At midnight on Thursday,President Jacob Zuma announced the details of a widely-anticipated cabinet reshuffle. Zuma made 20 changes to his administration.<\/p>\n
According to Dr Adrian Saville, chief strategist at Citadel, the most significant \u2013 and concerning \u2013 is the removal of minister of finance, Pravin Gordhan, and deputy minister of Finance, Mcebisi Jonas.<\/p>\n
Notwithstanding internal opposition from amongst the top six members of the ANC and its alliance partner, the South African Communist Party, eight other cabinet members were also shuffled.<\/p>\n
Saville noted that immediate market reaction was palpable, with the rand moving from R12.80 to the US dollar on Thursday evening to trade as high as R13.60 to the US dollar by early Friday morning.<\/p>\n
Zuma\u2019s actions reek of desperation<\/strong><\/p>\n Gordhan, who was recalled from an international roadshow at the start of the week, has been replaced by Home Affairs minister Malusi Gigaba. Gigaba is a former ANC youth league leader, and has served in parliament and in cabinet under former president Mbeki and Zuma. Gigaba has no financial or business experience.<\/p>\n “Put bluntly, confidence in Gigaba’s leadership at National Treasury is likely to be low given his insipid performance as minister of Public Enterprises and the visa fiasco that transpired under him as minister of Home Affairs. He is widely regarded to be a Zuma loyalist. As such, his appointment represents a direct risk to the institutional strength and fabric of national treasury and the maintenance of the fiscal discipline that is Gordhan\u2019s hallmark,” Saville said.<\/p>\n Less surprising, according to the financial analyst, is the appointment of Sfiso Buthelezi who has been widely touted as a likely replacement for either Gordhan or \u2013 as is the case \u2013 deputy minister Jonas.<\/p>\n Buthelezi is a seasoned politician, qualified economist and comes with business experience that includes having served as chief operations officer and director of the Makana Investment Corporation \u2013 an investment vehicle for ex-political prisoners, particularly those from Robben Island, Saville said.<\/p>\n “There can be no avoiding the observation that Zuma\u2019s actions reek of desperation. Gigaba is South Africa’s fourth finance minister in 15 months, and he is appointed days ahead of the decision to be announced by rating\u2019s agency Moody\u2019s in the first week of April.<\/p>\n “However, of the three big agencies, Standard and Poor\u2019s has been the most vocal by far. Although their next decision is scheduled for early June there is a chance that the agency\u2019s announcement could be brought forward to an earlier date,” Saville said.<\/p>\n Shift in policy in short term unlikely, but downgrade on the cards<\/strong><\/p>\n Citadel said that it is unlikely that we will see any substantial shift in policy in the near term. “Still, the growing rhetoric and nature of Zuma\u2019s actions are likely to lead ratings agencies \u2013 and market actors \u2013 to regard South Africa as a greater investment risk at the end of this week than it was at the start.<\/p>\n “As a result, there is now a greater probability that Zuma\u2019s actions will galvanise Standard and Poor\u2019s into downgrading South Africa\u2019s debt to sub-investment grade, perhaps as soon as mid-year,” Saville said.<\/p>\n Fallout expected<\/strong><\/p>\n In terms of broader political implications, opposition parties are likely to call for a vote of no confidence and to work to put in place an impeachment motion.<\/p>\n “There is also a view that Zuma\u2019s actions could prompt resignations from within cabinet and that this faction would enjoy the support of outspoken members of the South African Communist Party and perhaps galvanise deputy president Cyril Ramaphosa into action,” Saville said.<\/p>\n ANC secretary general Mantashe has also commented in interviews about disagreement and lack of support relating to the cabinet reshuffle. “These developments will play out in their own way, and experience suggests that those taking a stance on outcomes are, instead, likely to be met by surprise.”<\/p>\n In the immediate term, Citadel said that we should brace ourselves for currency weakness and market impacts in the form of the repricing of financial assets, including South African bonds and domestic banks. “No doubt, there will also be a lot of noise to deal with as politicians deliberate, the country digests and markets decide,” Saville said.<\/p>\n Positives<\/strong><\/p>\n Contrary to expectations, the near-term impact of a weak rand may be positive for the economy.<\/p>\n “Perversely, the near-term impacts on the South African economy could be stimulatory through a weaker rand and more expansionary fiscal policy. The longer-term effects will be unequivocally negative, entrenching Zuma\u2019s record of poor economic leadership,”\u00a0Saville said.<\/p>\n He said that the most obvious long-term effects will come in the form of reduced personal income held back by slower economic growth and eroded by higher consumer price inflation.<\/p>\n Interest rates are also likely to move to a higher plane given the implications for South Africa\u2019s credit ratings.<\/p>\n “Damaged business confidence will keep a lid on much-needed investment spending and economic growth will remain muted. The implication, in turn, for urgently needed job creation by the private sector, is unambiguously negative. Consequently, and perversely, the sought after \u201cradical economic transformation\u201d will become even harder to achieve under Zuma\u2019s revised cabinet,” <\/em>Saville said.<\/p>\n Indebted South Africans<\/strong><\/p>\n Gordhan’s sacking is likely to have a profound effect on South Africa\u2019s millions of deeply indebted consumers, warned Neil Roets, CEO of debt counselling firm Debt Rescue.<\/p>\n With the rand expected to drop even further \u2013 the cost of all imports is going to increase substantially. The political uncertainty will undoubtedly affect the economy as a whole and there might even by further job losses as a result of foreign direct investment drying up, Roets said.<\/p>\n Even the expected drop in the petrol price by 24 cents a litre and diesel declining 9 cents a litre, there is preciously little to smile about, said Neil Roets, CEO of Debt Rescue, one of the largest debt management companies in the country.<\/p>\n While an expected decrease in the fuel price – by 24 cents a litre, 9 cents for diesel – will bring some short term relief, “the May price increase is going to be catastrophic unless by some miracle the rand staged a comeback against the US dollar”, said Roets.<\/p>\n \u201cThe rand will probably decline further in value against the dollar which is going to impact on everything from fuel to food because although South Africa is more or less self-sufficient in grains, all of the inputs such as fertilizer, pesticides and diesel have to be paid for in dollars.\u201d<\/p>\n
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