December was a turbulent time for the South African economy. In what appeared to be a schizophrenic attempt to demonstrate his authority, ANC leader and controversial president Jacob Zuma, fired two finance ministers in less than a week.
First, Nhlanhla Nene, minister for just 18 months, was abruptly replaced by inexperienced and unknown minister David van Rooyen on December 9. Van Rooyen held the position for only four days before he was axed in favour of Pravin Gordhan. Gordhan was a much more pragmatic choice, having been minister of finance for five years before Nene came on the scene.
Following van Rooyen’s appointment, the rand fell 9.5% to just over R16 to the dollar, bond rates blew up and there was a big sell-off in financial shares. Just two days after van Rooyen’s appointment, the Johannesburg Stock Exchange All-Share, fell by 3% while the JSE banking index fell by nearly 19%.
The disruption came at a tough time for South Africa. The economy is under pressure due to high unemployment (above 25%) and social unrest. Meanwhile, constant power outages are harming business and having an adverse effect on growth. These were the specific issues Nene was hoping to tackle head on, as he told Euromoney in a wide-ranging interview in March 2015.
Fitch cut the sovereign’s rating to one notch above junk and Standard & Poor’s put it on negative outlook – both just days before Zuma inflicted more damage on the economy with his unpopular appointments.
Analysts and bankers are still waiting for a persuasive explanation for Nene’s abrupt dismissal. The government line is that he has been nominated for a position with the New Development Bank, but even Zuma’s cabinet were kept in the dark about the changes.
Another, more likely, reason for Nene’s dismissal is the mounting tension between him and the president. Nene refused to succumb to Zuma’s requests for loans and guarantees to prop up problematic South African Airways, which Zuma has personal ties to. Nene also blocked the purchase of a new private jet for the president and his entourage.
Another blow to Zuma’s power came when Nene declined to expedite the country’s plans to build new nuclear power plants, which, if they happened before the end of Zuma’s tenure, could have resulted in financial gains for the president, according to some analysts.
Now Zuma’s future is in question. Bankers and investors in South Africa will hope for a plan to fight the crisis.