Forgiven but not forgotten – Also known as the Zuma effect

There are permanent consequences of implementing bad policy. If you implement a policy that shocks the system negatively, and then say sorry and do a reversal, the negatives don’t just go away. They don’t go away because you have already shown your hand. You have already demonstrated that you are capable of implementing bad policy. And if you do it once, who is to say you won’t do it again.

A good example of this idea is the brouhaha with the rand after the president of South Africa fired finance minister Nene and appointed relative unknown, Van Rooyen. The markets roiled. The rand tanked. Zuma backtracked and appointed Pravin Gordhan, someone who the markets had confidence in. The rand recovered but not to the level is was before the fiasco. The markets had permanently priced in the extra risk that such a thing could happen.

Why am I telling you this story? Over the last 9 months the Buhari administration has shown a bit of its hand, specifically over the two big economic issues: the naira and fuel prices. The message is clear; they are not really for markets and prefer to “command and control”. And investors, both local and foreign, do not really like command and control economies. We have seen it with the naira, where even non-oil forex inflows appear to have dried up. We are seeing it with fuel distribution, where independent and major marketers are slowly washing their hands off the downstream oil industry. And we should see it with the economy too, once the investment numbers start to come out. It won’t be good.

But the real unfortunate part is, even if the administration backtracks, they have already shown their hand. And once you show your hand its very difficult to take it back. People don’t forget. Its going to be interesting to see how that deficit gets financed this year. Or where that $10bn a year FDI will come from.


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