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Rand tanks as Zuma's Gordhan move fuels reshuffle fears

Mar 27 2017 19:02
Fin24 team

Cape Town - Finance Pravin Gordhan, who left the country on a post-Budget investor roadshow to the UK and US on Sunday, was ordered by President Jacob Zuma to come back to South Africa immediately. The Treasury confirmed Gordhan will land in SA tomorrow, while his deputy Mcebisi Jonas, who was set to join the delegation in the US later tomorrow, won't leave SA.

The reaction from the markets was swift, with the rand tanking more than 3%. By 18:30 the currency was trading at R12.77/$, from a low of R12.82 reached in the session. Before the Gordhan bombshell, the rand raced to an almost 2-year-high of R12.31 to the greenback after US President Donald Trump's healthcare bill flopped.

Gordhan's call back fuelled speculation of an imminent Cabinet reshuffle, with analysts' reaction on Zuma's move ranging from highly embarrassing, economic sabotage and pain-inflicting to the President being 'hell-bent on breaking SA'.

Meanwhile, Gordhan's court application to protect the Treasury’s executive from having to intervene in the closure of the Guptas’ bank account by the country’s top four banks, gained momentum on Monday.

Zuma asked the North Gauteng High Court to be removed as an interested party after Standard Bank Group in December made a court application to prevent Zuma and any of his ministers from intervening in the lender’s decision to close accounts of companies associated with the Guptas, who are also in business with one of Zuma’s sons.

At the same time the Gupta-owned Sahara Computers filed papers in the North Gauteng High Court on Monday, disputing that the state attorney can represent Finance Minister Pravin Gordhan and seeking the minister to pay costs in his personal capacity.

The case is set to be heard from 28 - 31 March.


18:11 - The Banking Association South Africa (BASA) has expressed deep concern about President Jacob Zuma's recall of Finance Minister Pravin Gordhan from the international investor roadshow Treasury is leading."

"These roadshows are meticulously planned and form an integral part of the post-Budget calendar. Roadshows such as this one provide an important opportunity for South Africa to update investors about recent policy developments and reassure them that our economy remains a good investment destination," said BASA MD Cas Coovadia in a statement.

He said business, government and labour has made significant progress in the last 18 months in building confidence in South Africa among investors and rating agencies. "This action by the Presidency rolls back the progress we have made as a country. It also militates against the imperative of ensuring political and policy certainty."

FULL STORY: Put SA first, pleads BASA's Cas Coovadia

18:04 - The ANC knew nothing about the decision to recall Finance Minister Pravin Gordhan from an overseas trip as it was a government matter, secretary general Gwede Mantashe told reporters at a briefing about the ANC's national executive committee meeting.

He said President Jacob Zuma's recalling Finance Minister Pravin Gordhan from an overseas trip has nothing to do with the African National Congress.

FULL STORY: 'Not our business,' says ANC of Gordhan's recall

17:58 - Just in from emerging market economist Peter Attard Montalto: The ANC's National Working Committee (top 6) is meeting now this afternoon and we wait for any read out or leak from that. Zuma is in attendance at it. Reshuffle and Pravin Gordhan recall must surely be discussed even if not on the agenda.

17:17 - Eurasia Group says it is unlikely that President Jacob Zuma will remove Finance Minister Pravin Gordhan as he will be mindful of any “negative blowback” from the ANC.

FULL STORY: Zuma to pander to NEC and keep Gordhan - analyst

16:44 - Treasury clearing the confusion: Pravin Gordhan heading back, Mcebisi Jonas going nowhere.

FULL TREASURY STATEMENT

16:40 - Own goals: Dr Kenneth Creamer, economist from Wits University, told Fin24 the unexpected and unexplained cancellation of the investor roadshow sends a very bad signal and introduces added uncertainty regarding government's management of the economy.  

"Own goals such as these will likely result in increased borrowing costs, rand volatility and investor uncertainty. This will result in a slow down in investment and will retard economic growth and job creation," he warned.

The public is owed a full explanation from government as to what exactly is going on, Creamer said.

16:37 - Rand has lost over 3% so far today, touching R12.82/$ minutes ago.             

