Last night, against the backdrop of very worrying social, political, and economic developments in South Africa over the last 6 months, Jacob Zuma fired Finance Minister Nhlanhla Nene – via press release.
“A total an(d) utter disaster” – Johann Rupert via his twitter handle @Cutmaker
The Rand immediately sold off in overnight trade to R15.29, before recovering back to R14.89 at 6am. One things for certain, ZAR volatility is about to increase materially, and our economic fundamentals have deteriorated significantly.
Social media went into overdrive voicing condemnation, and suggesting that this is Zuma’s rubicon moment, pointing to mismanagement at SAA, SABC, Eskom, and identifying Nene’s reluctance to assist plundering of state assets by incompetent political appointments as his only failing!?! Punish the competent, and not only tolerate, but assist the incompetent.
“We need to be clear that Nene was praised by ratings agencies for core fiscal conservatism. Thus, in our view, there can be no reason for his firing based on the ratings. The reasoning behind the ratings downgrades was wider government policy and the lack of growth from wider policy,” Nomura economist Peter Attard-Montalto
Press coverage locally and internationally have zeroed in on the total lack of understanding on Zuma’s part regarding what this move, its manner of communication, and the serious financial consequences that will follow mean for South Africa. In a word, they all lead to junk status.
“Even for ministers in the belly of the beast of the Zuma presidency, it seemed too absurd, too reckless, too deadly to suddenly remove the Minister of Finance for no good reason.” Dailymaverick
Many commentators have battled to get leading South Africans to go on record. However Johann Rupert got to the nub of it with his quote and by sharing Zapiro’s cartoon.
UDM leader Bantu Holomisa on Wednesday said he is not surprised by the decision to remove Finance Minister Nhlanhla Nene. This was given the country’s leadership which was both “morally corrupt and intellectually challenged”
Zuma and the ANC might not understand all the finer points of a credit downgrade, and the impact on debt levels, inflation, and life in South Africa for all but the very wealthy – but the most worrying aspect is that this doesn’t concern them. New jets, nuclear deals, Chinese agreements, and concubines feature much bigger on their to-do-list.
We share Rupert’s view, and are seriously concerned as to the future of our economy, our country’s credit rating, the impact on all of us. We encourage all our clients to adopt an international investor stance, and look to international investments to drive the returns they require.
Many South Africans procrastinate when contemplating whether to move Rands offshore – and most often because they feel that the currency has weakened too much. Don’t bet that this is the case now! Junk has many levels of rating, and we are about to enter the most creditworthy level.
In September we posted “Rand & Currency Concerns – and obtaining your foreign tax clearance”, urging those who have the means to obtain their tax clearance certificate, and indicating that we can assist. Hard currency investments are extremely valuable.
We have also been very active in helping our clients increase their international exposure, within local Rand denominated unit trusts, direct offshore fund and share investments, investment platforms, insurance policies, and international investment vehicles.
In the late 90’s I was trading currencies and fixed income out of Dublin, Ireland, and in my youth decided that the sell-off that greeted Tito Mboweni’s appointment to the SARB was overdone. I bought the Rand and our long-dated bonds. It was the most unpleasant trade I ever made, and was exited immediately the higher interest rate carry brought the positions back to breakeven.
This is a similar bombshell, but against a very different backdrop, and in my opinion, it’s going to pan out in a very different manner.