The Finance Minister Shuffle
In the past week, news and social media have been rife with headlines relating to the
reshuffling of the Minister of Finance within parliament and the effect it has had on the
South African economy. Many questions are being raised about what happened in the
short time that Nhlanhla Nene held the title, and what re-appointed Minister of Finance,
Pravin Gordhan, plans do to about the current crises. Newsclip Media Monitoring analysed
the media coverage pertaining to the saga in hopes of answering some of these questions.
Analysis by Newsclip
Written and compiled by Nadine Schlebusch
The Finance Minister shuffle
The South African economy has been plagued with negativity since the start of December. On Friday, 4 December
2015, credit ratings agency Fitch downgraded South Africa to one notch above junk status. Leaving the economy
holding on by the skin of its teeth to investment status. Five days later, the President decided to axe the finance
minister. Nhlanhla Nene was unceremoniously redeployed and the unknown, former small-town mayor with little
experience, David van Rooyen was appointed. By Sunday, 13 December 2015, van Rooyen was removed and ex-finance
minister Pravin Gordhan was reinstated. The consequences of these actions have had far-reaching, and severe effects.
Economic impact
Following the shock announcement of the sacking of Finance Minister Nhlanhla Nene, the Rand plunged more than
5% overnight to a record low of 15.3460. Investors immediately responded by fleeing, dropping the country’s
sovereign dollar bonds. Yields on government bonds also rose rapidly. On Thursday, the day directly following the
announcement, the JSE Top-40 index ended 0.66% lower. On the stock market, trade was prolific with 615 million
shared changing hands, significantly more than for the same period last year, which saw 183 million shares traded. 1
After dropping to an all-time low of 16.054 to the dollar, two days after the appointment of Van Rooyen, the rand
recovered to 15.107 on Monday, 14 December.
THE RISING DOLLAR/RAND RATE
Christa Eybers | A look at movement of the rand against the dollar in the 48 hours following the removal of Finance
Minister Nhlanhla Nene by President Jacob Zuma.2
Banking index and Barclays
An industry that was severely impacted by the finance minister shuffle was banking. The banking index saw an
immediate downturn, shedding more than 13%. FirstRand, Africa’s largest bank in terms of market value, fell by
14.84%, Standard Bank Group, the biggest in terms of assets, was marked down by 13.54%. 3 The index lost a total of
19% before recovering by 15% on Monday, 14 December 2015. When the decision to remove Nhlanhla Nene became
1
Reuters. Rand hits record low after Nene booted. Iol.com, 10 December 2015.
Infographic source: EWN http://ewn.co.za/Media/2015/12/11/The-rising-dollar-vs-rand-rate
3
Renee Bonorchis and Janice Kew. Banks fall to crisis-era low on shock Nene firing. Moneyweb.co.za, 10 December 2015.
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public knowledge, South Africa’s biggest banks intervened by urgently meeting with ANC officials to discuss the impact
of the decision and how it can be rectified.4
Despite the recovery, and arguably one of the biggest consequences of the firing of ex-finance minister Nene, is the
announcement by Barclays UK of its possible intention to sell its R73bn share in Absa. The rebranding of Absa was
halted by Barclays a few weeks ago, but, after the finance minister debacle last week, it has started to actively look at
getting rid of its South African subsidiary.
Due to the devaluation of the rand, the group’s profits have taken a dive, returns on equity was at 9.3% last year, well
below the 11% target. Although analysts say that Barclays is unlikely to completely pull out of the continent, it will
most likely sell its retail banking operations5. With South Africa’s banks being downgraded along with the country at
the beginning of December 2015, confidence in the profitability of Absa could have been affected.
Questions for Gordhan
Much speculation has been made on the reasons for Nene’s dismissal. The Treasury rejected proposed changes to the
deal between SAA and aircraft manufacturer Airbus. There were also delays in deciding on the financing of South
Africa’s nuclear programme. These two factors, according to Adrian Saville of Citadel, are possibly why Zuma decided
to dismiss Nene6. Daniel Silke, director of Political Futures Consultancy, says that what remains to be seen of Gordhan’s
reappointment is whether excessive spending will continue, specifically the kind of spending like that on SAA. A big
question mark also hangs over whether the nuclear programme will go ahead.
After his reinstatement, Gordhan said SAA chairperson Dudu Myeni could expect a call from him within the next 24
hours. He warned that State-owned companies are not toys to be played with. Pravin Gordhan reiterated Nene’s
decision that SAA should enter into the swap transaction with Airbus.
On the nuclear programme, Gordhan reiterated that government would not be spending money that it does not have,
despite cabinet giving the go-ahead for the start of procurement processes. He did, however, add that although there
is no money for the programme in the current budget that does not mean there will not be money for it in future. He
also did not rule out tax increases as a possible way to fund the nuclear programme7.
Ex-new Finance Minister Pravin Gordhan also tried to reassure investors and citizens that he will work to regain market
trust and show ratings agencies that government is serious about managing its debt. The Treasury will continue with
the policy of fiscal consolidation, furthermore, the poor will be prioritised through social benefits8.
Rating agency response
Rating agency Fitch, however, said that the re-appointment of Pravin Gordhan does not remove uncertainty around
the government’s economic policy. Fitch has said that the February budget will provide clarity on government’s
commitment to prudence in the management of its finances. The agency has also said it is looking for clarity regarding
the proposed nuclear programme and SAA’s procurement plans.
Moody’s Investors Services, following the recent economic turbulence, changed their outlook on South Africa from
stable to negative, although they have not changed the country’s rating which remains on Baa2. Two reasons were
stated for the change in outlook – the increased probability of low growth due to challenges in mining and other
sectors, as well as the rising risk of fiscal slippages due to slow growth and political pressures. Moody’s also adjusted
it projected growth for the country to 1.4% in 2015 and 2016.
Investor confidence
According to Wayne McCurrie, Momentum Wealth, the firing of the finance minister is not the only reason for the
market’s volatility and the plunge in investor confidence, it was more likely the “final straw that broke the investors’
4
Franz Wild. How the banks hobbled Zuma. Citizen, 16 December 2015.
Martin Arnold and Andrew England. Nene firing aftershock – Barclays UK wants to sell R73bn SA subsidiary ABSA. Biznews.com,
16 December 2015.
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Adrian Saville, Citadel. Bleak 2016 for markets in wake of Nene’s removal. FANews.co.za, 11 December 2015.
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Antoinette Slabbert. We won’t spend what we don’t have – Gordhan. Moneyweb.co.za, 14 December 2015.
8
Amogeland Mbatha and Toni Parsons. We will manage our debt ceiling. Iol.co.za, 15 December 2015.
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camel’s back”. There has been a complete overreaction, McCurrie said, as things are looking bleaker now than what
they did at the height of the financial crisis nine years ago. A worst case scenario is a severe liquidity squeeze. About
10-20% of the money in South Africa, McCurrie explains, is from foreign investment. South Africa cannot afford to
make economic decisions that will affect the confidence of international investors as the country relies on offshore
stakeholders9.
JSE CEO Nicky Newton-King warns that if the currency continues to depreciate, it will “hurt companies, small
businesses, and individuals” as it will affect fuel prices and inflation. Furthermore, it will impact the ability of people
to “fund their health and housing requirements, their household budgets, their children’s education and their
entrepreneurial aspirations.”
9
Lesiba Mothata. ‘Gordhan alone can’t restore financial stability’ – economist. Finweek, 14 December 2015.
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