Rand crashes after Zuma fires Nene
THE rand crashed through the R15/$ level on Wednesday night after President Jacob Zuma fired Finance Minister Nhlanhla Nene and installed a relative unknown, David van Rooyen in the key portfolio.
Mr Zuma’s second late-night Cabinet shuffle in three months sent shock waves through the political system and among investors and the reaction was mostly negative.
The rand dived to a record R15.3857/$ after the news.
African National Congress (ANC) insiders said Mr van Rooyen was not well known even to them.
The party said it “noted” the decision, indicating it was not part of the reshuffle.
Nic Borain, political analyst at BNP Paribas said the axing of Mr Nene will be interpreted in financial markets as the Presidents response to Mr Nene attempting to hold the line on fiscal discipline, in particular refusing to give in to demands made by South African Airways (SAA) chairwoman Dudu Myeni, or on Mr Zuma’s “preposterous pet nuclear project”.
“The reaction will be swift and harsh. For some time, financial markets have been concerned about the build-up of pressure on Mr Nene, who is widely considered to have done an exceptional job in difficult circumstances. “This is a shock, coming so close to the recent downgrades of our debt. This will be interpreted in the worst possible light by markets.”
Said Laurie Dippenaar founder and chairman of FirstRand, SA’s largest bank by market cap and earnings: “I think it’s a surprise. The business community believed Mr Nene was doing a credible job as minister of finance in difficult circumstances. One of the immediate consequences will be the view of the ratings agencies on the move. I will be surprised if the view is favourable.”
Arthur Kamp, investment economist at Sanlam Investment Management, said the fact that Mr van Rooyen was unknown in the market would create uncertainty. It was important now for Mr Zuma to outline his motivations for the move if markets were to be assured.
“Mr Nene was a good finance minister and had a strong track record in the Treasury. To introduce an unknown person now implies uncertainty for the investment community. The finance minister is going to be under enormous pressure come the February budget, given the very weak state of the economy and the downturn, which we can expect to last for two to three years.”
Barclays Africa CEO Maria Ramos said Mr Nene had done an “extraordinary job in the most difficult of circumstances and he has been hugely courageous”.
“In the current challenging economic environment, the decision to change a successful minister of finance is difficult to understand,” she said
Nedbank CEO Mike Brown, said: “It’s going to be a surprise to the markets.”
The Black Business Council (BBC) vice-president Sandile Zungu said it “would not have anticipated the removal of Mr Nene, especially not at this time.
“The BBC accepts the prerogative of the president to decide on the composition of his executive. We hope his removal will have little or no negative bearing on SA’s ratings, an issue we shouldguard against.”
Treasury insiders said Mr Nene was taken aback by his removal. As late as Tuesday night he was confident his position was still secure in spite of the rumours that had been doing the rounds over the past few days.
While regarded as competent on some matters of finance, Mr van Rooyen has been an unobtrusive member of Parliament’s finance committee and has at all times been careful not to tread on the ANC’s toes.
He has been underwhelming.
The reshuffle comes as SA is under intense scrutiny by ratings agencies — as the country appears destined for a downgrade of its sovereign rating to junk status in the next year or so — a step that would cause more economic and political turmoil.
Poor economic performance was one of the main reasons Fitch Ratings and Standard & Poor’s last week downgraded SA’s rating and outlook.
In a statement on Wednesday night, Mr Zuma said: “I have decided to remove Mr Nhlanhla Nene as minister of finance, ahead of his deployment to another strategic position.” Mr Zuma did not offer reasons. The “strategic position” was believed to be a reference to a move to the Brics bank.
This is the first time that someone so junior has been given what is arguably the most important ministerial post.
Mr Zuma said: “Mr Nene has done well since his appointment as minister of finance during a difficult economic climate.”
He said Mr Nene “enjoys a lot of respect in the sector locally and abroad, having also served as a deputy minister of finance previously”. His shafting comes as the government is pushing for a “nuclear deal” that could cost trillions of rand, even though the government revenue is dwindling and public debt spiralling.
The Treasury is believed to be one of the few entities that have raised questions about the affordability of such a programme. Mr Nene has also reined in Ms Myeni over the airline’s plans to acquire new planes in a lease deal.
Mr Nene has enjoyed the support of the markets, with ratings agencies also noting the difficult, but commendable fiscal consolidation path he has taken the Treasury through.
Mr Nene became finance minister last year, replacing Pravin Gordhan, who was moved to the co-operative governance and traditional affairs portfolio. He was Mr Gordhan’s deputy for five years.
Mr Van Rooyen was former mayor of Merafong Municipality and a former North West provincial chairman of the South African Local Government Association.