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Cape Town – In the shocking event that the ANC National Executive Committee (NEC) votes to recall President Jacob Zuma on Monday, the rand could strengthen against the dollar, according to a political analyst.
Analyst Daniel Silke told Fin24 on Monday that there would be some positive effect on the rand should Zuma be recalled, saying it would “strengthen moderately”.
“This could mean the currency moving to R13.50 or stronger to the dollar, but any further strength would be unlikely as the fair value of the currency is anywhere between that level and R14/$.
“The rand is still a function of global market trading,” he said. “The effects of a stronger dollar and the possible US interest rate increase put pressure on our currency.
“The rand is also yet to feel the more protectionist trade policies of a new Trump administration, which could also keep the pressure on.
“Ultimately, the recall of Zuma would be seen by markets as initially positive, which would lead to volatility on the stronger side, but greater political and policy certainty beyond the reign of President Zuma would be needed before any meaningful and more long-term strength is felt.
“As an emerging market currency in a country with so much dependent on global conditions such as resources and trade, it's not just about domestic politics.
“However, should a broad turnaround in investor sentiment be forthcoming following a dramatic change of the president, the rand would be a chief beneficiary.”
Umkhulu Consulting analyst Adam Phillips said Zuma's recall would be a game changer.
"The rand has done quite well this year to recover from levels above R16/$, 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 test of this year."
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 Zuma 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 bases 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 14:00, 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.
