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Rand strengthens after Pravin Gordhan announcement

Pravin Gordhan Budget 27 Feb 2013

There's been another surprising announcement from the Presidency overnight as President Jacob Zuma says he has now decided to remove David van Rooyen from the position as finance minister and to reappoint Pravin Gordhan to take over the position once again.

Gordhan will come back in the position he had previously held for five years.

Van Rooyen is now going to take over the Cooperative Governance and Traditional Affairs Department.

The rand is already strengthening against other major currencies after the overnight news as Gordhan is generally respected by investors as someone who toed a prudent fiscal line.

Last week, the rand dropped significantly after Zuma said he was replacing Nhlanhla Nene at the National Treasury with van Rooyen.

In his statement, the president said he received many representations to reconsider his position to appoint van Rooyen as finance minister.

He then said that after serious consideration and reflection, he decided to bring Gordhan back to the National Treasury.

THE MARKETS

International markets are now digesting the surprising announcement.

Nedbank CIB’s Mohammed Nalla says this latest development is going to strengthen the rand.

“I think we’ll see semblance of comfort return to the market, but I think the reputational damage has already been done.”

Questions are now being asked about whether this decision does have implications for Zuma's future.

Economist Chris Hart feels the rand is recovering.

"So far it's early days. We need to see how the market unfolds today. The rand has snapped back quite strongly."

Nomura Emerging Markets economist Peter Attard Montalto says it's surprising news.

“I’m in complete shock that you can have so many finance ministers in so few days. It’s obviously very welcomed, especially on the fiscal front, that Pravin is back. But to be perfectly honest, I think we’d rather have Nene back.”


Gordhan is expected to hold a press conference this morning after being sworn in.

THE ZUMA EFFECT

At the same time, one of the big questions this morning is whether Zuma's authority has now been weakened.

Political analyst Somadoda Fikeni says this doesn't mean people in the African National Congress (ANC) are going to push for Zuma to be removed now.

“I think it won’t be a sudden spectacular one off event, it’s an accumulative effect of a number of issues that have exposed the president to criticism. But this surely is a tipping point.”

Professor Steven Friedman says this shows that it's not true to claim Zuma can do what he wants as president.

“Now the markets can see that this is actually a country in which that doesn’t happen and I think that’s hugely positive.”

But there is now going to be speculation about why exactly Zuma changed his mind and whether a group of senior ANC leaders have forced him to actually make this appointment.

Friedman says it shows the president is now all-powerful.

“Sanity has prevailed. The decision to fire Nene, in my view, was taken at a faction of the ANC without any reference to the top six.”

(Source: EWN)

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