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Cape Town - President Jacob Zuma is trying to lay the foundation for removing Finance Minister Pravin Gordhan, without the shock of Nenegate.
This is according to Peter Attard Montalto, head of emerging Europe, Middle East and Africa economics at Nomura.
In a televised interview with Bloomberg, Montalto discussed the potential impact of the removal of Gordhan.
"Well, I think the big problem about this story for the market is being that Zuma is trying to construct this sort of perfect narrative, if you like, for how you can get access to National Treasury."
It's all about controlling SOE spend
He pointed out that National Treasury is the only government institution enabled within the constitution to excercise power over spending at municipal level, and over state-owned enterprises. "This is ultimately what this is all about," said Montalto.
"I think the lesson that Zuma has learnt from Nenegate in December last year is not that you don't remove your finance minister, but that you do it properly.
"You construct a decent narrative, that can be believed within the ANC - remember, not focused on markets or the wider population, but focused within the ANC - and that is what we are now seeing."
The sacking of former finance minister Nhlanhla Nene in December last year took the markets by surprise. The rand plunged to a historic low of R16/$ when Zuma made ANC backbencher Des van Rooyen the new minister.
In January this year, Zuma said the markets overreacted when he replaced Nene and people “exaggerated" the situation. He insisted that it had been the right decision to appoint Van Rooyen.
Watch the full Bloomberg interview:
What about rating agencies?
South Africa is rated BBB-, the lowest investment grade category, by both Fitch and Standard & Poor's and a notch higher at Baa2 by Moody's. All three are due to review their ratings in November and December.
Montalto reckoned rating agencies will keep a keen eye on the mini budget to be tabled on October 26 before making a call about the country's sovereign credit ratings.
"That is really what the ratings agencies is going to use to base their decision on."
Bleak picture of an ailing economy
However, Montalto also painted a bleak picture of an ailing economy. He said the low growth expected to come through in the third quarter will make the previous quarter's positive growth numbers look like a once-off, particularly as mining moves further into negative territory.
South Africa staved off a technical recession after it reported that the economy grew by 3.3% quarter-on-quarter in the second quarter of 2016.
Montalto said depressed third-quarter figures and a lack of reform that is likely to come in the mini budget, compounded by the latest political wranglings, will lead to downgrades.
"I think this makes those downgrades at the end of the year, particularly from S&P, look quite likely."
He said S&P would in his opinion not have an out of cycle review unless Gordhan is removed.
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