When political risk becomes widespread popular protest, the risk of civil war is real for emerging countries with a troubled social history like South Africa. And it was the South African rand, one of the best emerging currencies of 2016, that paid the price, posting the worst week for over a year with -9,6%, while the loss since the inauguration of the current President is 40% on the US dollar.
The incumbent president Jacob Zuma, of Zulu ethnicity, has accumulated an endless series of scandals in the last four years: from the controversy over his sumptuous residence in Nkandla, which cost 20 million dollars (also sanctioned by the State Court), to the accusations of corruption and arms trafficking, passing through the recent cabinet reshuffle with which he torpedoed Finance Minister Gordhan, his Deputy and 7 other ministers and top executives of the Treasury Ministry's Monetary Policy Committee, in sharp contrast with his party. A move that jeopardized the country's fiscal and financial stability with an inconsistent replacement highly criticized by international analysts: we are the fourth finance minister in 15 months and Gordhan was recalled to his homeland and "fired" straight away in the middle of an Anglo-Saxon road show in the United Kingdom and the United States.
The ANC, African National Congress, is the party of the "father of the country" Nelson Mandela, the one that allowed the country to emerge peacefully from apartheid and segregationism and that after Mandela saw Thabo Mbeki, of the Xhosa ethnic group like Madiba, carry forward an important process of structural and social reforms for the so-called "Rainbow Country", afflicted by still deep social inequalities and by a strenuous fight against the spread of AIDS.
But with the end of his mandate and the advent of Zuma, the ANC party has never recovered and has dragged itself into an internal crisis that has eroded consensus after 23 years of unchallenged power, strengthened the opposition and now risks disintegration definitive. Since the victory of the ANC Congress in 2007, it was clear that Zuma's run for power would change the face of the political and programmatic management of the ANC.
Between the Xhosa ethnic group (mostly animist, pacifist and Christian) and the Zulu ethnic group dominant in the country (also animist but traditionally polygamous and with a military past that has allowed them to redeem themselves from a consideration of inferior citizenship in the past) the political game has taken on very different tones over the years and in some ways dramatic lately. Thus ancestral and ethnic questions that have never been dormant re-emerge in the political struggle.
Zuma is not a good President and has not done much for the country, which is afflicted by high levels of unemployment, officially at 27%, and by an evident economic crisis, with GDP still at 0,1% according to the IMF (the 0,3% in 2016) and inflation above 5%. His mandate will expire in 2019 but the consensus he enjoys has now dropped below 20%, halving in just over a year.
In opposition there are at least two other parties that dominate the scene compared to the ANC, which has dropped to around 25% in the polls. The first is the Democratic Alliance, led by Mmusi Maimanedomina and based in Cape Town, which dominates the polls in the main cities with approval ratings close to 40%. The second is the Party of Fighters for Economic Freedom, led by Julius Malema, who left the ANC, which now exceeds 10%. Both parties have asked for a vote of confidence in Parliament to close the Zuma era and go to new elections in advance of the end of the mandate
Among the rating houses, Moody's is expected to make a decision on a possible rating downgrade on April 7 due to the negative outlook, while Standard & Poor's and Fitch had already relegated South Africa to the lowest step of the investment grade, at BBB- , and one step away from the "junk" level, junk. Meanwhile, 10-year government bonds have seen yields climb close to 9% and the short-term end of the curve could worsen by more than one point when the markets reopen on April 3rd.
Thanks to this situation, the Russian ruble, which together with the rand was among the preferred currencies in emerging markets at the March closings, has taken off and is expected to further strengthen in currency carry trade strategies. In fact, even the Turkish lira, in view of the forthcoming constitutional referendum in mid-April, has once again fallen prey to volatility. Only the Asian currencies are resisting the winds of a political storm which in Africa and the Middle East do not configure promising scenarios for interesting returns on exchange rates.
In short, the rainbow has lost many of its colors and the international markets have already turned their backs on South Africa, confident that the country's history will hardly be able to repeat a transition for a return to democracy as painlessly as Mandela was able to do. The road to new elections is studded with a real risk of a worsening recession and very tough civil strife.
