When the <a href="http://ewn.co.za/2017/03/31/president-jacob-zuma-s-cabinet-reshuffle">axe</a> finally fell on the embattled South Africa’s finance minister, Pravin Gordhan, and his deputy, Mcebisi Jonas, the reactions played out as many people had predicted. The country was hit by an immediate drop in the value of the <a href="http://www.fin24.com/Economy/cabinet-reshuffle-downgrade-knock-rands-emerging-markets-crown-20170406">rand</a> and a sovereign credit rating downgrade from rating agencies<a href="http://www.ujuh.co.za/sp-official-statement-downgrading-south-africas-credit-rating/">S&amp;P </a> and <a href="http://www.ujuh.co.za/and-now-fitch-downgrades-south-africa-to-real-junk-status/">Fitch</a>. Widespread <a href="http://www.timeslive.co.za/sundaytimes/stnews/2017/04/07/IN-PICTURES-South-Africans-come-out-in-droves-to-join-anti-Zuma-countrywide-marches">protest</a> against President Jacob Zuma has since followed.
The ensuing protests and debates are dominated by a focus on the role of individuals: Zuma is the centre of focus as the wrecking ball; Gordhan and to some extent Jonas, were seen as the saviours. The view is that all hell will break loose once these good men are gone.
Given the current state of the economy and the sensitivities of the markets, it is inevitable that South Africans are likely to fixate on the financial outcomes of Zuma’s moves. But focusing too heavily on individuals’ actions and the outcomes from them is dangerous.
This is not because the role of these individuals and the outcomes are unimportant. But it must be the systems and processes that should matter more for an approach that goes beyond the 24-hour news cycle and into rebuilding a better future. The underlying systems of government and party politics that generate and support leaders need to change if the country is not to repeat the recent calamities.
While people may be justified to protest, shout and tweet slogans like “Zuma Must Fall”, it’s a mistake to assume that change in one leadership position will bring about a shift in underlying systems. Likewise, the positioning of Gordhan (and to a lesser extent Jonas) as the saviours speaks to this same problem. Both perspectives are based on an extremely limited conception of how institutions and societies work, hearkening back to the outdated, and ironically colonial, “<a href="https://www.villanovau.com/resources/leadership/great-man-theory/#.WO813aIlHDc">Great Man Theory</a>”.
<h2>It’s the systems that matter</h2>
The Great Man Theory says that leaders are born with a special gift and their unique skills make them indispensable. Worthy successors are thought to be few and far between. Great things can only happen with these chosen people at the helm of institutions or societies.
The prevalence of this view in South Africa is deeply worrying. It shows a shockingly unrealistic understanding of the scope of issues facing the country. It also shifts people’s focus to leaders in certain positions as opposed to systems and institutions.
Good leaders can obviously make a difference, but environments can also exert a profound impact on leaders. Take the American experience: the running joke in the US is that President Donald Trump said he was going to “<a href="http://www.newsweek.com/2017/02/17/donald-trump-drain-swamp-lobbyists-553809.html">drain the swamp</a>” (change the political system), but his recent failings in many initiatives show that “the swamp is draining him”.
It’s certainly possible that a change in leadership at the top may lead to better outcomes and shift the direction of a country. But keeping all of the underlying systems and processes intact will likely guarantee that the future will remain the same.
<h2>Some indicators of underlying change</h2>
To get a better sense of the true impacts of the Zuma <a href="http://www.ujuh.co.za/zumas-cabinet-reshuffle-points-to-the-rise-of-malusi-gigaba/">cabinet reshuffle</a>, South Africans need to assess how it relates to crucial systems, rather than just immediately quantifiable outcomes. For those who are fearing or hoping this most recent political move is a watershed event, the proof of their case will not come in shorter-term outputs, but in real changes to underlying systems, which speak to the strength – or weakness – of institutions.
There have been reports that other cabinet members would <a href="https://businesstech.co.za/news/government/160435/anti-zuma-ministers-threaten-mass-resignation-following-possible-cabinet-reshuffle-report/">resign in protest</a> after Gordhan was removed. Significant resignations by internal senior leaders will be indicative that the current processes for leadership selection and support are no longer holding. If that fails to happen in a meaningful way, it will be a strong indication that the underlying system will not be shaken.
Short of resignation, who will speak out from inside the ANC. There are indications of internal factions in the ANC, exacerbated by the organisation’s 2017 ANC <a href="http://ewn.co.za/2017/01/08/the-debate-over-who-should-succeed-zuma-as-anc-president-heating-up">elective conference</a>. Opening the leadership debates around ANC’s contestations for power will be beneficial. Made public, the rationale and underpinning logic for differences of opinion give insight to both ANC members and the public as to what the real issues are facing the party, its leaders, and the country. If these factional territories are kept hidden rather than staked out in public, it will be a strong indication that the underlying system will not be shaken.
Much of the ANC’s leadership selection and succession processes are highly opaque, making it hard for the public to see just how leaders arrive at their positions. This doesn’t mean there’s anything wrong with that person or those processes, but the lack of transparency allows for every shortcoming to be magnified with suspicions of shady dealings in the background. If the process for the elevation of leaders in the ANC is not made more transparent, it will be a strong indication that the underlying system will not be shaken.
<h2>The bottom line</h2>
The loss of Gordhan and Jonas is no doubt <a href="https://theconversation.com/firing-of-south-africas-finance-minister-puts-the-public-purse-in-zumas-hands-75525">a blow</a> to the National Treasury. Good leadership is always a benefit to institutions. South Africa, like any country, should try to make the most of any good leadership it can find. But this should not blind South Africans to the fact that the finance ministry, and the economy as a whole, can never be wholly dependent on one or two people.
If the country wants real “<a href="http://www.ujuh.co.za/zuma-what-do-we-mean-by-radical-socio-economic-transformation/">radical economic transformation</a>”, it can only come from institutions that are strong throughout and buoyed by the work of many people dedicated to the task of improving the country.
Gordhan himself appears to understand this. Commenting after his dismissal, he said Treasury is in <a href="http://m.ewn.co.za/2017/03/31/gordhan-treasury-is-being-left-in-good-hands">safe hands</a> because its professionals remain committed to ensuring macro-economic stability.
The bottom line is that if South African politics is its own “swamp”, it would be foolish to think that skimming the top (whether that’s in the form of Zuma or cabinet ministers) will be sufficient on its own to improve the situation and keep the country safe from future harm. Anyone who has been in a swamp knows that the most dangerous things lie below the surface, ready to emerge at the right moment for an attack.