16:33 - The Federation of Unions of South Africa (Fedusa) has launched a blistering attack on the Presidency and the ANC after President Jacob Zuma abruptly halted an overseas roadshow led by Finance Minister Pravin Gordhan.n "recall".

Fedusa, the only trade union federation invited by Gordhan in a letter dated March 14 to participate in the international roadshow, charged:

"What is so important that it cannot wait," asked Fedusa general secretary Dennis George. "Sometimes the Presidency wants to create its own crisis," he told News24.

George said similarly a crisis was created when former finance minister Nhlanlhe Nene was unceremoniously axed in December 2015, creating turmoil in the markets.


He said a financial or economic crisis can move towards a constitutional crisis.

"A constitutional crisis is when a person responsible to protect the interest of South Africa and the constitution, acts in an irresponsible manner. It means you are no longer suitably qualified to occupy that position of president," explained George.

He said Zuma "can't be so set on breaking our country down", while taking a swipe at the ANC. "His party has the responsibility to take him out or recall him otherwise they will also pay in the future," said George.

"Do you think South Africans are going to trust a party that will sit with its arms folded, while doing so much damage to them and the economy?"

FULL STORY: Zuma hell-bent on breaking SA - Fedusa

16:06 - South Africa's political risks to the economy and the markets are real, judging by the rand's performance, now at R12.75/$ and climbing.

Before Monday, the rand had led gains by developing nations, advancing 11% against the dollar.

"The market was trading with very little political risk being priced in," Gordon Kerr, a trader at Johannesburg-based RMB told Bloomberg.

"We could see the rand consolidate at weaker levels after what has been a brilliant run. The shock of the news may impact the currency for a few days."


15:34 - The rand tanked to R12.70 amid the Gordhan saga.

FULL STORY: Rand now at R12.70/$ on Gordhan saga

15:28 - President Jacob Zuma is "acting with unbridled recklessness in instructing the minister of finance and his deputy to cut short their visits to the UK and US", says Save SA.

The order is a sign that he and his cohorts can no longer wait to get their hands on the public purse, said Save South Africa in a statement on Monday. 

“Access to the state kitty, through the front door of National Treasury, is more important to them than the national interest. They want to loot, and loot with increased haste, while they still can.” 

FULL STORY: Sipho Pityana: Gordhan recall is 'economic sabotage'

15:24 - Rand just went past its worst level of the day, now trading at R12.67.

15:06 - Rand trading at R12.64/$, from its previous close of R12.43 in New York and the day's strongest level of R12.31. The rand gave up all of its gains and more on TrumpCare in no time at all following the announcement that the Presidency has ordered Finance Minister Pravin Gordhan and his entourage to come back to South Africa immediately.

14:59 - Finance Minister Pravin Gordhan will comply with President Jacob Zuma’s order and return to South Africa this evening.

Gordhan told Reuters on the sidelines of the UK investor roadshow he had not been recalled to South Africa by his President, but "asked to come back home" and had been planning to do so anyway.

FULL STORY: Treasury confirms: Gordhan flying back to SA tonight

14:54 - “Whether this is a reshuffle or not, the timing is definitely picked to inflict pain and embarrassment on an already live-wire situation,” George Herman, chief investment officer at Citadel Investment Services in Cape Town, told Bloomberg. “There is no other practical reasoning for the timing of this.”

FULL STORY: Zuma's 'radical' move against Gordhan to 'inflict pain' - analysts

14:15 - Mkhuleko Hlengwa Inkatha Freedom Party MP, told Fin24 by phone that his party has called on Zuma numerous times to be transparent about the future of Gordhan. 

“His instruction to recall the Finance Minister from such an important event is suspicious and sets in potion speculation, which is very bad for South Africa’s reputation and markets,” Hlengwa said. 

“It’s time for the president and the ANC to put petty party politics aside and act in the best interest of the country and its finances.” 

13:53 - Democratic Alliance MP David Maynier said the fact that President Jacob Zuma has instructed Finance Minister Pravin Gordhan, together with the Deputy Minister of Finance, Mcebisi Jonas, to cancel their international investor roadshow and return to the country immediately is a major setback for the economy in South Africa.

