Zuma Makes U-Turn on Finance Chief, Triggering Rand Rebound

Jacob Zuma
Jacob Zuma

South African President Jacob Zuma named his second finance minister in four days on Sunday, reappointing Pravin Gordhan following market turmoil that sent the rand to record lows and bond yields to the highest in seven years.
Zuma sparked outrage and an investor exodus on Dec. 9, when he fired Nhlanhla Nene, who had held the post for about 18 months, and replaced him with a little-known lawmaker, David van Rooyen. On Sunday, Zuma said “after receiving many representations to reconsider my decision” that Van Rooyen will instead head the cooperative governance ministry, under which local governments fall. The rand jumped the most since 2008.
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 labor 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 re-think from President Zuma,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said by e-mail 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 investment-grade level, and Standard and Poor’s lowered its outlook to negative, putting Africa’s most-industrialized nation on course for junk status.
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. He will be sworn in at 10 a.m. on Monday in the capital, Pretoria.
The rand jumped as much as 6.4 percent, the biggest intraday gain since October 2008. It was up 4.7 percent at 15.1885 per dollar as of 7am in Johannesburg. Johannesburg’s stock market had posted its worst week in a year, with 170 billion rand ($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 Dec. 11 that Nene would be nominated as the head of the African regional center of the Brics New Development Bank. He added that there was no obligation to tell anyone about his choices for the cabinet.
Fed Rate Increase
The president issued a series of statements after markets roiled following Nene’s ouster, from pledging fiscal prudence to denials of an affair with the chairwoman of South African Airways, the state-owned national carrier.
The market turmoil could not have come at a worse time for South Africa as investors brace for the first U.S. Federal Reserve interest rate increase in almost a decade and a potential exodus of capital from emerging markets. The Fed will announce its rates decision on Dec. 16. South Africa’s economic cluster in cabinet will meet on Tuesday to prepare for a special meeting on the economy on Dec. 18, the Presidency said.
“This is not about Gordhan or Van Rooyen or Nene, it’s about Zuma,” Dawie Roodt, chief economist at Pretoria-based Efficient Group Ltd., said by phone on Sunday. “I can’t see how Zuma can politically survive much longer under these circumstances.”