LONDON, July 15 (Reuters Breakingviews) – South Africa is running out of its usual social patch. The normal response of the ruling African National Congress to the rampaging mob is to smash a few heads and then apply government money to the wounds. The unprecedented scale of last week’s unrest and Pretoria’s growing mountain of debt preclude such an outcome.
Ironically, the law breaking and looting, which resulted in the death of at least 70 people, came from one of the most beautiful hours in the legal system. Jacob Zuma’s arrest for contempt by the Constitutional Court signaled that no one, not even a former president, was above the law. However, getting this through is tough on looters who are either too destitute or desperate to take care of it – unemployment hit a record 32.6% this year. Others believe that they are merely following the guidance of a habitually kleptocratic state.
The deployment of President Cyril Ramaphosa troops – the mind-boggling part of the ANC crisis playbook – was intended to restore some semblance of order. But the damage looks serious. Durban, the continent’s largest port, suffered severe disruptions, as did the huge Richards Bay coal export terminal and the national road and rail network. The largest oil refinery in the country had to close as well as numerous Covid-19 vaccination centers. All of this helps an economy that will grow only 3.3% this year, a relatively subdued recovery after falling 7.2% last year.
In 2016, the government defused student unrest by increasing university funding by 11%. A similar answer now looks more difficult. The pandemic and economic stagnation under Zuma mean debt is 80% of GDP, up from just 53% three years ago. The government hopes it will peak at 89% in 2026, but could miss it if the unrest drags on or investment subsides. Even before the pandemic, the International Monetary Fund assumed that borrowing was on an unsustainable path. On top of that, bond investors get nervous, especially when the Federal Reserve begins to tighten US monetary policy. Returns over 9% on debt due in 2030 are no exception – they’re on the up.
Higher interest rates also limit Ramaphosa’s scope for budgetary adjustments to ease public anger. The Treasury Department expects debt servicing costs to rise 45% over the next three years to consume 16% of government spending. In the same period, the health budget will be flattened and social spending will fall by a fifth. This week’s riots could be the first glimpse into a dark future.
consequences @edwardcropley on twitter
– Rioters ransacked shops and offices in South Africa on July 14, defying government demands for silence after a week of violence in which at least 70 people were killed.
– The worst unrest in years, initially sparked by the arrest of former President Jacob Zuma for disobeying the court, forced the closure of the country’s largest oil refinery and disrupted its Covid-19 vaccination program.
– President Cyril Ramaphosa sent the army to support the fighting police. He also warned of a possible food shortage.
The rand lost 4% from July 12 to July 14, hitting 14.79 against the dollar, its lowest level in more than three months. Public debt has also come under pressure, as the benchmark bond 2030 yield rose 15 basis points to 9.05% on July 14.
Arrangement by George Hay and Oliver Taslic
Reuters Breakingviews is the world’s leading source for agenda setting financial information. As a Reuters financial commentary brand, we analyze the great business and economic stories that circulate around the world every day. A global team of around 30 correspondents in New York, London, Hong Kong and other major cities provide expert analysis in real time.
Register for a free trial version of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.