Markets restless on Nene decision
• DA and EFF call on Ramaphosa to let finance minister go • Rand moves to within 2c of R15/$
SA’s financial markets were rattled as President Cyril Ramaphosa came under pressure from opposition parties to accept finance minister Nhlanhla Nene’s offer to quit over undisclosed meetings with the Gupta family.
Nervousness among investors pushed government bond yields to their highest level in 10 months, while the rand moved to within 2c of touching R15/$ for the first time in three weeks.
Already under pressure from a stronger dollar that has been boosted by the prospect of higher interest rates in the US, the rand was battered by the controversy engulfing Nene, a fortnight before he is due to present the medium-term budget policy statement that may go a long way in determining if SA can avert a credit downgrade that could lead to foreign investors pulling about R100bn from the local bond market.
“This event is likely to translate into volatility at best and declining asset prices across the board at worst,” said Ashley Dickinson, head of fixed-income dealing at Sasfin Securities. The rand had dropped 0.55% to R14.8771 by 6pm on Monday, taking its decline so far in October to 5%. After a strong September in which it gained 4%, the currency’s renewed weakness is a major setback for consumers, already burdened by record petrol prices.
An economy that slipped into a recession in the first half may also be hit further by an interestrate hike later in 2018 as the SA Reserve Bank seeks to ensure inflation stays within its 3%-6% target range. The yield on the benchmark R186 government bond maturing in 2026 rose to as high as 9.302%, the most since December 2017.
Nene, widely trusted by markets as a custodian of the economy and whose firing by Zuma in December 2015 cemented his reputation as being among ministers who resisted state capture, told the Zondo commission last week he had in fact met the Guptas a number of times between 2010 and 2014 when he was deputy minister and then minister, despite having earlier denied this.
The Gupta family, friends of former president Jacob Zuma
and business associates of his family members, have been at the centre of allegations of state-capture. They stand accused of using their association with the former president to exert control over vital state institutions, including the appointment of ministers, to divert public funds to their business interests.
The DA and the EFF have called on Ramaphosa to accept Nene’s offer to go. While Nene has won plaudits for refusing to sign off on a proposed nuclear deal with Russia that would have cost the equivalent of about 90% of the 2018 budget, he still has not disclosed what he discussed with the Guptas.
He also faces allegations that his son was involved in securing funding for a business deal from the Public Investment Corporation (PIC), while Nene as deputy minister was chairman of the PIC, which manages more than R2-trillion for government and other workers.
Moody’s Investors Service, the last major agency with an investment grade rating on SA’s debt, is due to announce the result of its latest review on Friday, while Treasury officials are set to make their way to annual meetings of the IMF and the World Bank Group in Bali this week, where they may be questioned on Nene’s position.
If Nene is removed, Business Day understands that candidates to replace him include Reserve Bank governor Lesetja Kganyago, Gauteng finance MEC Barbara Creecy — who would be the first woman to get the job — and co-operative governance & traditional affairs minister Zweli Mkhize, a former KwaZuluNatal premier, believed to have ambitions to run the country.
DA finance spokesperson David Maynier said Nene may have breached the executive code of ethics as a result of his son’s dealings with the PIC. The DA called on Ramaphosa to replace Nene before the medium-term budget is presented.
The EFF, which has been vocal about its opposition to Nene, said its leader, Julius Malema, wrote to Ramaphosa, calling on him to let Nene go.