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Johannesburg – President Zuma's Cabinet reshuffle may have come as a surprise, but it is unlikely to have any bearing on the mini-budget to be announced next week, say economists.
On Tuesday Zuma made changes to several departments. One of the most significant was in the Department of Energy, where he replaced Energy Minister Mmamoloko Kubayi with State Security Minister David Mahlobo.
The rand lost more than 1% after the announcement, falling to a low of R13.45 against the dollar. It was trading at R13.41 at 19:30.
Lesiba Mothata, executive chief economist at Alexander Forbes Investments, said that markets had already been expecting changes ahead of the ANC's elective conference in December. “What has happened today does pose a few questions, but it does not change the bigger picture of things,” he said.
When the ANC's new leadership is elected in December, it would give a better indication of what to expect in the future. “This does not talk to the future yet.”
Impact on mini-budget
Mothata said that, although changes were made in the Department of Energy, Finance Minister Malusi Gigaba this past weekend assured delegates at the World Bank-IMF conference in Washington that South Africa was not ready for a new nuclear power build.
“That was two days ago. It would be surprising if that change will impact the numbers being put together,” said Mothata.
But if the Cabinet reshuffle were to impact the content of the mini-budget, this would both “surprising” and “detrimental” to the South African economy, he added.
Momentum Investments economist Sanisha Packirisamy similarly said that it was unlikely for changes to be introduced into the mini-budget at this late stage.
Dr Azar Jammine, chief economist at Econometrix, argued the reason behind the reshuffle was that Zuma may be looking to fast track several deals which will not be possible after December.
Possible deals include a nuclear deal, and free higher education, which former Minister of Higher Education and Training Blade Nzimande may have been opposed to, said Jammine. “This would cost more money for the country.”
Jammine said late introductions into the budget would put “huge strain” on Gigaba. “It will be interesting to see how he manages with the finances because all these things will cost more money.”
He added that markets will react negatively if there is more strain on the SA fiscus, which may impact SA's credit rating. Another downgrade will cause the rand to being rated as junk, and South Africa would fall out of world government bond indices. This would force down the value of the rand steeply, he explained.
Economic strategist at Argon Asset Management Thabi Leoka, however, said it was too soon to make calls on the impact of the Cabinet reshuffle.
Ratings agencies do not make decisions based solely on the person who occupies a position. More important is the role they play, she said. National Treasury was not impacted by the Cabinet changes, she pointed out.
Leoka said that it would be too late to make changes to the mini-budget, just a few days ahead of its announcement. The reshuffle would likely impact the continuity within departments.
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