South Africa must look beyond individuals to solve the current crisis

South Africa&#8217;s new Finance Minister Malusi Gigaba said on Wednesday Treasury is committed to fiscal consolidation plans outlined in the 2017 budget after S&amp;P and Fitch downgraded the country to sub-investment grade.
Speaking to local investors at the Development Bank of South Africa, Gigaba said the Treasury aims to stabilise the government&#8217;s net debt over the next three years at 50 percent of gross domestic production (GDP).
<blockquote>&#8220;To accomplish this we are tightly controlling expenditure,&#8221; Gigaba said.
&#8220;Fiscal sustainability is a prerequisite for inclusive development &#8230; we are therefore committed to the fiscal consolidation plans as outlined in the February budget.&#8221;</blockquote>
Last week Fitch downgraded South Africa&#8217;s foreign and local currency debt to speculative grade, while S&amp;P Global Ratings cut the hard currency borrowing to &#8220;junk&#8221;. Both cited likely changes in economic policy after a cabinet reshuffle.
Gigaba reiterated that South Africa&#8217;s controversial nuclear-build programme will be implemented &#8220;at a pace and scale that the country can afford&#8221; in brief remarks to reporters.
<blockquote>&#8220;Any procurement of nuclear energy will follow due process,&#8221; Gigaba said.</blockquote>
Critics of the expansion plan have raised questions about environmental risks and costs, estimated at 1 trillion rand ($73 billion), saying the country can ill afford the project.
State-utility Eskom said on Sunday if all processes go well, it will issue a request for proposals around June.
South Africa, which has Africa&#8217;s only nuclear power station, wants atomic power to play the leading role in expanded power generation, easing the country&#8217;s reliance on an ageing fleet of coal-fired plants. It has asked Eskom to procure an additional 9,600 megawatts (MW) of capacity.
($1 = 13.7435 rand)
(Reporting by Mfuneko Toyana; Writing by Nqobile Dludla; Editing by James Macharia)
&nbsp;

