Relief after Gordhan’s appointment, but…

Damage won’t be undone overnight, business sector says.

Listen to the clip: Moneyweb journalist Tumisang Ndlovu interviews several business and political representatives on Pravin Gordhan’s appointment

JOHANNESBURG – The re-appointment of Pravin Gordhan (pictured) as minister of finance will bring much needed stability to the country, but the damage to investor confidence won’t be undone overnight.

President Jacob Zuma on Wednesday last week replaced highly regarded former finance minister Nhlanhla Nene with fairly unknown whip of the Parliament’s standing committee on finance, Des van Rooyen. The move triggered significant losses in some sectors of the local equity as well as the bond market and saw the currency weaken to more than R16 to the dollar in less than two days.

On Friday night and after considerable criticism, Zuma clarified his decision saying government remained committed to its prudent fiscal position and that Nene’s removal followed his nomination as head of the African Regional Centre of the Brics Bank.

Pressure mounted and on Sunday night Zuma re-appointed Gordhan to his former position.

Markets immediately reacted positively, with the rand recouping some of its losses. The bond market also saw some recovery on Monday and financial shares, which were particularly hard hit by the announcement, rose sharply. 

But concerns remain about the long-term impact of the events.

Donna Oosthuyse, head of capital markets at the JSE, says the expectation is that the depreciation of the currency (which has been evident throughout the year) will have an impact on inflation.

Against the background of the current drought, South Africa will be importing about a million tons of white and yellow maize – about twice the usual quantity – which will have a knock-on effect on food prices.

“I think there is concern about inflation, which of course hits consumers hard. With the downgrade in ratings of the banks their cost of borrowing is going to increase and that will likely be passed on to the consumer.”

Oosthuyse says even though the president reappointed Gordhan, who is well-known and respected, the impact of the re-pricing still has some way to go and is likely to have a long-term impact.

While immediate sentiment has improved, the concerns about some of the more structural issues in the economy will need to be tackled before the long-term impact will be addressed, she says.

Christo Botes, chief executive officer of the Afrikaanse Handelsintituut (AHI), says the organisation is relieved that Gordhan was appointed to his former position.

While his appointment should bring much needed stability and is expected to facilitate a turnaround, the damage caused over the past week, won’t be erased immediately, he says.

Cas Coovadia, managing director of The Banking Association South Africa, says Gordhan’s appointment is a positive step and should instil some market confidence.

While the recovery may not be as quick or as sharp as the fall last week, he expects markets, investors and ratings agencies to view the move as positive.

Coovadia says all stakeholders should learn from the crisis, put the national interest first and take decisions in a way that does not create uncertainty or erode confidence.

He says the last thing the country needs is the erosion of confidence and uncertainty.

What the country needs is confidence and certainty that will attract investors and create jobs to address inequality, unemployment and poverty.

“We all agree those are the three challenges we have now. We can’t address those challenges without inclusive growth… and anything, any decision that threatens that or that impedes that has got to be considered very, very carefully.”

Nico Vermeulen, director of the National Association of Automobile Manufacturers, says the key challenge is to restore confidence – particularly with regard to international and domestic investors.

“The biggest challenge he [Gordhan] has as minister of finance now is to re-establish confidence in South Africa’s economic and financial administration and confidence in the growth potential of the economy.”

The country had decisively turned a corner with Gordhan’s re-appointment, Business Leadership South Africa (BLSA) said in a statement. 

“Recent events, whilst avoidable and regrettable, have demonstrated SA’s resilience in crisis and responsiveness while under pressure.”

It stressed that a commitment to fiscal prudence, the creation of a positive investment climate, rectification of the governance and performance of key state-owned enterprises and decisive action on corruption were now imperative actions.

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