JOHANNESBURG – South Africa’s stock market lifted yesterday after President Cyril Ramaphosa returned former Reserve Bank governor Tito Mboweni to Cabinet as finance minister, ending days of speculation on the future of Nhlanhla Nene.
The rand, which began the day on the back foot falling to R15.0622, firmed to hit R14.7745 while banking stocks firmed 1.19 percent as investors joined in cheering Mboweni’s appointment that eased a week of uncertainty.
The yield on the benchmark paper due in 2026 fell 4 basis points to 9.22 percent.
Ramaphosa said he had accepted Nene’s resignation, following his meetings with the Guptas between 2014 and 2016.
The Banking Association of South Africa (Basa) said Mboweni would bring skills and experience to manage the fiscus and help the economy to recover.
Basa managing director Cas Coovadia said Mboweni would have to focus on ensuring a stable and coherent regulatory and policy environment to return business confidence to the economy.
“He will have to win and maintain the confidence of the financial markets as well as the business and investor communities, while facilitating inclusive economic growth, job creation and social development,” Coovadia said. “As a former labour minister, he will understand that addressing the challenges of unemployment, poverty and inequality, are as important as maintaining fiscal discipline and the stability of the financial system.”
Ramaphosa said the decision on Nene’s future was seen as key ahead of Moody’s ratings review on Friday and the Medium-Term Budget Policy Statement (MTPBS) in a fortnight.
Yesterday, the International Monetary Fund (IMF) revised the country’s growth forecast down to 0.7 percent following a similar decision the World Economic Outlook to slash the outlook from 1.5 percent to 0.8 percent this year.
The IMF said it expected the economy to remain volatile in the run up to the national elections next year.
“It is never prudent for a finance minister to be replaced, especially so close to the budget (MTPBS), but Mboweni has been well received by the markets and by the rand, he has a good track record,” Gina Schoeman, an economist at CitiBank said yesterday.
Mboweni is a former governor of the SA Reserve Bank and also served as the country’s post apartheid labour minister.
He has worked as an adviser in South Africa for Goldman Sachs Group and served as chairperson of AngloGold Ashanti.
He is a founder member of Mboweni Brothers Investment Holdings and a non-executive director for South Africa at the New Development Bank (BRICS Development Bank).
“Markets see this as a positive development. What is most important is the state of the country’s finances in general. One swallow does not make a summer, but it is a small step in the right direction,” said Fanie Joubert, a lecturer at Unisa’s Department of Economics.
Bureau for Economic Research senior economist Hugo Pienaar said though the economy’s fortunes were unlikely to change overnight, Mboweni has the necessary experience to stabilise it and calm the markets.
Pienaar said investors would also be able to trust his record as the head of the central bank.
“It is a market friendly appointment, investors will be comfortable with him,” he said.
“It is a positive appointment, because markets are calmer after the uncertainty, the concern is no longer there.”
Other analysts said one of Mboweni’s biggest tasks would be to deal with an economy that is in the middle of a technical recession, after the second quarter of 2018 GDP shrank by 0.7 percent quarter-on-quarter.
The shrinkage follows a 2.6 percent contraction in the first quarter of the year, which StatsSA attributed to a “fall-off” in activity in agriculture, transport, trade, manufacturing and government sectors.
“We are paying a high price for the (President) Zuma excesses, the state capture project. We will bottom out at some point, but there is need for reining in expenditure, particularly on civil service remuneration to less than inflationary levels, and reduce the size of the civil service,” Johan Rossouw, a lecturer at Wits Business School, said.