South Africa is R1 away from undoing Jacob Zuma’s entire second term as president

Midnight cabinet reshuffles, political scandals and a slow decline into junk status are just some of the key events that mired the rand under the Zuma presidency in South Africa.

Following the resignation of former president Jacob Zuma this week, the rand touched new highs on the positive sentiment that re-entered the market – confirming what economists and analysts have long been saying: one man can indeed impact a country’s value.

While the local unit is affected by more than sentiment around its leadership, throughout Zuma’s second term as president, it became a key indicator of the general state of the country, as the former president became increasingly heavy-handed with his approach to taking care of his political opponents and inconveniences.

At the start of Zuma’s second term as president in 2014, the rand traded at around R10.50 against the US dollar. And a day after his resignation, the currency has hit fresh highs, trading at R11.60 – just over R1.00 away from reversing the trends seen over the past four years.

Below is a brief timeline of Jacob Zuma’s presidency and how it impacted the rand:


From R8.75 to R10.50 (2009 to 2014)

Jacob Zuma’s first term as president was relatively quiet compared to his turbulent second term. South African markets were largely trying to recover from the global economic recession which had a delayed knock-on effect in emerging markets.

During these years, the public got a glimpse into the Gupta family influence in the country. As personal friends of the then-president, the family flouted the country’s laws and managed to get personal landing space at the Waterkloof air base, while entering into several lucrative government contracts.

Aside from media reports at the time, many of these instances were overlooked by the general public, and had little to no impact on the rand or wider markets.


From R10.50 to R14.40 (2014 to November 2015)

By the end of 2014, the rand suffered its worst performance against foreign currencies amid prolonged strikes in key sectors (like the mining industry), slowing growth and greater budget demands.

It was also during this time that Eskom’s load shedding came into play, having a massive impact on the economy. At that point in time, there was no real indication of Zuma politics at play (though it would later become evident that massive mismanagement at SOEs like Eskom had a key role), and the president’s antics were largely separated from the rand’s performance.


Sharp rise to R16.98 (December 2015)

Finding the exact point where the rand’s value became inextricably tied to Zuma’s actions isn’t difficult. After riding the gradual rise in the rand/dollar price from 2009 to 2015, everyone took note when Zuma unexpectedly fired former finance minister Nhlanhla Nene on 9 December 2015, and quickly replaced him with the then-unknown Des van Rooyen.

Reports and murmurings of the Gupta family and their involvement with government had been floating around for some time, but Nene’s firing, and former deputy finance minister Mcebisi Jonas going public with the claims of state capture soon after, thrust the family – and their ties to Zuma and his cronies – into the spotlight.


Short-lived drop back to R14.40 (January 2016)

Following Nene and the van Rooyen debacle, Pravin Gordhan was hurried into National Treasury, after which the rand managed to claw back much of the damage done, reaching R14.40 to the dollar on the back of Gordhan’s experience and reassurances to investors.

However, Zuma’s influence would continue to hammer the markets.


Spike to R15.72 (February 2016)

Approaching the national budget speech in February 2016, Gordhan got his first taste of the trumped up corruption charges related to the now-debunked “SARS rogue unit” which would hound his tenure in the finance ministry.

When news that charges were going to be brought – or that Gordhan would face ‘imminent arrest’ – markets were again hit with uncertainty and panic, causing the rand to weaken.


Slow build down to R12.71 (March 2016 to March 2017)

In what became a very public feud with Gordhan, Zuma’s behind-the-scenes moves against the country’s finance minister through the Hawks and the NPA kept the rand on edge for much of 2016 – although Gordhan’s tenacity and reassurances to investors ultimately bore fruit.

South Africa managed to avoid ratings downgrades to junk status, and as more evidence of the Gupta influence and state capture came to the fore, the more likely it looked that fiscal prudence would win out, as state companies were denied bailouts, and the controversial nuclear energy programme met challenge after challenge.


Hitting reverse – back to R14.47 (March 2017 to November 2017)

However, this was not meant to be, as the Gordhan saga hit its climax in March 2017, when the minister was called back from an international investor trip only to be unceremoniously fired and replaced with current finance minister, Malusi Gigaba.

Despite being seen as aligned to Zuma, Gigaba also had his work cut out for him in his new role, as Zuma’s shenanigans would again send the rand crashing in 2017.

While the currency remained relatively stable after Gordhan’s departure – a return to some semblance of stability – when Zuma unexpectedly announced that the South African government would provide free tertiary education in November 2017 (with no real plan for how it would work), economists and investors reeled at further strain being put on the budget.

Following a strained mid-term budget speech from Gigaba in October 2017 – where South Africa was hit with the reality that demands on the budget were growing, while the country was losing revenue – global ratings agencies stepped in with two of the three major groups placing South Africa into full junk status.

Even as the ANC’s December 2017 elective conference approached, investors and markets were on edge as there was no clear successor to Zuma – with his favoured candidate and ex-wife, Nkosazana Dlamini-Zuma, looking as likely to win as his deputy, Cyril Ramaphosa, who had banked his campaign on undoing the damage the president had done.


New strength at R11.60 (December 2017 to February 2018)

Ultimately, Ramaphosa emerged the victor, and so the countdown to the end of Zuma’s presidency began, culminating in the past two weeks of maneuvering and negotiations, which saw Zuma resign as president late Wednesday.

From investor optimism bringing the rand to R12.36 against the dollar following Ramaphosa’s December victory, to the currency hitting fresh highs at R11.62 to the dollar the day after Zuma resigned, the market is getting closer to undoing the damage done in the entire second term of Jacob Zuma.


Where to now?

Pinning the entirety of the rands successes or losses on one man is not realistic, and economists have warned that whoever sits in the president seat will have to face the reality of South Africa’s economic woes.

Traders have priced in a Zuma exit into the currency’s value for some time – and while the rand is riding a high, reality will set in when the finance minister delivers the budget speech next week.

Here it is expected that tax hikes and other measures will be announced to alleviate the country’s revenue losses, while a plan needs to be found to pay for free education as well as mounting liquidity issues at state companies.

According to analysts, under new leadership, South Africa now has the opportunity to provide certainty and stability, which could address the many fears raised by the ratings agencies, and hopefully turn things around.


Read: Zuma steps down as rand soars to fresh highs

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South Africa is R1 away from undoing Jacob Zuma’s entire second term as president