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Sacking of finance minister shakes S.African confidence

Published on 10/12/2015

South Africa's rand dropped to historic lows Thursday after President Jacob Zuma sacked his respected finance minister in a move that triggered widespread fears about the country's economic outlook.

South Africa has faced mounting financial problems in recent years, with unemployment at over 25 percent, slowing GDP growth and power cuts hobbling industry.

Zuma fired Nhlanhla Nene late Wednesday without giving any reason, and replaced him with David van Rooyen, a little-known lawmaker from the ruling Africa National Congress (ANC) party.

“We view this as profoundly negative,” Peter Montalto, an analyst at Nomura, said in a scathing criticism of the president.

“The removal of a technocratically sound, decent, hardworking, well respected, fiscally conservative and reform-minded Finance Minister is a serious blow.”

Montalto said Nene’s surprise sacking appeared to be because he publicly slapped down a move by state-owned South African Airways (SAA) to renegotiate a plane-leasing deal with Airbus.

Nene, who was appointed in 2014, has also criticised the affordability of a nuclear plant building programme.

Both projects are seen as being controlled by Zuma loyalists, who are regularly accused of using their influence to benefit from government contracts.

Nene’s removal came less than a week after South African debt was moved closer to “junk” status by rating companies, which highlighted growth predicted at a sluggish 1.4 percent this year, and rising interest and inflation rates.

Falling commodity prices have also added pressure to the country’s key mining sector.

“Mine is a colossal assignment coming at a time when the global economic outlook is not favourable, especially for emerging markets,” Van Rooyen said after being sworn in.

“All economic indicators are pointing to the south,” he added, vowing to attract investment “leading to the development of South Africa for all South Africans, not for the few.”

The rand, which has declined sharply during the year, dropped a further five percent immediately after Nene’s removal, hitting a record low of 15.3857 to the dollar.

Late Thursday afternoon, it was trading at 15.31 to the dollar.

– ‘In a crisis’ –

“We are in a crisis, and (Zuma) decides to get rid of the finance minister, and replace him with somebody without any experience,” Dawie Roodt, economic analyst at Efficient Group, told AFP.

“That is a very irresponsible thing to do.

“It sounds like a personal decision, not a decision meant for the wellbeing of the country. We have a president who cares very little about the damage caused by his actions.”

Mmusi Maimane, leader of the main opposition Democratic Alliance party, told AFP that Nene’s sacking “has everything to do with his criticism of parastatal companies (like SAA).”

“Zuma has proven he’s a president ready to destroy the economy for his own game,” he said.

Fitch Ratings issued a statement saying Nene’s firing “increases uncertainty about fiscal policy and contingent liabilities from state-owned companies.”

“The (personnel) change would be relevant to our sovereign rating assessment if it led to a loosening of fiscal policy,” it added.

Zuma, a former Robben Island prisoner alongside Nelson Mandela under apartheid, came to power in 2009 when he was hailed as a charismatic, down-to-earth leader.

But his rule has been tarnished by corruption scandals and growing anger among young South Africans that the benefits of the post-apartheid era has only been enjoyed by small elite within the ANC.

He has often blamed the country’s economic woes on the legacy of white-minority rule that ended in 1994, and the global decline in prices for platinum, gold, coal and other mineral resources.

Zuma is due to stand down in 2019, with deputy president Cyril Ramaphosa and Nkosazana Dlamini-Zuma, Zuma’s former wife and the head of the African Union commission, leading the field to succeed him.