South Africa’s finmin Gigaba committed to fiscal consolidation after downgrades

Treasury statement 
<a href="http://cnbc.africa/trending/sa-downgrade/2017/04/07/fitch-downgrades-sa/">Fitch Ratings</a> has downgraded government’s long-term foreign and local currency debt to &#8216;BB+&#8217; from &#8216;BBB-&#8216; with a stable outlook, a non-investment grade rating.
The announcement by Fitch is noted by government and while it is a setback, government remains committed to making sure that its work with business, labour and the civil society continues in order to improve the business confidence and implement structural reforms to accelerate inclusive economic growth.
This downgrade reflects Fitch’s view that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances. In the agency’s view, the cabinet reshuffle is likely to result in a change in the direction of economic policy, to undermine progress in state-owned companies’ governance, raising the risk that the contingent liabilities associated with these entities are realised and increase the prospect of a substantial increased issuance of guarantees in respect of a nuclear build programme.
The government would like to reaffirm its full commitment to the policy stance contained in the President State of the Nation Address and the Budget 2017. Government remains committed to: 
 The fiscal policy trajectory outlined in Budget 2017. 
 Implementing reforms to improve governance in state-owned companies. 
 Maintaining the expenditure ceiling and ensuring the stabilization of government debt. 
 Ensuring that Nuclear procurement will be transparent and implemented at a scale and pace that the country can afford. 
 Fast-tracking the implementation of structural reforms aimed at boosting economic growth as contained in the 9-point plan. 
To this end, and as acknowledged by Fitch economic growth is expected to be higher this year than in 2016 then rising further over the medium-term.
We urge all South Africans to remain positive and continue to work hard in turning this economy around. This country has tremendous potential, by working together we can make South Africa an increasingly attractive investment destination.
CEO Initiative&#8217;s statement 
The well-being of all South Africans has been dealt another blow following the downgrade of South Africa’s long-term foreign currency sovereign credit rating to sub-investment grade by a second ratings agency, Fitch.
In addition, Fitch also downgraded their ratings of the long-term rand-denominated sovereign credit rating to sub-investment grade. This is particularly concerning given that approximately 90% of all government debt is rand-denominated.
Fitch attributed these downgrades to their “view that the cabinet reshuffle which involved the replacement of the finance minister, Pravin Gordhan and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in direction in economic policy and is likely to undermine, if not reverse, progress on SOE governance, raising the risk that SOE debt could migrate onto government’s balance sheet”. These are essentially the same <a href="http://cnbc.africa/news/southern-africa/2017/04/03/south-africa-long-term-foreign-currency-rating-cut-bb-political-institutional-uncertainty-outlook-negative/">reasons that Standard and Poor’s gave for their recent downgrade.</a>
http://cnbc.africa/news/2017/04/06/sp-downgrades-seven-south-african-banks/
Unfortunately ordinary South Africans will pay the price of these actions for many months to come.
The CEO Initiative remains committed to working with the government and labour in creating an environment that is conducive to sustainable and inclusive growth for the benefit of all who live in South Africa.
In order for this to happen, it is now more crucial than ever that we maintain continuity with our fiscal plan and apply strict discipline in managing the country&#8217;s finances. Above all else, our country should not be drawn into borrowing even more money that would have to be repaid at higher rates of interest following these downgrades. 
 
BANKING ASSOCIATION OF SOUTH AFRICA statement 
The downgrading by Fitch, of both the foreign and local currencies of SA to sub-investment grade is devastating, though not unexpected.
The fact that Fitch has directly attributed its downgrade to the actions of the President demonstrates in no uncertain terms the broad assertion that the Cabinet reshuffle, although the prerogative of the President, was not in the national interest.
http://cnbc.africa/trending/cabinet-reshuffle-17/2017/04/03/business-leaders-response-to-sa-junk-status/
A presidential prerogative cannot be exercised in a reckless manner, with insufficient regard for the consequences of such prerogative. SA is now experiencing the dire consequences of the actions that started with the precipitous calling back of the previous minister from a critical roadshow. One has to ask if we would, as a nation, be in this position if we were not forced to abandon interactions with investors and rating agencies.
It is critical that government and the ruling party take heed as South Africa continues to slide backwards because of poor leadership and an inability to act in the national interest over what seems to be the interests of the ruling ANC itself.
http://cnbc.africa/trending/cabinet-reshuffle-17/2017/04/04/south-africa-cliff-edge-just-1985/
This additional downgrade is of greater concern as it includes a downgrade of the Rand, after the local-currency rating was also lowered one level to junk. This will have an immediate and severe impact on the currency, will seriously impact on our ability to attract foreign investment and will likely trigger a marked steep rise in prices of goods and services across the board. South Africa is poorer today.

