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South Africa’s latest political drama could split the ruling party

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         South Africa’s latest political drama could split the ruling party

WASHINGTON — Since South Africa’s respected finance minister and his deputy were fired on March 30, the country’s credit rating has been reduced to junk and the currency is down 10% from its 2017 high.

In announcing its ratings downgrade, S&P said the firings by President Jacob Zuma put growth and investment projections at risk and threaten political stability. The S&P downgrade, likely to be followed by Moody’s and Fitch, could cost South Africa $10 billion in higher borrowing costs and lost investment.

There are also concerns that the ruling party could eventually split.

With the exception of its top treasury and central bank officials, the Zuma government has been perceived as anti-business. South Africa’s economy, Africa’s largest after Nigeria, teeters near recession with GDP growing 0.5% in 2016. Unemployment exceeds 27%.

By firing Pravin Gordhan and his deputy, Mcebisi Jonas, Zuma opens the way to possible looting of public assets in the continent’s most advanced economy. Respected as competent and honest, Gordhan and Jonas for months resisted supply contracts by state-owned enterprises to firms controlled by shadowy entities associated with Zuma.

Gordhan now has been replaced by Zuma ally Malusi Gigaba, who had been minister of home affairs.

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In a farewell press conference, Jonas said the economy was being corrupted “by a diversion of state assets to particular interests.” That was seen as a reference to the three Gupta brothers, immigrants from India who are business partners with the president’s son.

“History is unfolding,” Jonas warned. “South Africa is at a crossroads.”

Gordhan said legitimate authority was being undermined by people who operated out of sight. Calling for disclosure of backroom dealings, he pleaded: “Democracy can only work if citizens are informed.”

This isn’t the first time that Zuma has ousted a finance minister and sought to bring the ministry under his personal control. In December 2015, Zuma dismissed Nhlanhla Nene after he refused to support Zuma’s request that state-owned South African Airways open a route to Sudan, whose president, Omar al-Bashir, is Zuma’s friend and is wanted by the International Criminal Court because of atrocities against the civilian population of Darfur. The finance minister oversees state-owned companies.

Nene was replaced him with a back bencher with little financial experience. A precipitous drop in the rand and demands from ruling-party officials and financiers forced Zuma to reverse course after only four days and bring in Gordhan, a fellow member of South Africa’s African National Congress who had been finance minister from 2009 to 2014.

Analysts say a similar scenario may be unfolding now as the rand

USDZAR, +0.3605%

  declined 7% in the past week. Opposition parties are introducing a no-confidence measure in parliament and the communists, who are allied with the ANC, are calling for Zuma’s resignation.

Read: Here’s how ‘yield tourists’ got burned by South Africa’s market rout

Gordhan and Jonas have pointed to Gupta corruption documented in the 355-page report prepared by former public protector Thuli Madonsela and released over Zuma and Gupta objections last November. Entitled “State of Capture,” Madonsela details how the Guptas in October 2015 offered Jonas a multimillion-dollar bribe to become finance minister in return for doing their bidding. Ajay Gupta allegedly told Jonas the brothers had already made 6 billion rand ($443 million) from dealings with the government, and wanted to make at least 2 billion rand more (about $147 million).

The Guptas deny that account. Facing legal challenges, they moved out of South Africa in April 2016 and established residence in Dubai.

The Guptas have a lucrative contract through one of their companies, Tegeta Exploration and Resources Pty. Ltd., to supply coal to Escom, the state-owned power monopoly. The mining firm is half-owned by Duduzane Zuma, the president’s son.

In addition, Gupta companies are seeking control of South African uranium mines that could supply the several nuclear power stations the government wants to have built by Russia. Details of offer, thought to be worth over $70 billion, haven’t been revealed.

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The ANC, the party of revered freedom fighter Nelson Mandela, remains by far South Africa’s dominant political grouping. It is credited with defeating apartheid and bringing about democracy in 1994. But under Zuma, who has been dogged by corruption charges since before he became head of the ANC and South Africa’s president in 2009, the party has lost support. In the 2014 parliamentary elections, its share of the vote declined to 62%. And in municipal elections last year, the ANC lost control of three major cities: Johannesburg, Pretoria and Port Elizabeth. Cape Town was already ruled by the opposition.

Zuma’s presidential term extends into 2019, but a party congress in December is expected choose a successor. His favored candidate is his ex-wife Nkosazana Dlamini-Zuma, a former minister and leader of the African Union.

Political analyst John Kane-Berman, a former head of the South African Institute of Race Relations, says Zuma has thrown down the gauntlet, convinced that he can overpower his opponents.

“He treats the critics in his party with the contempt with which he treats the Constitution, the law, ratings firms, investors, state-owned entities, taxpayers, the national currency, bond and equity markets, and pretty much everything else,” he wrote in an opinion piece published just after Gordhan’s dismissal. “The dismissal of Mr. Gordhan shows that he will not change.”

Zuma’s conduct and defiance of calls to resign could split the ANC, creating opportunities for the opposition in the 2019 elections.

Now read: Zimbabwe waits for change, and waits, and waits

Barry D. Wood is a frequent visitor to South Africa. His just published book is “Exploring New Europe, a Bicycle Journey.” Follow him on Twitter @EconBarry

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