As South Africa reels from the news of another Cabinet reshuffle overnight, the damage to business confidence and a renewed threat of a ratings downgrade should not be underestimated.

After a week of speculation, President Jacob Zuma on Thursday night made sweeping changes to his Cabinet, including the axing of Finance Minister Pravin Gordhan, who was replaced by Malusi Gibaba.

Proponents have expressed concern over the move, saying the country was just starting to get back on track this year after a difficult 2016 and this decision had left a wake of uncertainty and instability.

“What people are failing to immediately see is [that the] real cost is the damage to business confidence,” Econometrix director and chief economist Dr Azar Jammine said at a BMI Building Research Strategy Consulting Unit strategic forum, held in Woodmead, on Friday.

Business conditions have become increasingly challenging, with a surprise short-term switch of Finance Ministers in 2015 resulting in the loss of billions of rands and dealing a severe blow to the country’s economy, while the country staved off a looming downgrade to junk status in a sluggish economy and muted investor sentiment.

However, short-term positive trends had started to emerge this year, including the easing of the prolonged drought, dissipation of severe electricity constraints, relatively stable labour dynamics and fewer protests, improving business balance sheets and improving commodity prices.

Until Friday, the rand had also been improving against the dollar, and inflation remained stable, he said.

The latest political shenanigans had reignited the growing possibility of a sovereign ratings downgrade for South Africa.

“Junk status is a very real [possibility],” he warned.

Earlier this week, business associations raised a red flag over the resurfacing of ratings downgrade fears after Zuma cut short an international investor roadshow led by Gordhan

South Africa last year narrowly missed being downgraded to investment junk status, after global ratings agency Standard & Poor’s (S&P’s) retained South Africa’s sovereign credit rating at its current BBB- level – one notch above junk and the lowest investment grade rating.

The decision by S&P’s echoed that of Fitch, which affirmed South Africa's investment-grade credit rating at one notch above junk, but changed its outlook to negative from stable, and Moody’s, which currently rates South Africa two levels above junk.

At the time, the three ratings agencies warned of possible future downgrades on the back of the country’s slowing growth and continued political infighting.

Moody’s will be reviewing South Africa again next week; however, its rating of the country two notches above junk is not yet expected to have as much of an impact as a downgrade by S&P’s or Fitch will have.

“Gordhan was standing between [South Africa] and a downgrade,” said University of the North West political and policy specialist Theo Venter.

The factors that had staved off the initial looming downgrade included fiscal consolidation, improving State-owned enterprises and better economic growth, which were now at risk.

“In the next two to three months, we are going have a very hard time,” he said, adding that this could be further exacerbated by the muted economy, volatile rand, the impact of US politics and Brexit and the African National Congress’s succession plans.