One investment analyst has described South African President Jacob Zuma’s abrupt appointment of a new finance minister as “wilful sabotage” that has created “the perfect storm” for that country’s economy. South Africa’s newly appointed Finance Minister David van Rooyen, who suddenly replaced Nhlanhla Nene in a move that surprised many, has vowed to create favourable investment conditions for Africa’s most robust economy.
“In what can only be described as an act of wilful sabotage, the strangest act of sabotage, the South African president fired his finance minister and created the perfect storm. Perfect if it weren’t for the fact that it is no longer funny,” said Suta Kavari, investment analyst at Capricorn Asset Management.
“To say that the country is in free-fall would be an understatement. The South African economy is now so delicately poised on the edge of an abyss that you don’t need to look any further than the Rand. Take the country’s credit downgrade, couple that with the poor economic performance, a battered currency and external imbalance, now unceremoniously remove the finance minister. That’s a perfect storm,” Kavari remarked.
The South African Rand, to which the Namibia Dollar is coupled one-to-one, tumbled to fresh lows on Thursday as the currency reacted to the first time that a finance minister has been fired in South Africa. The Rand plunged to a record low of 15.4841 to the US Dollar on Thursday, and is now widely expected to fall even further going into 2016 and may fall to 17 as capital outflows from the SA market mount.
“No one was spared the pain, with banks feeling the full brunt of it. The Johannesburg Stock Exchange’s banking index crashed 14 percent, wiping out close to R150 billion off the market value of banks. Year to date the banking index is down 22.3 percent,” Kavari commented.
Meanwhile, FirstRand and Standard Bank bore the brunt of the meltdown, falling 14.84 percent and 13.54 percent, respectively, with both having lost more than 20 percent this year. According to Kavari, the strong sell-off was expected to continue on Friday, as both the Rand and government bonds continue to feel the pressure. As the Rand goes into an uncontrollable sell-off, concerns are mounting over the health of South Africa’s fiscal policy.
“Concerns of further downgrades and loss of investment-grade status have now increased, adding more pressure on the [SA] Reserve Bank. We can expect concerns of further ratings downgrades and the loss of investment-grade status in the short-term. This doesn’t help the Reserve Bank’s task of stabilising the rand,” Kavari added.
Speaking in Pretoria after he was sworn in, newly appointed Van Rooyen called his appointment a colossal assignment at a time of sluggish economic growth, adding that every policy is directed at creating favourable investment decisions for the benefits of all Africans. Van Rooyen added that the area they need to improve on under the leadership of the ANC is the area of accessibility, adding that as the National Treasury is the axis of their development agenda, it must be accessible.