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New Minister of Finance announced, again

By Staff Writer

For the second time in a week, President Jacob Zuma has relocated the Minister of Finance to another portfolio and appointed a new minister to the position. Pravin Gordhan (who was previously the minister of finance) has been reappointed to the position. This followed the downfall of the Rand following the announcement last week that Nhlanhla Nene would be replaced by relatively unknown Member of Parliament David Van Rooyen.
 
The appointment of Gordhan has already seen the Rand improve after last week’s drop.
 
Reactions to the change
 
Peter Attard Montalto, a research analyst at Nomura, noted: “After the shock appointment for Van Rooyen on Wednesday night he didn't even have his feet under the desk and he is now off to be Minister of Cooperative Governance with Pravin Gordhan moving back to his old job as Minister of Finance. Our initial understanding is that there was such a sense of the country wide grief at the loss of Nene and gloom and pessimism from civil society, business, unions and others that mobilisation were increasingly made within the ANC, to ANC Secretary General Mantashe especially, which forced this change.”
 
In a statement released by the Democratic Alliance (DA), Mmusi Maimane Federal Leader and Parliamentary Leader of the DA, said: “[The] announcement by the Presidency that Pravin Gordhan and David van Rooyen have swapped cabinet positions is an admission that Jacob Zuma was indeed reckless and irrational to have fired Nhanhla Nene on Wednesday evening.
 
“It is common sense to have in Cabinet a proven finance minister who brings fiscal discipline to the government. And we trust Minister Gordhan will continue to hold the line of former Minister Nene in respect of SAA (South African Airways) and the nuclear build procurement deal.”
 
The markets react
 
“President Zuma has been playing Russian Roulette with our economy and future as a country over the past five days. Our currency has reached record lows, our banks have lost billions on the JSE (Johannesburg Stock Exchange) and the confidence of investors and ratings agencies has plummeted,” said Maimane.
 
However, John Loos, household and property sector strategist at First National Bank (FNB) Home Loans, noted that while the replacement of Nene by Van Rooyen last week caused panic among investors and corporates, which was then reflected in the market movements, this was not the only cause for the ‘economic slide’.
 
Additional economic data was released last week, and Loos revealed: “An “economic slide” has been occurring for some years, and negative economic news has become so frequent that little should surprise us. Annual economic growth is into its fourth year of broad slowdown (well, it appears that 2015 will be slower than 2014), and 2016 looks set to be worse, with recession risk high.”
 
Loos pointed out that economically, South Africa is most likely in the early stages of what is known as a ‘stagnation’ and ‘correction’ phase, which means that the country is in the fourth to eighth year of this stage. “The super-cycle stagnation phase may have a good number of years to run, and it has its roots long before last week, perhaps a few decades ago.”
 
Following the appointment of Gordhan as Finance Minister, Montalto said: “Markets should rally back very strongly but I would not expect a total retracement with a permanent loss of trust in leadership even if we are in a better place. Better levels will also give people an opportunity (and liquidity) to exit in a way that wasn't possible in the second half of last week. Unpredictability premia and the SAA and nuclear issues still there will demand some weakness remain.”
 
He added: “I think we also see a degree of permanent negative shock into growth and private sector investment - damage. The SARB (South African Reserve Bank) will likely have to still do a large hike in January after this and given (let’s not forget!) the Fed (United States Federal Reserve) is coming up this week. Maybe we are talking 50bp (basis points) now rather than 100bp as we were previously thinking about. The SARB, staying quiet, not intervening and not doing emergency meetings, comes out of this looking very good however.”
 
Maimane pointed out: “Whilst we welcome the appointment of Pravin Gordhan as a move to restore some confidence in South Africa’s economy, it appears that [the] announcement is merely a result of President Zuma having to bow to internal pressure. The criticism he has received both inside and outside the ANC shows that he is a President who has lost internal control of his party and who no longer enjoys public support.
 
“The cost of Jacob Zuma to our country has now reached its ceiling. Our country cannot continue to be led by a flip-flopping President who has complete disregard for the well-being of the country and its citizens,” stated Maimane.

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