"The instruction to cancel the international investor roadshow without explanation is so bizarre that it appears, at best, calculated to humiliate the minister or, at worst, to suggest that the minister is about to be fired in a cabinet reshuffle," he said.

"Whatever the case the instruction to cancel the international investor roadshow could not have come at a worse time as the minister battles to restore investor confidence among international investors in one of the financial capitals of the world.

"The fact is that President Jacob Zuma must provide a public explanation for the fact that he has instructed the Minister of Finance, together with the Deputy Minister of Finance, to cancel their international investor roadshow and immediately return to South Africa."

13:28 - Huffington Post interviewed Finance Minister Pravin Gordhan recently, where he spoke about the case regarding the Guptas. "The question South Africans must ask is who is protecting 'what' . . . or defending 'what', or hiding 'what' in this kind of environment," Gordhan said.

"It's fascinating to see how a simple court case, over what is a relatively simple matter, has become the subject of such foul play . . . and the extraordinary lengths that are gone to, to discredit individuals and institutions."

Gordhan also said ...

  • Political pressure and "underhand methods" were brought to bear on Treasury after it made it clear it could not help the Guptas with the banks;
  • Groups and individuals have gone to "extraordinary" lengths to discredit him and his department;
  • The "new" leadership of the South African Revenue Service (Sars) needs to be educated about "their mission in life"; an
  • South Africa is not facing a tax revolt, even though the Budget's tax proposals were heavily criticised.

* Watch the interview and read the full story here.

13:14 - Gupta coincidence?: Gupta-owned Saraha Computer filed papers in the North Gauteng High Court on Monday, disputing that the state attorney can represent Finance Minister Pravin Gordhan and seeking the minister to pay costs in his personal capacity.

The latest affidavit filed on Monday follows news that President Jacob Zuma on Monday ordered Gordhan to return from London, where he had started an investor roadshow following his 2017 Budget.

Treasury explained on Saturday that Gordhan was not required to attend court as only his legal representative was required.

However, Sahara on Monday disputed this in court papers, calling on the state attorney to “establish its authority to act”.

FULL STORY: Guptas file papers ordering Gordhan to be present at court

13:07 - The chance of Finance Minister Pravin Gordhan losing his post is higher, with a likelihood of ex-Eskom boss Brian Molefe taking his position, said an economist.

President Jacob Zuma's order on Monday that cancelled Gordhan's investor roadshow to London and the US and ordered his return home, presents a new risk to finance minister’s position, Nomura emerging markets economist Peter Attard Montalto said.

“Either PG (Pravin Gordhan) obeys and Zuma is viewed as stronger, or PG disobeys and challenges Zuma to fire him. If the roadshow continues then we will know what path is being taken.”

FULL STORY: Dramatic shift in risk of Gordhan getting the chop - economist

12:56 - Rand not happy, weakening to R12.6229 against the greenback.

12:49 - Market watch: A possible Cabinet reshuffle that could see either the removal of Gordhan or his deputy Mcebisi Jonas, or both, could have an adverse effect on the rand, fixed income markets and equities – especially the financial indices, said BNP Paribas economist Jeffrey Schultz.

“It could also see South Africa downgraded to ‘junk status’ earlier than expected,” Schultz said.

He cautioned that one should not get too caught up in rumours, but cautioned that the financial markets would keep a close eye on developments. “If a Cabinet reshuffle indeed takes place it could be Part One of President Jacob Zuma’s ‘scorched earth strategy’ involving National Treasury,” Schultz added.

President Jacob Zuma during a New Age-sponsored breakfast show on SABC.


12:42 - Exerting power: Political analyst Daniel Silke says it is highly embarrassing for a Finance Minister to be recalled back home amid a foreign investor roadshow. While this sends out precisely the wrong signals to investors who are already jittery about South Africa, it also portends to further political pressure on both Gordhan and his deputy Mcebisi Jonas.

Zuma has, in recent weeks, been more forthright on issues of policy (such as land expropriation) and it may be that the President wishes to exert a similar authority over these Ministers at a time when issues surrounding the Guptas' return to public view via the courts.

