South African president Jacob Zuma is facing a backlash from markets and opposition parties over an abrupt decision to sack his finance minister, a move that sent the rand to record lows against the US dollar.
Economists warned that the dismissal of Nhlanhla Nene sent a worrying signal about financial management in South Africa — the continent’s most industrialised economy and one of the most traded emerging markets.
The Treasury, along with the South African Reserve Bank, has long been regarded as one of the country’s most credible institutions, and economists warn its reputation will be damaged by the saga.
Mr Zuma announced the departure of Mr Nene — who had only been in the post since May 2014 — in a brief statement late on Wednesday.
South Africa’s rand weakened on Thursday by as much as 6.4 per cent to 15.5313 before recovering to stand 2.4 per cent weaker at 14.9423, according to Bloomberg data.
Mr Nene has been replaced by David Van Rooyen, an unknown ANC member of parliament.
A former member of the ANC armed wing, Mr Van Rooyen served as the whip of the parliamentary standing committee on finance and is a former mayor, but has not previously served in national government. He has a masters degree in finance from the University of London, according to the parliamentary website.
Peter Attard Montalto, an analyst at Nomura, said Mr Zuma’s decision represented a “serious erosion of the institution of the National Treasury that accelerates the credit and ratings negative story” for South Africa.
“This is the acceleration and intensification of the ANC (African National Congress) trying to move away from market considerations and market financing towards official and quasi-official financing,” Mr Montalto said.
Peter Worthington, at Barclays, said it sent a “worrying signal” to markets.
“The sudden removal of the high profile and respected Nene and his replacement with a relative unknown is likely to be seen as a worrying signal about the government’s commitment to fiscal discipline and generate further market volatility,” he said.
In his statement, Mr Zuma acknowledged that Mr Nene had a “lot of respect in the sector locally and abroad” and had “done well”. His only explanation for removing him was to say he would be redeployed to a “another strategic position” which was not named.
But analysts have linked the decision to Mr Nene’s apparent resistance to Mr Zuma’s controversial plans for a new nuclear plant, a project many say South Africa can ill-afford as it struggles with wide fiscal and current account deficits and anaemic growth.
Mr Nene has also recently locked horns with South African Airways, the loss- making national airline, in a bid to prevent it from rearranging a deal with Airbus on the leasing of aircraft. The chairwoman of SAA, Dudu Myeni, who sought to restructure the Airbus deal, is close to Mr Zuma.
Since Mr Zuma took office in 2009, his presidency has been marred by scandals amid concerns that corruption, cronyism and patronage have flourished under his watch.
“It is common knowledge that Nhlanhla Nene sought to rein in excessive government spending and was causing too much of a blockage for president Zuma in respect of the nuclear procurement deal and SA,” the Democratic Alliance, the main opposition, said.
“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.”
The dismissal of Mr Nene comes at a particularly sensitive time for South Africa as it battles to retain its investment status credit rating.
On Friday, Fitch downgraded South Africa’s credit rating to BBB-, one level above subinvestment grade, citing the poor state of the economy. Standard & Poor’s, which already had the country at BBB-, also cut its outlook from stable to negative, increasing the risk that the country could be downgraded to junk status.
The ailing economy is expected to grow at around 1.4 per cent this year, while unemployment and poverty are rife. The current account deficit — which is in large part financed by portfolio inflows — widened to 4.1 per cent of gross domestic product in the third quarter of the year.
Some market economists believe the rand — one of the most traded emerging market currencies — may come under increased pressure with any US interest rate rise in December. And in February, the Treasury delivers its budget. All eyes will be on whether the new minister continues to follow Mr Nene’s path of fiscal consolidation.
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