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Gordhan's ouster has severe economic consequences

President Jacob Zuma

President Jacob Zuma

Published Mar 31, 2017

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Johannesburg – President Jacob Zuma’s Cabinet reshuffle,

which saw Finance Minister Pravin Gordhan ousted late last night, has been met with resounding

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criticism.

Zuma sacked

finance minister Pravin Gordhan in a cabinet reshuffle after days of

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speculation that has rocked the country's markets and currency, replacing him

with home affairs head Malusi Gigaba.

A statement from the president's office just after

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midnight on Thursday said Zuma had also appointed Sfiso Buthelezi as Deputy

Finance Minister replacing Mcebisi Jonas.

The CEO Initiative, which a body comprising several

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business leaders from companies such as Telkom, Standard Bank, Nedbank,

Discovery and Investec, noted on Friday morning that the decision has “has severe consequences for economy”.

It says it is a

setback to work done by government, labour and business to avoid a downgrade.

South Africa late last year avoided being downgraded to junk when ratings

agencies kept ratings stable. S&P and Fitch have SA a notch above junk,

while Moody’s is two levels above non-investment grade.

The Initiative,

which had been working with Gordhan to achieve inclusive economic growth, says

any progress towards this has now been potentially undermined, and the

consequent lack of investor confidence in South Africa will hurt the poor the

most.

Read also:  Gigaba an unknown quantity - analysts

“The CEO Initiative is gravely concerned and disappointed

by the ill-timed and irrational dismissal of a trusted and well-respected

Minister of Finance and Deputy Finance Minister. This decision, and the manner

in which it was taken, is likely to cause severe damage to an economy that is in

dire need of growth and jobs.

“The rationale for the removal of other ministers in key

departments at a time when the country is beginning to make progress on a

number of fronts is also questionable,” it says.

Important change

The Institute for Race Relations notes the most important

change from the shuffle is that of Gigaba replacing Gordhan, and Buthelezi being

appointed as the Deputy Minister of Finance.

“While Gigaba is well known, Buthelezi is less so. Buthelezi

is a 55 year old economist who previously worked as an advisor to Zuma. Buthelezi

also spent almost ten years as a political prisoner on Robben Island and holds

a BCom (hons) degree in economics.”

IRR CEO Dr Frans Cronje says the long-expected shuffle

does warrant caution by international investors. However, he notes, “foreign

and domestic investors should look to judge it by the policy positions it adopts

and the actions it takes.

“We expect a significant degree of hysterical reaction in

the media and on social media over the next few days. A panicked response to

the reshuffle will exacerbate its negative effects. Now is a time for cool

heads and well informed and reasoned thinking on where South Africa is headed.”

Economic worries

Peter Attard Montalto, Nomura analyst, adds the market

will struggle to digest Gigaba. “Someone who has been effective at home affairs

but is clearly being put in a role to do a particular job by Zuma and viewed as

loyal to Zuma. Similarly with Buthalezi.”

MMI economist Sanisha Packirisamy adds Gordhan and Jonas’

removal will be a key concern to markets. “In their previous capacity, they had played a crucial role in improving

SA’s fiscal position and had put in place measures to curb corruption. They had

also opposed unaffordable projects, such as the procurement of a nuclear fleet

deemed to be unnecessary according to the latest Integrated Resource Plan,

based on more realistic domestic growth assumptions.”

Packirisamy adds rand volatility is expected to remain high given the unpredictable moves

in SA’s political setting currently. 

“At its

worst point, the rand sold off against the US dollar by over 6 percent relative

to its firmest point the afternoon prior to the cabinet reshuffle, but it

remains stronger than levels seen at the beginning of the year.”

Cronje notes the new ministers, who will be sworn in at

6pm on Friday, come in at a time of very weak economic performance as debt

levels have increased, the budget deficit remains under pressure, and the

government's tax take as a proportion of gross domestic product is projected to

reach a record level.

“The government also knows that ratings agencies and

investors are watching its next moves closely and it will be interesting to see

how the government now responds to investor concerns.”

Cronje adds the Institute expects Zuma's political

enemies to launch a ferocious fight back over the next year. “This is far from

the end of infighting and uncertainty in the government and the ANC – quite a

number of years of instability may lie ahead.”

Packirisamy notes rating agencies will be evaluating SA shortly, Moody’s by April 7 and

S&P on June 2. “A downgrade to sub-investment grade status would likely

have a negative effect on SA’s near and longer-term economic outlook.”

Read also:  Rand in biggest slide since 2015

Packirisamy says seems obvious that the President has used this cabinet reshuffle to

surround him with personal loyalists within cabinet, while getting rid of those

that have been seen as opposing him previously. “It remains to be seen how the

African National Congress (ANC) as a party will respond to these moves.”

Meanwhile,

relatively unknown Forum 4 Service Delivery has rejected Zuma’s “factional”

axing of ministers and deputy ministers, as well as Gigaba’s appointment. The National

Freedom Party has called the move an early April Fool’s Day joke, and the

Congress of South African Trade unions says the shuffle is a waste of time,

money and state resources. “Zuma has sold out this country very cheap and compromised

quality with quantity,” the federation notes.

The Save South Africa campaign has called on South

Africans to protest outside National Treasury at 10am on Friday, and Kallie

Kriel, CEO of AfriForum, says Gordhan’s sacing is a “disgrace”.“The whole

country is harmed and faces downgrading by grading agencies – all to serve the

interests of one man, Jacob Zuma.”

Cabinet changes:

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Department

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Deputy

Minister

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Energy

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Transport

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Joe

Maswanganyi

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Finance

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Malusi

Gigaba

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Sifiso

Buthelezi

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Police

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Fikile

Mbalula

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Mr

Bongani Mkongi

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Nathi

Nhleko

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Sports

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Thembelani

Nxesi

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Tourism

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Tokozile

Xasa

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Elizabeth

Thabethe

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Public

Service and Administration

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Faith

Muthambi

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Dipuo

Letsatsi-Duba

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Home

Affairs

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Prof

Hlengiwe Mkhize

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Communications

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Ayanda

Dlodlo

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Thandi

Mahambehlala

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Public

Enterprises

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Ben

Martins

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Arts

and Culture

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Maggie

Sotyu

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Trade

and Industry

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Gratitude

Magwanishe

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Telecommunications

and Postal Services

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Stella

Ndabeni-Abrahams

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Small

Business Development

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Ms

Nomathemba November

Source: MMI

 

BUSINESS REPORT

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