Cape Town - South African President Jacob Zuma fired Finance Minister Nhlanhla Nene in a shock move and replaced him with a little-known lawmaker, triggering the rand’s biggest decline in more than four years.
Nene was removed from his position after 19 months and ahead of his “deployment to another strategic position,” Zuma said in an e-mailed statement on Wednesday, without providing more detail. He was replaced by David Van Rooyen, who serves as a parliamentary member on committees for finance and economic transformation.
The rand dropped as much as 5.4 percent against the dollar, its biggest decline since September 2011, hitting a new record low of 15.3857. The currency was down 2.4 percent at 14.9369 per dollar at 10.40pm in Johannesburg.
“This is a big negative, especially because Nene was seen as someone who was moving in the right direction,” Ilke van Zyl, an economist at FirstRand’s Johannesburg-based investment banking unit, said by phone. “Because we don’t know the new man and we all have to get to know him now, and we are already at a very sensitive point in the projections of our fiscal position, we think this is a negative.”
The cabinet shakeup, the sixth since Zuma took office in May 2009, creates more uncertainty for an economy struggling to cope with plunging metal prices, credit rating downgrades and power constraints. On December 4, Fitch Ratings cut the country’s credit rating to BBB-, one level above non-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, said from London. “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.”
Rising debt
Nene, 57, took over the finance ministry from Pravin Gordhan in May 2014 after previously serving as deputy finance minister. He has struggled to keep debt under control as falling commodity prices and electricity shortages curbed economic growth. In October, he cut the growth forecast for this year to 1.4 percent, well short of the 5 percent the government is targeting by 2019 to address a 25.5 percent unemployment rate.
Gross debt has surged from about 26 percent of gross domestic product before the 2009 recession to reach almost 50 percent this year. While Nene has sought to contain spending in a bid to rein in a widening budget deficit, his efforts have been frustrated by the government agreeing to give workers above-inflation wage increases over three years.
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, according to the website.
“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.
* With assistance from Amogelang Mbatha, Paul Vecchiatto and Robert Brand
BLOOMBERG