Zuma U-turn sparks rand rebound
CHANGE OF HEART RAISES QUESTIONS ABOUT PRESIDENT’S STANDING WITHIN THE AFRICAN NATIONAL CONGRESS
Currency claws its way back from the depths after South Africa president reappoints Pravin Gordhan as finance minister — the nation’s second in 4 days
South African President Jacob Zuma named his second finance minister in four days after criticism from business groups and his own party, sparking a rebound in the rand and bonds.
Zuma reappointed Pravin Gordhan following market turmoil that sent the rand to record lows and bond yields to the highest in seven years.
The president provoked outrage and an investor exodus on December 9, when he fired Nhlanhla Nene, who had held the post for about 18 months, and replaced him with a littleknown lawmaker, David van Rooyen.
On Sunday, Zuma said “after receiving many representations to reconsider my decision.” The rand jumped the most since 2008, while bond yields fell for the first time since November 24.
The change of heart raises questions about Zuma’s standing within the African National Congress. Gordhan, 66, was finance minister from 2009 to May 2014, when he was moved to the cooperative governance ministry and replaced by Nene, who was then his deputy. Gordhan steered the economy through the first recession in 17 years, while fending off pressure from labour unions to increase spending.
“It may well have been the case that an unprecedented amount of criticism from within the ANC, as well as the gravity of the financial market sell-off, forced a rethink from President Zuma,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said by email on Sunday. “Markets will welcome this news, with a strong likelihood that South African assets will rally. However, further reassurances will likely be needed for any deeper, sustained rally in South African markets.”
The shock
appointment
of Van Rooyen followed less than a week after Fitch Ratings Ltd. downgraded the country’s debt to BBB-, the lowest investmentgrade level, and Standard and Poor’s lowered its outlook to negative, putting Africa’s mostindustrialised nation on course for junk status. Van Rooyen will now head the cooperative governance ministry, under which local governments fall.
Gordhan will ensure “adherence to the set expenditure ceiling while maintaining a stable trajectory of our debt portfolio, as set out in the February 2015 budget,” Zuma said in a statement. There is no swearing-in ceremony planned since he is already a minister and is changing portfolios, Bongani Majola, Zuma’s spokesman, said by phone.
The rand strengthened the most since October 2008 against the dollar, and was up 4.7 per cent at 15.1491 at 8.23am in Johannesburg. The yield on randdenominated government bonds due in December 2026 dropped 105 basis points to 9.34 per cent. The city’s stock market had posted its worst week in a year, with 170 billion rand (Dh41.39 billion or $10.7 billion) wiped off the value of equities in two days after Nene’s firing, according to exchange operator, JSE Ltd.
“This is positive in the sense it shows Zuma’s power is more constrained than his actions last week suggested,” Peter Attard Montalto, an analyst at Nomura International Plc, said by text message on Sunday. “But it is also very damaging to him and one must increase the probability that he is recalled now.”
Zuma, 73, initially gave no reason for removing Nene. The Minister in the Presidency, Jeff Radebe, said other cabinet members weren’t informed of the president’s plans. After widespread criticism, Zuma announced on December 11 that Nene would be nominated as the head of the African regional centre of the Brics New Development Bank.
SENTIMENT
Markets will welcome this news, with a strong likelihood that South African assets will rally. However, further reassurances will likely be needed for any deeper, sustained rally in South African markets.”
Razia Khan | Head of Africa economic research at Standard Chartered in London