South Africa has had three finance ministers in the space of four days. First President Jacob Zuma replaced the trusted and competent Nhlanhla Nene with David van Rooyen, a malleable backbencher with a poor service delivery record. Four days later he reversed the decision and brought back Pravin Gordhan, a veteran politician and respected former finance minister. The Conversation Africa business and economy editor Andile Makholwa asked professor Adrian Saville about the implications of the events.
What is the significance of Zuma’s about-turn?
He has done a lot of damage to the country. The firing of Nene was without good reason. The person he appointed to replace him, David van Rooyen, was completely unknown and the little we do know about him is discouraging.
The decision was poorly communicated. I think government could have done better on this. They could have been cleverer and recognised that the markets are watching.
The fact that Zuma has responded to the media and the markets indicates how powerful these institutions are. His response – appointing Gordhan – is remarkable. Gordhan is known by the markets and did a good job when he was finance minister.
What is the long-term effect of these events likely to be – for the economy, for fiscal policy, for the country?
I would describe the long-term effects for the country as dire if we were talking about events before the re-appointment of Gordhan. The outlook is better now. Gordhan is capable leader and has a strong independent mind, which is what you need to run institutions like the country’s National Treasury. Nene also had an independent mind. That was why his dismissal was met with dismay.
What is the price tag you would put on the events of the last four days? What has the cost been to the country?
It’s very hard to put a price on it. But it’s clear that the markets have lost confidence. There are also issues of trust with the government.
According to calculations done by Citadel, a wealth management firm, after Nene was fired the Johannesburg Stock Exchange lost R230 billion in value, the bond market lost R217 billion and the increase in government’s future funding costs per year went up by R20 billion.
Depending what GDP estimates and currency rate you use, the losses on the stock exchange and the bond market, which make up most of domestic retirement savings, equates to between 10% and 15% of South Africa’s GDP. With the country’s economy currently growing at a nominal (that is, not adjusted for inflation) rate of between 5%-6%, it means that over just two days the next two years worth of GDP growth from savings was wiped out.
Why does the president have to tread carefully when replacing a finance minister?
He doesn’t have to. It’s his prerogative to appoint and dismiss ministers as he likes. The constitution empowers him to do so.
Nevertheless, the events of the past four days demonstrate that he should tread carefully. These kinds of decisions – dismissing and appointing finance ministers – are not taken in a vacuum. They take place within a context. South Africa has a very high debt level and the economy is struggling to grow. You need to keep investors, both domestic and international, informed about decisions that may affect the market.
Will the return of Pravin Gordhan undo the damage that has been caused to South Africa’s economy?
It can’t undo the damage in a day. It will take a while. I suspect this will stay with Zuma for the rest of his term. They say the markets have a long-term memory. I don’t think they will forget this easily. But he’s done a good job by reversing his decision. That was brave and we need to commend him for that.
It’s been suggested that this will lead to Zuma being recalled. What do you think?
That is purely speculative. It will be very hard for the ruling African National Congress to recall him. The party recalled then-president Thabo Mbeki in 2008. It would be damaging for it to do a second recall of the president.
What do you think should be done to restore investor confidence in South Africa?
The government needs to do a lot of what it has now started to do. There must be more open and transparent communication as well as consistency and stability in policy. It must put the country first.
Adrian Saville is chief strategist for Citadel, a wealth management firm.
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