S.A’s Treasury, CEO Initiative, BASA respond to Fitch downgrade

On April 3, 2017, S&amp;P Global Ratings lowered its foreign currency ratings on South Africa to &#8216;BB+/B&#8217; from &#8216;BBB-/A-3&#8217;. The outlook is negative. We also lowered our national scale rating on South Africa to &#8216;zaAA-&#8216; from &#8216;zaAAA&#8217;.
• We do not rate financial institutions in South Africa above the foreign currency sovereign ratings, due to the direct and indirect impact that a sovereign distress would have on banks&#8217; operations.
• As a result, we are lowering our ratings on FirstRand Bank Ltd., FirstRand Ltd., Nedbank Ltd., Investec Bank Ltd., Absa Bank Ltd., Barclays Africa Group Ltd., and BNP Paribas Personal Finance South Africa Ltd. (BNPPPF), and our rating on the domestic medium-term note program issued by BNP Paribas (acting through its local branch).
• The negative outlooks on the first four entities reflect that on the sovereign and indicate that we could lower the ratings further if we lower our foreign currency ratings on South Africa.
• The other three entities and the note program carry national scale ratings only, to which we do not assign outlooks.
S&amp;P Global Ratings said today that it has lowered its ratings on five South Africa-based financial institutions and two related holding companies, as well as its national scale rating on the domestic medium-term note (MTN) program issued by BNP Paribas through its local branch.
More specifically, we lowered, to &#8216;BB+/B&#8217; from &#8216;BBB-/A-3&#8217;, our long- and short-term counterparty credit ratings on FirstRand Bank Ltd., Nedbank Ltd., and Investec Bank Ltd. In addition, we lowered our long-term counterparty credit rating on FirstRand Ltd. to &#8216;BB-&#8216; from &#8216;BB+&#8217;, while affirming the &#8216;B&#8217; short-term counterparty credit rating. The outlooks are negative.
At the same time, we lowered our long-term South Africa national scale ratings on FirstRand Bank, Nedbank, Investec Bank, and BNP Paribas Personal Finance South Africa Ltd. (BNPPPF) to &#8216;zaA&#8217; from &#8216;zaAA-&#8216;. We affirmed our &#8216;zaA-1&#8217; short-term national scale ratings on the four entities.
We have lowered to &#8216;zaBB+/zaB&#8217; from &#8216;zaA/zaA-2&#8217; our long- and short-term national scale ratings on Barclays Africa Group Ltd. and FirstRand Ltd., the nonoperating holding companies (NOHCs) of their respective financial services groups.
We also lowered our long-term national scale ratings on Barclays Africa Group&#8217;s subsidiary, Absa Bank Ltd., to &#8216;zaA&#8217; from &#8216;zaAA-&#8216;, while affirming our &#8216;zaA-1&#8217; short-term national scale rating. 
Lastly, we lowered to &#8216;zaA&#8217; from &#8216;zaAA-&#8216; our long-term national scale rating on the South African rand (ZAR) 10 billion MTN program issued by BNP Paribas (acting through its local branch). We affirmed our &#8216;zaA-1&#8217; short-term national scale rating on the program.
The rating actions follow the lowering of our foreign and local currency sovereign credit ratings on South Africa (see &#8220;South Africa Long-Term Foreign Currency Rating Cut To &#8216;BB+&#8217; On Political And Institutional Uncertainty; 
Outlook Negative,&#8221; published April 3, 2017, on RatingsDirect).
We lowered our ratings on the financial institutions because we do not rate South African banks above the foreign currency sovereign credit ratings. This is because of the likely direct and indirect influence of sovereign distress on domestic banks&#8217; operations, including their ability to service foreign currency obligations. The more pronounced downgrades of the NOHCs of the Barclays Africa Group and FirstRand Group reflect our view of the increasing risk of structural subordination following the downgrade of the operating bank entities to speculative grade (below &#8216;BBB-&#8216;). As a result of this,combined with the respective downgrades of the operating entities, we lowered our national scale ratings on the NOHCs by five notches, in line with our mapping 
criteria.
The national scale ratings on the ZAR10 billion domestic MTN program are supported by the global scale ratings on BNP Paribas, but constrained by the foreign currency sovereign credit ratings on South Africa. The lowering of the ratings on South Africa reflects our view that political and institutional stability in the country has weakened. However, amid slow economic growth and political turbulence, South African banks have been 
performing resiliently.
The sector&#8217;s average return on assets improved to 1.3% in 2016 from 1.1% the previous year, while total capital adequacy increased to 15.7% from 14.2%. We anticipate that credit losses for the top-tier banks will 
stabilize at 0.8%-1.0% in 2017. However, if decreasing investor confidence materially damages the local currency, sparking rising inflation and interest rates, banks&#8217; credit losses could accelerate toward the year&#8217;s end, due to the over-leveraged South African households and pressure on their disposable income to service their debt. Accordingly, this could erode the top-tier banks&#8217; profitability, resulting in lower returns on equity in 2017 than the currently anticipated 15%-19%.
The negative outlooks on FirstRand Bank, FirstRand Ltd., Investec Bank, and Nedbank reflect that on the sovereign. We would lower our ratings on these entities or revise the outlooks to stable should there be a similar action on 
the sovereign. Outside a sovereign action, we see positive or negative rating actions on these four banks as a remote possibility in the next 12 months, unless there is significant deterioration of the economy, due for example to weaker investor confidence.
Our national scale ratings have no outlooks but, for financial institutions in 
South Africa, are exposed to changes in the ratings on the sovereign and the 
economic environment.

