In what came as a surprise announcement, President Jacob Zuma revealed on Wednesday 9 December 2015 that Minster of Finance Nhanhla Nene was to be replaced by a relatively unknown David van Rooyen.
In his speech, Zuma said: “I would like to announce changes to the Finance portfolio in Cabinet. I have decided to remove Mr Nhlanhla Nene as Minister of Finance, ahead of his deployment to another strategic position.”
Zuma added: “I have decided to appoint a Member of Parliament, Mr David Van Rooyen, as the new Minister of Finance. Mr Van Rooyen serves as a Whip of the Standing Committee on Finance and as Whip of the Economic Transformation Cluster.”
The change
The appointment of Van Rooyen has many questioning why the change has been made. Especially considering the statements made by Zuma during the announcement. However, the consensus among many is that the move is politically motivated.
“Mr Nene has done well since his appointment as Minister of Finance during a difficult economic climate. Mr Nene enjoys a lot of respect in the sector locally and abroad, having also served as a Deputy Minister of Finance previously,” stated Zuma.
In a statement released by the Democratic Alliance (DA), Mmusi Maimane, federal leader and parliamentary leader of the DA, said: “It is common knowledge that Nhanhla Nene sought to reign in excessive government spending and was causing too much of a blockage for President Zuma in respect of the nuclear procurement deal and SAA. President Zuma has made one thing very clear tonight: if you stand in my way as Finance Minister and seek to introduce fiscal prudence, you will find yourself redeployed and cast aside. A Zuma ANC government has no regard for sensible finance policy that puts South Africa first.”
Peter Attard Montalto, a research analyst at Nomura, revealed that in his opinion Nene was removed from his position as Finance Minister “on disagreements over nuclear affordability and shareholder oversight of SAA.”
Wichard Cilliers, director and chief dealer at TreasuryOne, agreed, stating that “the dispatching of Nene reeks of grotesque politicking and it’s hard not to draw an inference to his sacking, and his opposition to the cost of the nuclear deal and the instruction to the SAA chair, Dudu Myeni, to reinstate a deal with Airbus after a questionable business scheme was proposed. The appointment of David van Rooyen looks to be a political move to ensure these projects are financed and not questioned.”
Furthermore, Montalto added: “We view this as a serious erosion of the institution of the National Treasury that accelerates the credit and ratings negative story. Previous assumptions around contingent liability risks and shareholder oversight of parastatals as well as fiscal consolidation in the medium run must now be re-examined. As such, we view this as profoundly negative.”
The impact of the change
Cilliers noted: “The Rand has plummeted on the shock announcement of the capable Finance Minister Nhlanhla Nene being replaced by David van Rooyen, a complete outsider with no experience in Treasury. International markets reacted aggressively and displayed their disapproval as the Rand lost 80 cents against the Dollar, 90 cents against the Euro and R1.10 against the Pound.”
This follows a trying week for the economy where the Rand-Dollar exchange rate reached an all-time low, as well as downgrading of South Africa by two international credit ratings agencies, Fitch Ratings and Standard & Poor’s. Cilliers pointed out that South Africa and the Rand are in for a rough ride before things start to improve.
Montalto highlighted that the removal of Nene from the position of finance minister accelerates his view that South African is on the road to junk status. “End 2016 / early 2017 may now be the time when the two ratings agencies downgrade to junk. Ratings agencies may initially raise some concern regarding what has happened, but promise to get to know the new Minister before an actual rating action. Such an action would then happen into next year, maybe after the budget.”
Mantalto added: “We must watch to see what happens with the new Minister and where Nene is redeployed. But this will add to investor perceptions that – with poor timing here and an uncertain choice of new Minister – the ANC is increasingly overlooking and disregarding the views of the market and investors.
“Whilst investors have no say over policy, and there is the constitutional prerogative of the President to appoint whoever he wants (and that’s the way it should be), SA must realise that with a net international and local borrowing requirement, the consequences have to be lived with.”
The appointment of David van Rooyen
Zuma revealed that van Rooyen is a former Executive Mayor of Merafong Municipality and a former North West provincial chairperson of the South African Local Government Association.
However, the DA stated: “The appointment of David van Rooyen as Finance Minister provides no assurance that our economy is in safe hands. The fact that President Zuma waited until after last Friday’s rating assessments to make this decision shows that he knew this was a bad decision.”
“As the DA, we will subject Minister van Rooyen to close oversight as he begins his tenure. And we will intensify our efforts to bring change to South Africa. Change that brings strong leadership and a government that puts South Africa and its people first,” added Maimane.