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How rand could swing if Zuma survives ANC ousting bid

Cape Town – There are two scenarios that could play out if President Jacob Zuma survives the ANC National Executive Committee (NEC) vote that he be recalled as president.

That is according to Nomura emerging markets economist Peter Montalto on Monday.

“If the vote does indeed fail, Zuma will indeed be weakened, leaving ‘scorched earth’ or ‘bumble along’ scenarios as his only two options,” said Montalto.

“The latter is certainly less negative, but is not positive for growth and development,” he said. “The former would be negative for markets and growth.

“It is hard to see true upside scenarios,” he said. “Nevertheless, in a world of relatives, the market would lock on to anything less bad and view it as a positive signal for the rand and local assets.”

And if Zuma is dumped?

Montalto said the rand would rally strongly on a Zuma exit “with the market likely being over-optimistic on the chances of real reform and change coming, rather than just the status quo of rent extracting continuing under a different guise.

“Certainly, benefit of the doubt would be given to any successor for some time by ratings agencies, but ultimately the ANC is too wedded to patronage and too much of a broad church that it cannot take difficult decisions for true reform to come.”

Zuma, who is has seen off countless bids by political parties and civil society, has always relied on a majority in the NEC to back him up. However, following a year of constant controversy, poor local government election results and an alleged attack on Finance Minister Pravin Gordhan, his support appears to be in trouble.

However, he may still have enough support to survive the most dramatic bid to end his presidency prematurely.

Game changer

Umkhulu Consulting analyst Adam Phillips said Zuma's recall would be a game changer.

"The rand has done quite well this year to recover from levels above R16/$, so any real strength would only come through once economic data shows we are on the correct path," he told Fin24.

"Even if he was to go, how do investors know there are going to be changes for the better? That is why the ANC cannot wait until this time next year, as I presume the majority of party members know that a new leader is needed to help their popularity.

"If this was to happen soon, one also needs to look at the global scenario with Brexit, Trump taking over and various European countries holding elections and referendums," he said. "There are too many loose variables and that's why volatility and low volumes will be evident for the rest of this year."

NOW READ: How the rand could swing if ANC dumps Zuma

Zuma’s fate as president of the country is in danger after Tourism Minister Derek Hanekom, Health Minister Aaron Motsoaledi and Public Works Minister Thulas Nxesi asked him to resign over the weekend during their NEC meeting. They were strongly supported by ANC chief whip Jackson Mthembu, News24 reported.

The president's alleged improper relationship with the Gupta family, the decline in ANC support during local government elections and the Nkandla scandal were used as reasons for him to step down.

The ANC NEC meeting, scheduled to end on Sunday, was extended to Monday as a "rough", "fierce" and "robust" debate over his fate had not been concluded. Zuma's supporters in the NEC are expected to lead a vocal fightback on Monday.

News24 reported that over 30 people spoke for and against the "surprise" motion tabled by Hanekom for Zuma to step down on Saturday.

The rand strengthened by nearly 2% on Monday, trading as low as R13.83/$ at 10:20. By 15:50, it had depreciated to R13.90/$.

The rand’s strength was due to a mixture of a weakening dollar caused by Donald Trump’s future presidency, rating agency reviews in South Africa on Friday and the party meeting. 

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