S&P downgrades seven South African banks

The Office of the ANC Chief Whip confirms the resignation of former Deputy Finance Minister and ANC MP Cde Mcebisi Jonas as a member of parliament effective 31 March 2017. 
Comrade Jonas has served both as Deputy Minister and MP with absolute distinction and dedication. He has also served the movement and the South African people in various capacities over the years. On behalf of the ANC in Parliament we thank comrade Jonas for his selfless service to the movement as its public representative.
We are confident that he will continue serving the country and our movement in other capacities in future. We wish him well.

Former Deputy SA finance minister Mcebisi Jonas resigns as MP

If South Africa loses two of its prized investment grade credit ratings for foreign and local currency borrowing in the turmoil triggered by the sacking of the finance minister, the country could lose more than $10 billion in investment funds.
S&amp;P Global has already struck. In an unscheduled review on Monday that prompted a selloff in South African assets, it cut the sovereign rating for external debt to BB+, one notch below investment grade &#8211; or &#8220;junk&#8221; status in market parlance.
It cited the impact of the divisions in government that led to Pravin Gordhan&#8217;s removal.
Moody&#8217;s later placed South Africa on review for downgrade. A third major international ratings firm Fitch warned that President Jacob Zuma&#8217;s shake-up intensified political risk and signalled policy changes that could undermine its credit score.
Being downgraded to junk by at least two agencies will see South Africa drop out of some widely used global bond indexes that rely on investment grades only and force international funds who track these or who are prohibited from holding sub-investment grade securities to sell.
&#8220;The problem has just started in South Africa &#8211; there was a lot of complacency on the ratings shift,&#8221; said Salman Ahmed, chief global strategist at Lombard Odier.
The prospect of such a demotion is more imminent for hard currency debt, where Fitch&#8217;s standing rating is just one notch above junk. The Moody&#8217;s rating is two rungs above.
But a bigger impact on the country&#8217;s access to funds could come if two of the three agencies also demoninate the rand-denominated government debt as sub-investment grade. S&amp;P&#8217;s local currency rating is just one level above junk as well, with Moody&#8217;s two notches above.
So far, only one of the six ratings &#8211; three for sovereign debt and three for local &#8211; from the major international ratings agencies has slipped into junk.
JPMorgan &#8211; which compiles some of the most widely used emerging market debt indexes &#8211; estimates that a junk rating for South Africa&#8217;s mostly dollar-denominated foreign currency Eurobonds could see forced selling of up to $2.4 billion.
Roughly half the total would come from funds dedicated to investment grade emerging market debt, the other half from global investment grade bond funds, JPMorgan said, adding this was much less than the forced selling risk the bank had ascribed in recent years to Brazil at $6 billion or Turkey at $7 billion.
&#8220;The more modest figure for South Africa is explained by the smaller bond stock, and therefore smaller weights particularly in widely used global bond indexes, coupled with an underweight positioning by investors,&#8221; the bank said.
LOCAL DANGER
Yet South Africa&#8217;s outstanding $14.6 billion hard-currency debt is just a 10th of total public government debt, with local sovereign bonds tallying up to 1.722 trillion rand ($125 billion), according to data from the National Treasury.
For UBS, the real danger lies in local bond markets. In a note this week, UBS estimated some $10 billion of South African bond holdings are indexed to Citi&#8217;s World Government Bond Index (WGBI), tracked by $3 trillion worldwide.
JPMorgan, which compiles the GBI-EM IG-only index, said it estimated that a downgrade of local currency debt could lead to total index-related selling of as much as $8.5 billion.
Inclusion in both indexes hinges on investment grade ratings on local debt from both Moody&#8217;s and S&amp;P Global. Whle a formal index exclusion could take up to a year, many funds would likely exit the debt in advance.
Partially offsetting that hit is the fact that countries which find themselves downgraded to junk &#8211; so-called &#8220;fallen angels&#8221; &#8211; often draw in a different investor base seeking higher yields and more speculative investments, said Nafez Zouk, senior economist at Oxford Economics.
In other words, these fallen credits become bigger fish in smaller ponds.
Some dedicated emerging market fund managers are waiting for those opportunities.
&#8220;(South Africa&#8217;s) trajectory is quite negative and is likely to continue to be negative until we see renewal in South African politics which could be a few years from now,&#8221; said Jan Dehn at emerging market fund manager Ashmore Investment Management.
&#8220;Even in a gradually deteriorating credit like South Africa, asset prices can move into oversold territory relative to the risk &#8230; If prices fall enough that the credit has been oversold relative to how risky it is, then clearly that’s a buying opportunity.&#8221;
($1 = 13.7390 rand)
(Additional reporting by Sujata Rao in Moscow, Mfuneko Toyana in Johannesburg and Claire Milhench in London; Editing by Alison Williams)

