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Nene's shock removal pure political play - economists

Dec 10 2015 07:53
Fadia Salie

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Cape Town - Economists believe Finance Minister Nhlanhla Nene was abruptly removed from his post on Wednesday for political reasons.

This includes his reluctance to fund the R1trn nuclear programme, his inquiry into the squandering of funds at the SABC and his ruling against SAA in negotiations with Airbus, said Citi Research economist Gina Schoeman.

She said Nene was viewed as fiscally prudent and in her view the move was politically motivated. She sees it as negative for sentiment.

Her views were echoed by Nomura International's emerging markets economist Peter Attard Montalto, who reckoned Nene was removed over disagreements over nuclear affordability and shareholder oversight of SAA.

Montalto viewed President Jacob Zuma's move to replace Nene by largely unknown David van Rooyen as "profoundly negative", and a classic case of "political balancing".

"Even if growth, structural reforms and ratings issues feature on the leadership’s lists of issues – politics simply trump these. We view this prioritisation of political issues over reforms as the reason that SA is firmly on the path to junk status," he said.

"We view this as a serious erosion of the institution of the National Treasury that accelerates the credit and ratings negative story."

Statements by Standard & Poor's and Fitch on Friday left South Africa's debt just short of a downgrade to junk, but both ratings agencies listed, according to Bloomberg, the same reasons for the country's economic woes: government policies that are denting business confidence and the likelihood of state funding or guarantees that will further strain the budget of Zuma’s administration.

Referring to the rand's rout, MMI chief economist Sanisha Packirisamy told Fin24 on Thursday the abrupt departure of the highly-respected Nene came as a considerable surprise to the market, following rumours of a potential cabinet reshuffle.

"The decision appears to be somewhat politically-driven given that the announcement closely follows  Nene’s rejection of a proposal from the SAA board to restructure a transaction with Airbus," she echoed.

Surprise choice

Montalto said Van Rooyen was a surprise choice because expectations were that Deputy Finance Minister Mcebisi Jonas would get the job (as Nene did), "being trained in the ways of the National Treasury and how the institution works".

"Bringing in an outsider makes it more of a ‘pure’ political appointment, in our view."

Van Rooyen is South Africa's third finance minister after Pravin Gordhan and Nene in the last six years. Trevor Manuel served as finance minister from 1996 to 2009.

Montalto said the removal of a "technocratically sound, decent, hardworking, well respected (at home and abroad), fiscally conservative and reform-minded Finance Minister" was a serious blow to foreign direct investment and investors for several reasons.

He said he didn't believe Nene, who has been in his post for just over a year, was removed because of fiscal policy. "The politics and personalities around the issue of parastatals intervened and required his removal. As such, we think this is ultimately a victory for the 'tenderpreneur' faction of the ANC, rather than an ideological left/centre-left battle. That fact is deeply worrying."

He said Nomura has increasingly feared for Nene’s position but thought government leaders would understand that after South Africa’s ratings downgrade action, pre-budget and probably pre-Moody’s downgrade in the first quarter, it would be a bad time and they would wait.

"The lack of sensitivities on this point for a current account deficit and heavily foreign-funded sovereign is worrying."

More questions than answers

He also said the statement from the Presidency on Nene's removal was incomplete and left more questions than answers – "it said Nene was removed 'ahead of his deployment to another strategic position', but there is no mention of the specific position".

"On our recent trip to South Africa, we did not come away with the understanding that there were any ‘strategic positions’ more important than Finance Minister open or being created," he added.

Montalto said it needs to be clear that Nene was praised by ratings agencies for core fiscal conservatism. "Thus, in our view, there can be no reason for his firing based on the ratings. The reasoning behind the ratings downgrades was wider government policy and the lack of growth from wider policy."

Packirisamy said the move to fire Nene has significantly increased the risk of a sovereign debt downgrade to junk status.

"With S&P ratings agency recently placing SA on a negative outlook, further negative ratings action could come as early as June 2016 on the back of higher policy uncertainty created by the replacement of a Finance Minister who persisted on the fiscal consolidation path against a challenging political and tough economic backdrop."



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