-By Sunél Veldtman & Thiart van der Merwe
In a cabinet reshuffle that has been on the cards for some time, Zuma has finally pulled the trigger on Finance Minister, Pravin Gordhan and his deputy Mcebisi Jonas. He also changed 18 other positions. Late Thursday night the finance minister was replaced with Home Affairs minister, Melusi Gigaba. The Rand has plunged 7.5% since Monday, when Gordhan was recalled from an investor roadshow in London.
Gigaba rose from the ANC Youth League ranks being the longest standing youth league president from 1996 to 2004. He was later appointed as Publics Enterprise minister and then to Home Affairs. His term in office did not come without controversy. Under his watch members of the SAA board at the time walked out under respected chair Cheryl Carolus. At Home Affairs he was lambasted for the new rules imposed on tourists travelling with children that was said to cost the tourism industry dearly. Gigaba is also seen as a close ally to the Guptas, being one of only a few government officials to attend a Gupta family wedding in 2013. He also seemingly sided with the Guptas in the recent court battle with the Oppenheimers over a luxury airport terminal. Gigaba was also heavily criticized for attending Ahmed Kathrada’s funeral after his harsh words last year where he lashed out at disgruntled “so-called ANC stalwarts”.
It is the reason for the replacement of Gordhan and Jonas that is concerning. While other poor performing ministers were spared, these ministers were axed seemingly because they stand in the way of Zuma’s state capture project.
How will this affect the economy?
- It is likely that the ratings agencies will downgrade South Africa’s debt to junk status even before the next scheduled meetings. Pravin Gordhan and his team was highly respected and seen as the defender of South Africa’s relatively responsible fiscal management. Although analysts indicate that the downgrade is already anticipated, this would further hurt the Rand and send bond yields up in the short term. This will certainly bring volatility to the fore, specifically for the Rand and financial stocks on the JSE.
- One could certainly argue that this is a Gupta Captured Cabinet and that the Treasury is now in the hands of the presidency. It is almost certain to pave the way for the controversial nuclear project.
- The future of economic policy is now unknown. We do not know what Zuma’s radical economic transformation policy will entail. We also do not know if this government will stick to any of the targets set by Pravin’s team.
- The cabinet reshuffle introduces additional uncertainty. Investor confidence, already low, is likely to weaken at a time when economic growth is fragile.
- Since 1994, Treasury has been run predominantly by financial technicians. Many like Maria Ramos and Nhlanhla Nene came through the ranks at Treasury. The department is highly regarded even by international peers. The departure of Pravin Gordhan and his deputy from the department is likely to lead to the departure of skills.
What will it mean for our politics?
The reshuffle is certainly a big gamble for the wellbeing of the country, but also for the Zuma camp. With mounting pressure from the South African Communist Party, Business South Africa and possibly three of the six senior leaders of the ANC, it would seem that the reshuffle won’t be taken lightly. In the lead up to the National Conference, this would be the time for a potential presidential candidate such as Cyril Ramaphosa or even Zweli Mkhize to make a stand, distance themselves from the reshuffle, and garner some votes.
As was seen at Ahmed Kathrada’s funeral service on Wednesday, there is a backlash against this movement within the ANC. Could the firing of Gordhan be the Rubicon moment for change within the ANC? Opposition parties have already tabled a motion of no confidence. Political analysts suggest that a change would have to come from within the ANC, and that a recall now would split the party completely.
What does it mean for your portfolio?
Perversely, once the JSE recovers from the initial shock, the market can do well if Rand weakness persist since global companies now dominate it. Our clients’ portfolios have for some time now been positioned for increased political risk. We believe that any irrational behaviour at this time would cause unnecessary losses. Although history would not indicate future performance during the Nenegate saga, the Rand weakened to all-time lows only to recover days later.
In closing I leave you with a tweet from respected Professor Jonathan Jansen after Ahmed Kathrada’s funeral
“Show me another country where the Anglican Archbishop prays at a Muslim funeral; where a white man chairs the proceedings to remember a leader from a black liberation movement; where a sitting president of a developing country is told to step down in a letter from the deceased stalwart of his own party; where the widow of the black man being buried is a white woman who gave her life to the struggle for freedom; and where Christian, Muslim, Jewish, Hindu and other faiths come together in a broad swathe of South African humanity to remember a man who fought for all of us. Where on and off the stage no one racial or ethnic or religious group dominated the event. For a moment, just a moment, it felt good to hope again. ”