“Junk”-rated debt could cost South Africa more than $10bn in lost funds

We have noted Standard and Poor’s (S&amp;P) decision to downgrade South Africa’s foreign currency credit rating to sub-investment grade, and the local currency to just one notch above investment grade, as well as their latest decision to downgrade South African banks in line with the sovereign rating. As a result, the national scale rating of Absa Bank Limited has been reduced to ‘zaA’ from its previous rating of ‘zaAA’.
Due to the intermediary role banks play in any economy it is the norm for their credit rating to be very closely linked to that of the country, and their decision to reduce the Absa Bank rating was therefore expected in light of recent events. S&amp;P does not rate South African banks above the foreign currency rating of the sovereign. Therefore, the downgrade of the sovereign has a direct impact to banks that are systemic to the economy.
We also acknowledge Moody’s announcement that they are putting South Africa under review for a downgrade.
These are very disappointing developments because until last week the country was building momentum towards better economic growth by the end of this year. During the past 14 months, Barclays Africa has actively participated in various initiatives in support of government’s efforts to effect much-needed structural reforms, in order to stimulate inclusive economic growth. We remain committed to doing so, but an abrupt interruption to this program is unhelpful and places at risk the livelihoods of many South Africans.
Barclays Africa is well-capitalised with a strong liquidity position and a balance sheet of over R1trillion. We remain well capitalised in terms of our strategy, risk appetite, risk profile, business activities and the macroeconomic environment in which we operate. We have a diversified portfolio of businesses with geographical presence across 10 countries in Africa and are determined to continue growing across all our markets.
For the year ended 31 December 2016 we released a solid set of results which included R239billion of liquidity reserves and we expect to remain robust from a liquidity and funding perspective. Our Common Equity Tier 1 (CET1) capital position as at 31 December 2016 remained strong at 12.1% (R105bn) &#8211; above our board target range of 9.5% to 11.5% and well above the regulatory minimum of 6.9%.
It takes enormous effort over many years to regain an investment grade sovereign rating. It is therefore very important that all stakeholders continue to work together to rediscover consensus on how to achieve inclusive growth.
&nbsp;

