindia’-trap-FT