South Africa’s financial markets were sent into a tailspin after the country’s president, Jacob Zuma, fired his respected finance minister as part of a longstanding political crisis, which is raising concerns about the country’s fiscal path and its investment-grade credit rating.
Pravin Gordhan represented fiscal stability in a government whose competency has been repeatedly called into question. However, he had clashed repeatedly with Zuma and his close allies over the affordability of building nuclear power plants and the management of state-owned companies, which are regarded as troughs of corruption to insiders close to Zuma.
The presidential office said in a statement on March 31 that President Zuma is replacing Gordhan with Home Affairs Minister Malusi Gigaba, while African National Congress lawmaker Sfiso Buthelezi will replace Gordhan’s deputy, Mcebisi Jonas. This is part of a wider reshuffle of nine other ministers and their deputies who were sacked – some of whom had spoken publicly of their disillusionment with Zuma’s scandal-prone leadership.
By lunchtime trading in Asia, the rand was down around 1% at ZAR13.4241 per dollar, which would mean the currency will end the week almost 8% down, its worst performance since December 2015. This will make imports more expensive and call into question the inflation outlook.
“Huge move by Zuma. Taking the reformers and markets on, head on. Calling their bluff. If Zuma wins South Africa is heading for radical change. Let's see what the damage is tomorrow to markets and ratings,” Timothy Ash of Bluebay Asset Management said on March 30.
Gordhan’s replacement Gigaba, a staunch Zuma supporter, has no background in economics and falls into a long line of ministers appointed by Zuma who appear to get jobs only because they have close personal and business ties to the president.
Zuma’s critics from within his own party are questioning why Gordhan, who was credited with staving off a recession and a credit ratings downgrade, was being targeted when many ministers who have been found guilty of mismanagement and incompetence are allowed to remain in their posts.
According to The Times, Zuma’s reshuffle came after days of drama that culminated in reports that the president had struck a deal with his ANC party that would allow him to sack Gordhan, despite internal opposition to the move, in return for promising to step down early next year.
Zuma has served two terms as president of South Africa and is due to remain in office until national elections in 2019, although his successor as president of the ANC is expected to be picked at the party conference in December. Under the terms of the deal, he will hand over power shortly after the conference, The Times reported.
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