South Africa drops finance minister Nhlanhla Nene, triggering rand slump

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South Africa drops finance minister Nhlanhla Nene, triggering rand slump

2:21 CAT | 09 Dec 2015

Getty / Jacob Zuma

South Africa removed Finance Minister Nhlanhla Nene and replaced him with a little-known lawmaker, sparking a sell-off in the currency.

President Jacob Zuma named David Van Rooyen as Nene’s successor, saying in an emailed statement that Nene had “done well since his appointment as minister of finance during a difficult economic climate” and will be moved to another key role. Van Rooyen serves as an official on committees for finance and economic transformation.

The rand dropped as much as 5.4 per cent, and traded 2.5 per cent weaker at 14.966 per dollar at 9.28pm in Johannesburg.

The cabinet shakeup, the sixth since Zuma first took office in May 2009, is the latest shock to an economy hit by plunging metal prices. On December 4 Fitch Ratings downgraded the country’s credit rating to BBB-, one level above investment grade, while Standard and Poor’s cut the outlook on its equivalent rating to negative, bringing the nation a step closer to junk status.

“This is monumentally bad timing after a downgrade,” Peter Attard Montalto, an economist at Nomura International Plc, said from London. “As such this is very ratings negative and increases the risks of contingent liability shocks in the future. It is an erosion of a previously strong-standing institution.”

Van Rooyen become involved in politics in the 1980s and joined the armed wing of the African National Congress during its struggle against white minority rule. He held several leadership positions in the party after it took power in the first all-race elections in 1994, according to the website of the People’s Assembly, a group that monitors parliament. His qualifications include a master’s degree in public development and management and another in finance from the University of London, the website said.

Nene took over the finance ministry from Pravin Gordhan in May 2014, after Zuma secured a second five-year term. Nene has struggled to ignite growth as a shortage of electricity curbs mine and factory output, while slower growth in Europe and China erodes demand for exports.
The Treasury expects the economy to expand 1.4 per cent this year, well short of the 5 per cent the government is targeting by 2019 to address a 25.5 per cent unemployment rate.

While Nene has sought to contain spending in a bid to rein in a widening budget deficit as tax revenue slows, his efforts have been frustrated by the government agreeing to a three-year deal with state workers that raised salaries in excess of inflation.

Nene’s attempts to turn around the loss-making South African Airways have also been undermined by the state-owned carrier’s board, which sought to ignore his instructions over a plane-leasing deal with Airbus Group and implement an alternative proposal that the Treasury says is unduly risky.

Previously, Nene served as Gordhan’s deputy and was chairman of the Public Investment Corp, Africa’s biggest money manager that invests the pension funds of government workers.

“The announcement comes as a shock,” said Steve Swart, a lawmaker for the opposition African Christian Democratic Party who sits on the finance committee. Van Rooyen is relatively knowledgeable on financial matters, “but clearly he hasn’t got the experience that Minister Nene has had. The question is to what degree will he back the National Treasury and keep the government expenditure ceiling in place,” said Swart by phone.

Source: Morning Herald