Gordhan move marks turning point for SA - business body
Cape Town - South Africa has turned a corner with the reappointment of Pravin Gordhan as Finance Minister, Business Leadership South Africa said in a statement on Monday.
"We unreservedly welcome the appointment of Finance Minister Gordhan and commit to working alongside him and relevant government departments to drive economic reform."
As avoidable and regrettable as the events of the past few days have been, said the business body, they showed the country's resilience in crisis and responsiveness under pressure.
"Business Leadership South Africa believes that, with Minister Pravin Gordhan's reappointment, we have decisively turned a corner," said the organisation.
It identified three actions as an urgent priority: the emphatic commitment to fiscal prudence and the creation of a positive investment climate; rectifying the governance and performance of key parastatals; and tackling corruption decisively.
The South African business community was stunned at President Jacob Zuma's shock dismissal of former finance minister Nhlanhla Nene last week. The move sent the markets on a downward spiral, with the rand plummeting to its lowest level in years.
On the edge of an abyss
Lesiba Mothata, chief economist at Investment Solutions, said it will be clear to Gordhan that "investors are voting with their feet on SA Inc assets and that the country is at the edge of an abyss".
Gordhan must "convince markets, rating agencies and investors of SA’s commitment to the expenditure ceiling introduced under Nene’s tenure and, more importantly, show he is committed to reviving growth and stabilising debt accumulation", said Mothata.
"The rout in bond markets warrants a swift move on interest rates. As seen in Europe, politicians need to make the correct decisions, however difficult, in the interest of the country," added Mothata.
Analysts and politicians believe Zuma was caught off-guard by the market reaction as well as the intense reaction from South Africans from all sectors, including from within his own party.
Commenting on Gordhan's reappointment, Brett Birkenstock of Overberg Asset Management told Fin24: "Short-term this SHOULD stabilise the rand but long-term it shows a government under immense pressure and a loss of control along with a leader who seems at odds with his own party."
Peter Attard Montalto, emerging markets economist at Nomura International, said: “Our initial understanding is that there was such a sense of the countrywide grief at the loss of Nene and gloom and pessimism from civil society, business, unions and others that mobilisation was increasingly made within the ANC, to ANC secretary general Mantashe especially, which forced this change.”
Montalto said Gordhan's reappointment was a market friendly, fiscally conservative and welcome move. However, Nene remains in the wilderness which Montalto believes is an indication that his firing was "real" and "personal" around SAA and the nuclear build programme, and that it is not an acceptable political option to bring him back.
Several analysts reckon this could be a sign that Zuma is nearing the end of his presidential reign. "In my opinion this is the beginning of the end for Zuma. He has bowed to pressure from within his own party and that surely cannot be good for him," said independent treasury specialist Adam Phillips of Umkhulu Consulting.
The market has reacted positively to Gordhan's reappointment. Bonds have rallied and the rand has firmed, gaining 4.8% to R15.1723 per dollar at 08:47 in Johannesburg on Monday after falling to an all-time low of 16.0543 on Friday.