Rand falls to record low after sacking
South Africa economy slides on uncertainty
CAPE TOWN: The rand fell for a sixth day in the longest streak of losses since November 2013 after South African President Jacob Zuma fired Finance Minister Nhlanhla Nene and replaced him with a little-known lawmaker.
The currency dropped by as much as 5.2% to an all-time low of 15.3857 per dollar before paring losses in overnight trading.
Mr Nene was removed from his position after 19 months and ahead of his “deployment to another strategic position”, Mr Zuma said without providing more detail.
He was replaced by David Van Rooyen, who serves as a parliamentary member on committees for finance and economic transformation.
“This is a big negative, especially because Nene was seen as someone who was moving in the right direction,” said Ilke van Zyl, an economist at FirstRand investment banking unit. “Because we don’t know the new man and we all have to get to know him now, and we are already at a very sensitive point in the projections of our fiscal position, we think this is a negative.”
The cabinet shake-up, the sixth since Mr Zuma took office in May 2009, creates more uncertainty for an economy struggling to cope with plunging metal prices, creditrating downgrades and power constraints.
On Dec 4, Fitch Ratings cut South Africa’s credit rating to BBB-, one level above non-investment grade, while Standard and Poor’s lowered the outlook on its equivalent rating to negative, bringing the nation a step closer to junk status.
“This is monumentally bad timing after a downgrade,” said Peter Attard Montalto, an economist at Nomura International. “This is very ratings negative and increases the risks of contingent liability shocks in the future. It is an erosion of a previously strong-standing institution.”
Mr Nene, 57, took over the finance ministry from Pravin Gordhan in May 2014 after previously serving as deputy finance minister. He has struggled to keep debt under control as falling commodity prices and electricity shortages curbed economic growth. In October, he cut the growth forecast for this year to 1.4%, well short of the 5% the government is targeting by 2019 to address a 25.5% unemployment rate.
Gross debt has surged from about 26% of gross domestic product before the 2009 recession to reach almost 50% this year. While Mr Nene has sought to contain spending in a bid to rein in a widening budget deficit, his efforts have been frustrated by the government agreeing to give workers above-inflation wage increases over three years.
“While the rating agencies are unlikely to downgrade on this news alone, as they will likely wait to see how the change affects fiscal policy, it might leave them with their fingers on the trigger,” Barclays Plc analysts wrote.
“The quick sell-off in the rand in the wake of the announcement indicates, in our view, that the markets are interpreting the cabinet reshuffle as a blow to the institutional credibility of the National Treasury.”
Mr Van Rooyen become involved in politics in the 1980s and joined the armed wing of the African National Congress during its struggle against white minority rule. He held several leadership positions in the party after it took power in the first all-race elections in 1994.
“The announcement comes as a shock,” said Steve Swart, a lawmaker for the opposition African Christian Democratic Party who sits on the finance committee.
Mr Van Rooyen is relatively knowledgeable on financial matters “but clearly he hasn’t got the experience that Minister Nene has had. The question is to what degree will he back the National Treasury and keep the government expenditure ceiling in place,” said Mr Swart.