Whether or not the foreign visit was authorised or not, such a dramatic recall may herald a long-awaited Cabinet reshuffle involving at least one of the two Ministers in question. This will again spook markets and create investor unease. The rand will remain vulnerable to domestic political uncertainty and despite its recent robust performance, the ongoing uncertainty in the Ministry of Finance may see a renewed levels of volatility creep back into currency trade.

12:41 - Rand seems to have found support at R12.60/$.

12:31 - Power games: Emerging markets economist Peter Attard Montalto says the Presidency is testing the market water for a reshuffle.

The fact that President Jacob Zuma has ordered Gordhan and his deputy Mcebisi Jonas to cancel their investor roadshow to the US and the UK is "quite the shock way of doing things".

He says Zuma has laid down a clear red line between him and Gordhan, issuing a direct order for the cancellation of a (what seems to have been relatively last minute) roadshow to see investors and ratings agencies. Either Gordhan obeys and Zuma is viewed as stronger, or Gordhan disobeys and challenges Zuma to fire him. If the roadshow continues then we will know what path is being taken.

This is a dramatic shift in risks clearly given the baseline had been originally that a reshuffle would not see Gordhan touched. The chances of PGxit are now clearly higher. However Gordhan is used to playing such high stakes political poker games.

This is going to be a key week for political risk.       

guptas


Ajay (left) and Atul Gupta. (Photo: Netwerk24)

12:20 - Gupta connection?: While Gupta-owned Oakbay Investments heads to the North Gauteng High Court next week, Finance Minister Pravin Gordhan and his senior leaders at Treasury will have embarked on an overseas trip to sell South Africa as an investment destination.

The court hearing from Tuesday to Thursday is as a result of an application Gordhan brought to the court to seek legal protection from having to intervene on behalf of the Guptas, whose bank accounts were blacklisted by South Africa’s top four banks in 2016.

Untested allegations of state capture and corruption linking the Guptas to President Jacob Zuma and a patronage network appears to be at the heart of the issue.

Gordhan is not required to attend next week’s hearing as the high court application only requires his legal counsel to represent him. - FULL STORY

12:11 - Rand steady around R12.58 after R12.60 following Presidency's confirmation.

Earlier in the session - From12.36 to R12.66 in minutes:

12:02 - Guns blazing?: President Jacob Zuma’s decision to cancel Pravin Gordhan’s international investor roadshow follows on the back of a national executive committee (NEC) meeting in Irene, Gauteng this past weekend in which he defended his stance on land expropriation without compensation.

He also challenged his critics to read the ANC’s 2012 conference resolutions if they disagreed with his views. 

ANC Secretary-General Gwede Mantashe, Treasurer-General Zweli Mkhize and head of the economic transformation subcommittee Enoch Godongwana were among a number of people who had described Zuma’s recent talk of land expropriation without compensation as “populist” and “playing to the gallery”. - News24

11:56 - Fedusa commits to turbulent investor roadshow: The Federation of Unions of South Africa (Fedusa) General Secretary Dennis George is committed to travelling to London tonight to meet up with Team South which arrived in the British capital this morning at the start of an international road that will proceed to Boston and New York which and is aimed at promoting South Africa as an investor friendly destination and preempting the threat of a sovereign downgrading by the credit rating agencies.                                                                                         

“The General Secretary’s flight is already booked for departure tonight and he looks forward to meeting South Africa’s delegation consisting of Finance Minister Pravin Gordhan and business leader Jabu Mabuza. Any questions relating to the apparent cancellation of the trip should be referred to the Presidency and National Treasury”.

This latest round of international roadshows would have been a follow-up of similar ones held last year, where Team South was able to convince the credit rating agencies and investors that South African social partners were working together to tackle structural challenges facing the country.

“Engaging credit rating agencies and investors is important for the country to ensure rapid inclusive economic growth and the creation of decent jobs for our people. Investments are critical for any developing country,” said George.

11:50 - Presidency confirms: President Jacob Zuma has instructed the Minister of Finance, Mr Pravin Gordhan and Deputy Minister Mcebisi Jonas to cancel the international investment promotion roadshow to the United Kingdom and the United States and return to South Africa immediately.

