An international ratings agency has downgraded one of South Africa's credit ratings to junk for the first time since 2000, triggering a dive in the currency, the rand, and sparking calls from senior figures in the governing African National Congress for President Jacob Zuma to resign.
As the government faced its worst crisis in a decade, with sections of the ANC in revolt, some are asking whether Zuma can survive politically.
Why did South Africa's credit rating take a hit?
Zuma carried out a midnight Cabinet reshuffle last week, firing Finance Minister Pravin Gordhan and his deputy, who were seen by markets as steady hands, and appointing a close ally, Malusi Gigaba, as the new finance minister. Gigaba is former home affairs minister with no commerce or finance degree nor any experience in economic management.
The reshuffle sparked warnings from the outgoing finance team that the move could usher in the "looting" of state finances. The ratings agency S&P said it created uncertainty about the future policy direction of the government.
Based on that, S&P on Monday downgraded South Africa's credit rating on its debt that is denominated in foreign currency from BBB+ to BB- — otherwise known as sub-investment grade, or junk.
"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 agency said in a statement.
Explaining the reshuffle, Zuma last week said the government would work tirelessly for "radical economic transformation." More worrying to investors was his vow In February to push ahead with land seizures without compensation, overturning land tenure.
In his first news conference, Gigaba said the Treasury did not belong to big business, orthodox economists, international investors and other powerful vested interests.He promised to use government contracts to empower black South Africans.
Moody's ratings agency Tuesday placed South Africa on negative outlook, meaning a downgrade is under consideration, while Fitch cut South Africa's credit rating outlook to negative in November.
Business Leadership South Africa and other business organizations Tuesday blamed Zuma for the downgrade.
"President Zuma has done South Africa great harm, and should be held to account by all South Africans," the organization said in a statement.
Some people tweeted Tuesday that the poor don't care about the downgrade. But will it affect them?
When a country's credit rating is downgraded to junk status, it becomes unattractive to large investment funds, with some likely to sell off their South African bonds. It will cost the government more to borrow, meaning it has less to spend on government programs such as schools, the health system, programs to alleviate poverty, roads and housing.
The downgrade could see the sluggish economy slow almost to a standstill; the 27% unemployment rate could creep higher still, hurting South Africa's poorest people. And those with home loans would be hit by rising interest rates.
Gigaba told journalists at a news conference Tuesday that South Africa's economy was strong and the downgrade was mainly about political and policy uncertainties that he said would "be managed."
"I'm not saying it's easy to get out of a ratings downgrade, but we are going to manage the political uncertainties that have been highlighted by S&P and Moody's," he said.
How bad could it get?
S&P downgraded South Africa's foreign currency-denominated debt, which accounts for about 10% of the total. But it also foreshadowed a possible future downgrade of rand-denominated debt.
The credit ratings relate to the country's debt — or the government bonds it issues to raise money, some of it in foreign currency, and some in local currency. If ratings agencies downgrade the rand-denominated debt in coming months, the impact would be more sweeping and severe.
But the head of the Johannesburg stock exchange, Nicky Newton-King, called the S&P downgrade and Moody's move to place the country on negative review "a catastrophic moment" for South Africa.
After the end of apartheid in the early 1990s, South Africa's ratings climbed slowly to a peak in 2012, when they began to steadily decline.
It can take years for countries that are downgraded to junk status to clamber back to investment grade.
In 1999, Colombia's credit rating was downgraded to junk, and it took the country 12 years to claw its way back to investment grade status. On average, countries typically take some seven or eight years, according to analysts.
South Korea did better. In December 1997, South Korean bonds were downgraded to junk but the country saw its rating restored to investment status in January 1999, just over a year later.
However, South Africa is weighed down by poorly performing state-owned enterprises like South African Airways, which have required repeated massive bailouts to stay solvent.
In the case of South Korea, ratings agencies cited the government's decisive response to the downgrade. Analysts are skeptical that South Africa can repeat the feat.
Business Unity South Africa warned the downgrade could trigger a "negative spiral," with rising borrowing costs.
"With the cost of borrowing set to rise, and less capital being available as a result of the sovereign ratings downgrade by S&P, the country will find it increasingly difficult to service its debt and afford the necessary social development programs and services," said the organization's chief executive, Tanya Cohen.
President Zuma is facing mounting opposition. Could this be the end for him?
President Zuma has been criticized over the reshuffle by senior ANC figures including his deputy, Cyril Ramaphosa, and the party secretary-general, Gwede Mantashe. The ANC governs in an alliance with the South African Communist Party and the trade unions council, COSATU, both which have called on Zuma to resign, leaving him increasingly isolated.
Barney Mthombothi, analyst and former editor of South Africa's Financial Mail, said on Twitter that only Zuma's immediate dismissal would save South Africa. A prominent political analyst and columnist, Justice Malala, tweeted that his dismissal was "the only way to stop the downward spiral."
Facing open revolt in parts of the ANC, Zuma so far retains a grip on the party's National Executive Committee, the only party body which has the power to dismiss him.
South Africa's opposition is taking court action to try to overturn the reshuffle and is demanding that parliament meet to take a no-confidence vote on Zuma. It would be one of a succession of such votes, all which failed on party lines.
Analysts are doubtful that ANC lawmakers would vote with the opposition to topple Zuma, despite disquiet about him in sections of the party.
Mass public protest rallies are planned for Friday. There has been plenty of social media outrage over the downgrade and Cabinet reshuffle. But despite calls by the sacked finance minister, Gordhan, for the population to organize and resist, the country has not yet seen sustained popular protest rallies of the kind seen in the Arab Spring.
For Zuma, who faces 783 corruption charges relating to a $4.8-billion arms procurement deal in 1999, the stakes are high. He wants to defeat his opponents in the ANC in order to control who succeeds him as president, in a bid to avoid charges and possible jail after leaving office.
Ramaphosa is shaping up as one of the main contenders jostling to replace Zuma, but the president wants his ex-wife, Nkosazana Dlamini-Zuma, to succeed him, in order to protect himself and his family's sprawling business interests.