Barclays Africa responds to S&P downgrade of South African banks

What explains the allegedly irrational decisions taken by the <a href="http://cnbc.africa/reshuffle/">South African government over recent days</a>? Two explanations suggest themselves. The first is that the decisions were not irrational, but part of a calculated power-play designed to further entrench the Zuma-aligned faction of the African National Congress (ANC). The second is that Mr Zuma took the decision to fire Pravin Gordhan under duress – and specifically Russian duress.
We are leaning towards the former explanation. In gaining control over the treasury the Zuma-aligned faction of the ANC has strengthened its position within the tri-partite alliance. Some analysts have suggested that Zuma may be recalled through a vote of no confidence in Parliament, but we do not think that such a move could succeed. Mr Zuma is a consummate chess player and has accounted for this eventuality, and the analysts who say Zuma will be removed by Parliament are likely to be wrong. We expect the ANC to put its immediate emphasis on unity, which means the party is unlikely to give its MPs the go-ahead for such a divisive move. Even if a dissident group did break away and join the opposition in voting  Zuma out, this would immediately see the Zuma-aligned speaker of parliament, Baleka Mbete, take over the functions of the President.  Zuma would remain leader of the ANC and his party supporters would quickly purge those dissident MPs who voted him out.
The Zuma faction of the party could therefore use a successful vote of no confidence to decimate opposition within the ANC. It would then go on to pick the next President from within the Zuma-aligned camp. This would leave Mr Zuma in a stronger position than he currently occupies – hence our view of him as a consummate chess player. It is therefore incorrect to interpret Mbete’s willingness to consider a vote of no confidence as evidence that the ANC is turning against Zuma.
The opposition that has grown in civil society to Mr Zuma has, at best, limited influence on internal ANC or parliamentary processes. We think this opposition will come to nothing for the time being. If it were to surprise and come to threaten the President, we expect the state security apparatus to swiftly nip that in the bud. Business leaders who have taken such an aggressive partisan stance against the now more deeply entrenched Zuma-aligned ANC are unlikely to stay the course. They will change tack and rather seek to influence the policies of the new-look cabinet. We also think that the government will try to preserve existing fiscal policy and confidence in the economy, and that dramatic short-term reversals in policy are unlikely. Rather, we will see a further deepening of existing policies, particularly those aimed at enriching a small politically connected elite while, at the same time, the government tries to rein in the budget deficit and get growth rates up – probably an impossible contradiction.
Overall, we read Gordhan’s axing as being aimed at eliminating the logjam that he caused through standing in the way of a number of nefarious business and other transactions. Those transactions may now go ahead. However, this will not necessarily lead to an immediate and fundamental change in macro-economic policy direction. It remains to be seen, though, whether the new finance minister can retain investor confidence and we are not reassured that he will. He is a loose cannon with a limited understanding of economics and a penchant for making reckless statements.
The second explanation for the government’s decisions is that Zuma took hurried and panicked decisions under duress. Understanding this explanation requires some context.
Work published J Peter Pham, head of the Africa Centre at the Atlantic Council in Washington, argues that the 1990s saw significant Russian disengagement from Africa as Russian policy makers blamed their economic ills in part on the costs of their Cold War interventions in developing economies, including those in Africa. Pham argues that this began to change when Vladimir Putin came to power in 1999, and that Mr Putin moved to reengage with Africa in the pursuit of two strategic objectives.
The first was to capture African governments as a pool of diplomatic support for Russian interests on global fora such as the United Nations. African countries make up the single biggest geographic voting bloc across a range of global security, human rights, and trade and investment organisations. Being able to wield that voting bloc in pursuit of its strategic goals would greatly increase Russia’s global leverage. The chief executive of the South African Institute of International Affairs and former IRR staffer, Elizabeth Sidiropoulos, has been quoted in the media as saying that for Russia to realign global power balances with Western democracies, “it needed to be present in all geographies — and, of course, Africa is an increasingly important one”.
http://cnbc.africa/trending/cabinet-reshuffle-17/2017/04/04/south-africa-cliff-edge-just-1985/
The second was to capture African energy resources and policy as a means of denying European countries any future African energy alternative to their dependency on Russian gas supplies. According to the energy consultancy, Wood Mackenzie, Russian exports meet approximately a third of European Union gas demand. According to The Economist roughly a third of German gas consumption is supplied by Russia, while countries such as Lithuania, Finland, Hungary, and Bulgaria are wholly dependent on Russian gas. In 2016 the New York Times quoted the Lithuanian foreign minister as saying that “energy was always used as a tool by Russia for blackmailing and leverage”.
Over the past decade-and-a-half, Russian energy firms became the spear point of Russia’s engagement with Africa. Research shows that after Mr Putin came to power Russian firms made considerable (occasionally multi-billion dollar) oil, gas, and nuclear power investments in countries ranging from Algeria to Nigeria, Ghana, and Egypt. The firms Gazprom, Lukoil, and Rosatom all made investments. Considerable non-energy investments were made in the resources sector in countries from Ivory Coast and Ghana to Namibia, Angola, and the Democratic Republic of the Congo. The volume of Russian trade with Africa increased considerably in the decade after Mr Putin came to power (sources we have consulted suggest five-fold and even greater increases).
In the case of both Egypt and now South Africa, the major investor is the Russian nuclear firm Rosatom. The firm is on the verge of developing nuclear power stations in Egypt. It is speculated that a South African nuclear agreement could be worth more than a trillion rand – more than ten times that of the controversial arms deal. In anticipation, a number of companies with close ties to the Gupta and Zuma families positioned themselves to take advantage of the pending nuclear agreement. The purchase of the Rietkuil uranium mine was one such deal (the details have been well analysed in the media).
Informed speculation is that past cabinet reshuffles were made to facilitate such deals and to get control of the Public Investment Corporation (which invests government pension funds) in order to finance some of these deals. The writer ‘Lily Gosam’ (a pseudonym), who publishes on the Business Day website, has done interesting research into these deals, and how cabinet reshuffles were made to enable them. Ms Gosam’s research is occasionally corroborated by unrelated sources. A reading of Ms Gosam’s research suggests that key ANC and government leaders have been so compromised by corruption around some of these deals that they have effectively become hostages of the originators of the bigger nuclear deal. South Africa’s recent voting record in the United Nations, which carries the fingerprints of Russian strategic interests, lends apparent credence to this theory. So, too, does South Africa’s anti-Western foreign policy.
As the nuclear agreement may be unaffordable for South Africa, it would effectively mortgage South Africa’s economy to Moscow. This would allow Russia quite extraordinary strategic influence within southern Africa, thereby achieving Russia’s strategic objectives in the region.
The theory of the Russian connection goes further. It has been alleged that Nhlanhla Nene was fired as finance minister in December of 2015 because of his refusal to support the Rosatom deal. Similar allegations are doing the rounds about the recent firing of Pravin Gordhan. One is that Mr Gordhan might have stated quite plainly on his ill-fated London trip that the government would not support any Rosatom deal. The allegation is made that a phone call was subsequently placed from a Russian observer in London to Moscow, which led to a second call from Moscow to highly placed individuals in the South African government with the instruction that Mr Gordhan be immediately withdrawn. We have been able to establish that this could almost certainly not have happened in the manner it was reported.
A parallel allegation is that the decision to fire Mr Gordhan had been taken some time earlier. This theory is supported by reports of increased currency shorting activity in the time leading to his dismissal. Some analysts have suggested that the allegedly hurried nature of his firing may explain why some ANC sources say they were not consulted on the decision. However it is more likely that Mr Zuma knew that he did not need to consult them as he already had the backing of those who counted. The disputed Check-Mate intelligence report was allegedly drafted to justify Mr Gordhan’s dismissal on the grounds that he was conspiring to overthrow the South African government. The illiterate nature of that report has suggested to some analysts that it may have been drafted in a hurry – but similar past reports have been written equally badly (the Special Browse Mole report comes to mind).
Our inclination is that the events of the past days were a sophisticated power-play by Zuma-aligned factions in the ANC and that these events have strengthened those factions. In short; a coup has taken place within the ANC that gives Mr Zuma far greater control of the party than he had a week ago. While the decisions taken may have served foreign interests and been influenced by those interests, Mr Zuma and his allies remain in control of the country and the government. We expect that the ANC will now look to unite around their policy and leadership conferences later in the year. The treasury and the broader government, we expect, will seek to restore some measure of confidence in the country and the economy but this will be very difficult to achieve.
&#8211; Frans Cronje is a scenario planner and CEO of the IRR – a think-tank that promotes political and economic freedom. His second book, a Time Traveller’s Guide to South Africa in 2030 will be published by Tafelberg in May

