Gordhan's dramatic recall 'highly embarrassing' - analysts

Cape Town – The rand reacted swiftly on Monday, touching R12.66/$ in one-way after the Presidency announced that it had ordered Finance Minister Pravin Gordhan to return from an international roadshow to woo investors. 

Gordhan, Deputy Finance Minister Mcebisi Jonas and National Treasury Director General Fuzile Lungisa were part of a delegation to the US and the UK to reassure investors of South Africa’s soundness as an investment destination when they were instructed by the Presidency to return immediately. 

The move sparked renewed speculation that Zuma would reshuffle his Cabinet, firing either Gordhan, or Jonas, or both, replacing them with recently appointed ANC MP Brian Molefe. 

Although the Presidency didn’t give any reasons for ordering Gordhan to return there have been reports that the instruction was due to the trip being “unauthorised”.

LIVE: Reshuffle could be Part 1 of Zuma's ‘scorched earth strategy’ - economist

Political analyst Daniel Silke told Fin24 by email that it is “highly embarrassing” for a Finance Minister to be recalled back home amid a foreign investor roadshow.

“This sends out precisely the wrong signals to investors who are already jittery about South Africa and it also portends to further political pressure on both Gordhan and Jonas,” Silke said. 

“President 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.”

Silke said whether or not the foreign visit was authorised, such a dramatic recall may herald a long-awaited Cabinet reshuffle. “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.”

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

Economists.co.za CEO Mike Schüssler concurred that the uncertainty would impact the rand, which is likely to worry ratings agencies. 

“South Africa is in an economic growth hole and we need to be smart and provide certainty. Not for the currency's sake alone, but also for the welfare of the people of South Africa.”

He says that government needs to create more certainty and more space for growth, yet uncertainty has increased again.

Jeffrey Schultz, economist at the global bank BNP Paribas, said although the motive behind the Presidency’s move is unknown, on the face of things this does not look good.

“Obviously we need to be very careful here in not getting caught up in rumours, but if correct, this could be the start of the “scorched earth” strategy by President Zuma to take control of the Treasury and other key state institutions,” Schultz said.

If there were to be a Cabinet reshuffle impacting the Treasury, Schultz notes that the situation differs from December 2015 when former Finance Minister Nhlanhla Nene was sacked and replaced with little-known Des van Rooyen. 

“We now no longer have a credible candidate to take the reins of Treasury. Brian Molefe will undoubtedly be tipped to take on this position, but this would be a risky gamble in our opinion given the State of Capture report last year which tainted him,” Schultz said. 

The other possible option is Zuma’s ex-wife, Nkosazana Dlamini-Zuma, who has recently returned from chairing the African Union and who is widely tipped to become ANC President at the elective conference in December 2017.  

“We believe that it is possible that the process to make her an MP is expedited and she is put into the position as Finance Minister, or Deputy Finance Minister. Either outcome, we believe, would be deeply negative for the rand and fixed income markets.”