Cautious welcome for Enoch
Market regards new finance minister as a ‘known quantity’
The rand spiked to R14.75/$ for just a brief moment on Thursday evening, after President Cyril Ramaphosa announced that Tito Mboweni had resigned as finance minister — and before he revealed that Enoch Godongwana was his replacement.
Godongwana, who has chaired the ANC’s economic transformation committee for a decade and has often met with foreign and local investors, is a known quantity in the market, economists said on Friday as the dust settled on Ramaphosa’s much-anticipated reshuffle.
His appointment is seen by many as a positive move in that he may be better than Mboweni at gaining ANC support for government initiatives, and he is seen as having pushed within the party for a greater investor-friendly policy approach.
However, he is less of a fiscal conservative than Mboweni and is likely to be more pliable, so there are big question marks in the market over whether he will be able to rein in government expenditure and stick to the path of debt stabilisation that Mboweni had outlined.
Questions are also being asked about whether Mboweni jumped or was pushed. He had long said publicly that he didn’t want the job, and Ramaphosa said on Thursday evening that he had acceded to Mboweni’s request to step down.
But Intellidex head of capital markets Peter Attard Montalto said in a note on Friday that Mboweni had been forced out by the SACP and Cosatu, with the president’s nod, while others speculated that Ramaphosa himself had been keen to see the difficult Mboweni go.
And though the 10 cabinet changes Ramaphosa has made, particularly those affecting the security cluster, have been welcomed in the market, some asked whether it was too little, too late — and whether Ramaphosa had eschewed the opportunity to put a more reform-minded executive in place.
Godongwana, a former trade unionist with a degree in economics, served in the Eastern Cape provincial government in the 1990s and as deputy minister of public enterprises and later economic development in the Jacob Zuma administration.
Before his appointment to the finance ministry he was chair of the Development Bank of SA and sat on a couple of corporate boards.
Though he was the subject of corruption allegations in the Eastern Cape and again in the national government, he emphasised in TV interviews this week that he had been cleared and that he would not have gained his board appointments had there been any suspicion of wrongdoing.
The questions in the market are more about his politics, and in particular whether he is likely to go along with a more expansionary fiscal policy stance than Mboweni would have been willing to accede to.
Markets have, however, taken reassurance from his recent op-ed piece in Business Day in which he argued that the government needed to create work opportunities for young people, not just dispense grants, arguing that without growth, social security programmes could not be sustained.
Standard Chartered economist Razia Khan said the rand, which fell back to R14.50 soon after the announcement of Godongwana’s appointment, had traded very calmly on Friday, with investors seeing him as a steady pair of hands who was not really going to change anything.
However, the medium-term budget would have to be “super credible”, she said. “As the long-standing head of ANC economic transformation, investors are already familiar with Godongwana,” Khan said.
“He is regarded as a centrist and will likely be seen as a safe pair of hands, representing some degree of continuity at the National Treasury. However, with key fiscal decisionmaking likely to come under the spotlight at November’s medium-term budget policy statement, markets, still nervous about SA’s ultimate public debt outlook, will closely scrutinise Godongwana’s policy choices," she said.
But Attard Montalto said Cosatu and the SACP had used the opportunity of the reshuffle to “extract key scalps”, with Mboweni and former public service & administration minister Senzo Mchunu removed under pressure from the alliance partners because of the public sector wage bill issue and their perceived “austerity”.
He said Godongwana was a complex character. “We see a strategic player but ulti
The simplistic ‘investor friendly’ view is not quite accurate. He was the best available who half-wanted the job Peter Attard Montalto Head of capital markets, Intellidex
mately our wider forecast of fiscal underperformance in the medium run remains.
“Markets have a complex view of Godongwana too – the simplistic ‘investor friendly’ view is not quite accurate. He was the best choice available who half-wanted the job.”
Citi economist Gina Schoeman said the change from Mboweni to Godongwana was “neutral to slightly positive given his strong support for Ramaphosa and many years pushing reform-friendly ANC policies [and watering down Zuma policies]. It is potentially a politically stronger choice, but Mboweni’s appeal was certainly his ‘disruptor factor’,” Schoeman said.
Market reaction would likely be somewhat anxious, with some impact in terms of a steeper premium on government bonds, she said. “SA still needs a minister capable of pushing for aggressive reforms.”
Fitch Ratings was unexpectedly positive about the appointment, with Bloomberg quoting Fitch analyst Jan Friederich as saying that Godongwana’s heavyweight status in the ruling party could help to build alliances for the fiscal policies championed by the Treasury, and that the change was unlikely to have an immediate impact on fiscal plans.
“Godongwana clearly understands the risks from the rise in government debt and is unlikely to do anything that would jeopardise the credibility of the Reserve Bank,” Friederich told the news service.
“The challenges to South Africa’s public finances stem from larger forces, the very low-trend growth and the sociopolitical pressures due to very high inequality,” he added.
Business organisations welcomed the new ministers, but sounded cautionary notes.
Business Unity SA (Busa) CEO Cas Coovadia said a review of the cabinet was necessary, given the state of the economy and a lack of direction in the critical interventions needed for investment and growth, as well as the recent attempt to destabilise the state.
Busa welcomed some of the president’s ministerial changes but said it would have wanted to see the size of the cabinet reduced and that there was room for greater efficiencies. The critical issue of implementation remained, Coovadia said.
The Small Business Institute said it looked forward to working with the new small business minister, Stella Ndabeni-Abrahams, to ensure the SME sector could play its rightful role in the economy.