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Zuma still scores as Gordhan takes over

Dec 14 2015 19:00
Adiel Ismail

Cape Town - While Pravin Gordhan will be crunching numbers as the country's new finance minister, shunting Nhlanhla Nene to the Brics bank may be a demotion for Nene but it is also a safety net for President Jacob Zuma should South Africa run out of cash, according to experts.

In an about-turn, Zuma on Sunday announced the reappointment of Gordhan to the finance ministry. The president said he made the change following several representations to reconsider his decision to place David van Rooyen in control of the country's finances.  

Following the shock axing of Nene, which left markets spooked and the rand with a bloodied nose, Zuma announced two days later that Nene was recalled because he is earmarked to take the helm of the African Regional Centre of the New Development Bank (NDB) to be based in Johannesburg.

"This is a demotion as the bank is not yet important or big," economist Mike Schussler told Fin24.

He proceeded to say that Nene's nominated new post is deemed to be less important than the bank's board of governors, where Tito Mboweni had been appointed as non-executive director.

He added that well-known banker Leslie Maasdorp is already representing South Africa as vice-president of the overall bank.

"Why, why, why would Zuma demote Nene this far?" asked Schussler.

Politicians are often nominated to the World Bank and the International Monetary Fund, which are bigger than the NDB, after their term has ended, said Schussler. "But as the head of the whole, not some regional chair or chief executive officer."

What Zuma should have done

It would have been better had Zuma nominated Nene and then allowed the announcement to take place, as this would have informed the markets and the country about what was happening.

"Markets would have been less spooked," said Schussler, noting that the manner in which Nene was recalled was irresponsible and ultimately damaged the economy.

The rand was battered in the wake of Nene's axing, breaking through R16/$. The currency devalued from R14.53 to R15.89 (9.36%) against the US dollar and from R15.94 to R17.45 (9.47%) against the euro in the two days following the announcement.

The entire market cap of the JSE fell R169.6bn from R11.35tr to R11.18tr (1.49%). The Top 40 Index shed 987 points, closing at 43 558 on Friday, while the All-share index dropped 1 456 points, closing 2.94% down at 48 068.

The six-member banking index plummeted by the most since the 2008 global financial crisis. The Banks Index lost 18.54%, dropping from 6 556 to 5 340 over the two days.

Why not moot Van Rooyen for the Brics job?

Economist Chris Hart told Fin24 it is difficult to gauge the importance of the new Brics job, but said the sudden decision took everyone by surprise.

"Why couldn't Van Rooyen do the Brics bank job?" he asked.

Hart said the speculative reasons for Nene's removal seem to be what carried most sway. These include that Nene refused to fund the R1trn nuclear programme, his inquiry into the alleged squandering of funds at the SABC and his ruling against South African Airways (SAA) in negotiations with Airbus.

Hart said the big focus will now be on whether SAA will get its way, and if the nuclear deal will go ahead.

Independent political analyst Daniel Silke told Fin24 that Nene in theory enjoyed tremendous power and influence as finance minister.

"I think to be a minister of finance of a country is indeed seen as an elevated position compared to a rather unknown position at the Brics bank. On that basis I would argue that the Brics bank is still very much in its infancy. Its mechanisms are largely unknown."

It's a win for Zuma

Silke said Zuma not only managed to oust a senior cabinet minister, but he is also putting in place a safety net should South Africa need money and turn to the Brics bank.

"If Nene does get a senior position at the Brics bank, Zuma has a senior South African in place who may be of help should South Africa run out of cash and require substantial loans from the Brics bank," said Silke.  

The NDB is designed to complement existing Western lending institutions. Its primary function will be to fund infrastructure development in emerging countries.

SA is set to contribute an initial $5bn to a $100bn pool in startup financing.

Also read:

The falling rand will hit us hard, warns JSE CEO

South Africans are in for a serious blow - economist

Nene axing may lead to January rate hikes

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