11:48 - Political analyst Daniel Silke is brief: This might be the forerunner of the Cabinet reshuffle coming!

11:42 - Nqabayomzi Kwankwa from the United Democratic Front who represents his party in Parliament’s standing committee, said if the rumours of Gordhan’s cancelled trip is true it would most likely be because Zuma intends on reshuffling his Cabinet.

“But we shouldn’t accept this lying down. Political parties can’t accept this lying down. We can’t twiddle our thumbs.”

He conceded that Cabinet ministers serve at the behest of the president and that there’s nothing opposition parties can do to prevent Zuma from reshuffling his Cabinet, but he called on ordinary South Africans to mobilise.

“It’s easy for the ANC to dismiss opposition parties’ dissatisfaction as propaganda, but they can’t do it when society demands the president to resign.”

11:39 - Treasury just told Daily Maverick that the Presidency rescinded authorisation for the trip with no reason given. That was after it had given Treasury the go-ahead.

Finance Minister Pravin Gordhan and his deputy Mce

Finance Minister Pravin Gordhan and his deputy, Mcebisi Jonas. (Photo: Matthew le Cordeur)

11:36 - Rand stabilising around R12.60 after hitting a high of R12.66.

11:32 - The Democratic Alliance spokesperson on finance David Maynier said although the reports haven’t been confirmed yet, the cancelled trip couldn’t have come at a worse time.

“Assuming it's true, this is prior to a high profile investor conference in the financial capital of the world (London),” Maynier said.

Maynier said reports that Zuma said the international investor roadshow was “unauthorised” are not credible, “as such trips are planned well in advance”.  

“If the rumours are true this will trigger speculation of a cabinet reshuffle which will ultimately undermine investor confidence and be detrimental to the economy,” Maynier said.

11:28 - Economists react: Mike Schussler, economist at economist.co.za says he is worried as again things are becoming uncertain. The uncertainty won't only impact the currency, but will also in all likelihood get the rating agencies a little worried. There seems to be little in planning or in getting the public and markets onside.

BTW in SA “Not Certain is the new word for No Comment.”

South Africa is in an economic growth hole and we need to be smart and provide certainty. Not for the currency's sake alone. This is about the welfare of the people of SA. Government needs to create more certainty and more space for growth. Here we again have very little certainty.

If Gordhan goes and SARS off the hoof for example then will taxpayers feel it is still moral to pay taxes to a state that misuses the money and to a Taxman that does not listen to his own minister?  

11:27 - Rand pierced R12.60/$ within in minutes of the news of a Gordhan recall.

11:24 - A number of political analysts and economists have predicted that Zuma would reshuffle his Cabinet in the second half of March, following the swearing in of former Eskom CEO Brian Molefe as a member of Parliament and the fact that Nkosazana Dlamini-Zuma handed over her chairpersonship of the African Union (AU) on Tuesday, March 14. This frees her up to serve in a cabinet position.

11:21 - Local currency taking a beating on the news of an imminent Cabinet reshuffle. Now at R12.55/$

From this earlier: Rampant rand runs as TrumpCare fails

11:13 - The rand tanked by 19 cents on Monday following a news story alleging that Finance Minister Pravin Gordhan and his senior leadership had been ordered to return from an overseas investor trip. The rand was trading at R12.50/$ at 11:14 on Monday after a high of R12.31/$ - a loss of 19 cents.

11:08 - New speculation has emerged that President Jacob Zuma could recall Gordhan and his deputy Mcebisi Jonas, following reports that the Presidency contacted Gordhan and his delegation and instructed them to return home from an international roadshow.

Gordhan is currently in London.

The Daily Maverick reported that Gordhan, Jonas and National Treasury Director-General Lungisa Fuzile, who were supposed to conduct the London leg of an international investor roadshow on Monday and Tuesday, were told to return to South Africa.

The US leg of the roadshow has been cancelled.  

National Treasury spokesperson Yolisa Tyantsi told Fin24 that all queries must be directed to the Presidency on this matter. Presidency spokesperson Bongani Ngqulunga is not responding to telephone calls, but Fin24 will update the story as soon as more information is released.

GRAPH: The rand / dollar exchange rate in the last two days


Source: Bloomberg

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