In his first comments to journalists since his stunning termination by South Africa’s president Zuma on Thursday night, ousted finance minister Pravin Gordhan dismissed an intelligence report used to justify his sacking as “absolute nonsense”. Quoted by the FT, the internationally respected, if feuding with Zuma, Gordhan said the report, which alleged he was plotting to overthrow president Jacob Zuma, was “not the basis on which you fire a minister”.
“There is an allegation circulating that sickens me, that I had secret meetings and the intention was to undermine this government,” Gordhan added and added that the Treasury had been subjected to the “most horrific attacks” in the past year, and said “we hope more and more South Africans will make it absolutely clear that our country is not for sale”. What is surprising is how resilient the rand had been during this period of “attacks”, even if it since given up most of its gains following the Gordhan sacking.
The former finance minister added that South Africans would support his deputy, Mcebisi Jonas, for refusing “a bag of cash”, a reference to allegations last year that Jonas was offered a bribe to be finance minister by the prominent Gupta family in 2015. The Guptas deny this allegation.
Conflict over the influence of the Gupta business family, friends of Mr Zuma’s, formed a key part of the year-long power struggle between the president and his finance minister.
Mr Zuma prompted speculation of an imminent cabinet reshuffle by recalling Mr Gordhan from an investor trip to London on Monday, and sacked him in a late-night cabinet reshuffle on Thursday.
But perhaps the most memorably part of the conference was Gordhan telling reporters that he and his deputy “learnt our fate from the TV screen. Not from any phonecall, chat or conversation. So that was I’m sure as interesting for us as it was for you.”
Cyril Ramaphosa, the deputy president who is one of the main contenders to replace Mr Zuma as ANC leader later this year, called Mr Gordhan’s firing “unacceptable” – but said he would not resign in protest. “I will stay in my position to serve the people of this country,” he said. South African assets have been hit hard by the news, with the rand, bond prices and bank stocks all tumbling and analysts predicting imminent downgrades to the country’s credit ratings.
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Meanwhile, the shockwave over Zuma’s decision has sent South African assets tumbling and the Rand crashing.
As we reported yesterday, Zuma replaced Gordhan, with whom he feuded over state finances, with Home Affairs Minister Malusi Gigaba, who has no financial or business experience. He also named lawmaker Sfiso Buthelezi to take over from Mcebisi Jonas as deputy finance minister. The cabinet overhaul came in a late-night move that threatens to split the 105-year-old ruling African National Congress and trigger a revolt against the president. The rand extended losses, heading for its worst week in more than a year.
“Zuma has been playing Russian Roulette with our investment-grade rating through his actions,” Colin Coleman, head of sub-Saharan Africa at Goldman Sachs Group Inc., said in an interview on Bloomberg TV on Friday.
Zuma’s decision to replace Gordhan, popular with investors because of his efforts to rein in spending, came in the face of opposition from three of the top six members of the ANC and its alliance partner, the South African Communist Party. Some cabinet ministers were said to be ready to turn against the president, who’s survived a series of corruption scandals and presided over the party’s worst-electoral performance since the end of apartheid in 1994 in municipal elections in August.
While Zuma told the ANC leaders about Gordhan’s removal at the Thursday night meeting, they weren’t consulted about the rest of the cabinet changes, according to the party’s secretary-general, Gwede Mantashe. Gigaba was a compromise candidate, he said.
Gordhan’s ouster marked the end of a stormy relationship that began almost as soon as Zuma named him as finance minister in December 2015, four days after the president triggered a sell-off in the rand by replacing the respected Nhlanhla Nene with a little-known lawmaker. He clashed with his boss over the affordability of building nuclear power plants and the management of state-owned companies.
While removing an opponent in a key position may strengthen Zuma’s grip over the government in his final year as ANC leader, a backlash within the party would galvanize his detractors as he seeks to secure his choice as successor in a party election in December.
According to Bloomberg, the cabinet changes will leave South Africa’s credit rating vulnerable. Moody’s Investors Service, which rates South Africa’s debt at two levels above junk and with a negative outlook, is scheduled to publish a review of the nation’s creditworthiness on April 7. S&P Global Ratings and Fitch Ratings Ltd. kept their assessments at the lowest investment grade late last year.
“We expect the current explosion of political turmoil and its resulting economic and fiscal uncertainties to catalyze sovereign rating downgrades,” said Phoenix Kalen, director of emerging-market strategy at Societe Generale SA in London.
“Unlike when Nene was fired, the opposition to Zuma within his government is now much stronger, presaging a full-blown political crisis,” said Nicholas Spiro, a partner at London-based Lauressa Advisory Ltd., which advises asset managers.
Zuma’s made 20 changes to his administration, capping a dramatic week when he ordered Gordhan on Monday to cancel a series of meetings with investors in the U.K. and the U.S. and return home. South Africa’s fourth finance chief in 15 months, Gigaba, 45, was appointed as minister of home affairs in May 2014. A former president of the ruling party’s youth wing, he trained as a teacher and holds a masters degree in social policy. He previously served as the minister of public enterprises, deputy home affairs minister and as a lawmaker for the ANC.
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Finally, for those curious how to trade the political upheaval in South Africa, here are some thoughts from Mark Cudmore, a former FX trader who writes for Bloomberg.
Zuma Snatches Rug From Beneath South African Assets: Macro View
Political developments in South Africa mean much more pain for local assets, but it’s not going to be easy to trade because the terrible domestic story is running against a very positive global macro environment.
- President Jacob Zuma’s cabinet reshuffle is about as bad a development for South African assets as could have been feared.
- The news came late in the local day, so U.S. and Asia commentators were focused on the headlines about Finance Minister Pravin Gordhan being dimissed. That alone is certainly very bad news but it’s distracting from the larger fact that a total of 20 ministers and deputy ministers were removed.
- Despite speculation all week, the enormity of what has happened will still impact significantly when South Africa- focused market participants get up to speed Friday morning.
- The country’s institutional integrity has been seriously undermined, and credit rating downgrades beckon. This really matters given the large amount of foreign money in the bond market –- some of which will be forced to divest by mandate amid a downgrade to junk status.
- As outlined in this column on Tuesday, a far greater risk premium needs to be priced into South African assets. And this will be ongoing. Don’t think the correction is anywhere near complete.
- But it won’t be a straight line affair. The theme of 2017 is of both the dollar and U.S. yields far underperforming hyped expectations. This continues to provide a massive tailwind for emerging-market assets.
- Another support for South Africa is that, despite recent weakness, the country’s terms of trade have improved markedly during the past year.
- These positives won’t be nearly enough to counter the negative shift Zuma initiated this week, but they will provide two-way volatility to the trading environment.
via http://ift.tt/2nCNfgn Tyler Durden