IRR’s Frans Cronje: Why SA’s Finance Minister Gordhan was fired and what will happen next?

South Africa&#8217;s ruling African National Congress backed President Jacob Zuma after two key allies of the party called for his resignation following a cabinet reshuffle that cost the country one of its investment-grade credit ratings.
The <a href="http://cnbc.africa/news/2017/03/29/expectations-gordhan-will-go-leave-south-african-markets-edge/">rand fell more than 1 percent and bonds weakened</a> after ANC Secretary General Gwede Mantashe told a media briefing on Wednesday that the ANC would not be part of a movement to remove Zuma, whose time at the helm of the party ends in December. Zuma&#8217;s presidential term will finish in 2019.
Last Thursday&#8217;s dismissal of finance minister Pravin Gordhan, a totem of policymaking stability for many foreign investors, was criticized by unions, civil society groups and the opposition, and has revived pressure on Zuma to quit.
Since taking office in 2009, the 74-year-old president has repeatedly denied accusations of corruption, and senior ANC officials have backed him.
Mantashe said the ANC had accepted the &#8220;irretrievable breakdown of the relationship&#8221; between Zuma and Gordhan as the reason the finance minister was sacked.
That move deepened a rift within the ruling party, with Deputy President Cyril Ramaphosa, a leading candidate to replace Zuma as ANC president, on Friday describing Gordhan&#8217;s removal as &#8220;totally, totally unacceptable&#8221;.
The South African Communist Party and the country&#8217;s biggest trade union, Cosatu, both historic allies of the ANC, have each called on Zuma to step down following the sacking.
Mantashe had also openly criticized Zuma&#8217;s actions but on Wednesday, he painted a different picture, saying the ANC would &#8220;close ranks&#8221; around the president.
The events that unfolded after the reshuffle had &#8220;created anxiety and undue confusion as a result of the discordant views, in particular of the National Officials of the ANC,&#8221; Mantashe said, referring to the criticism directed at Zuma.
&#8220;The officials &#8230; have further acknowledged that their public dissonance on the matter was a mistake that should not be committed again.&#8221;
Rating agency S&#038;P Global Ratings cited Gordhan&#8217;s dismissal as one reason for its downgrade of South Africa to &#8220;junk&#8221; in an unscheduled review on Monday.
(Reporting by Mfuneko Toyana; Writing by James Macharia; Editing by Catherine Evans)

S.A: ANC rejects calls for Zuma to quit

Following a dramatic week and a half that saw a <a href="http://cnbc.africa/reshuffle/">cabinet reshuffle </a>involving South Africa&#8217;s then Finance Minister Pravin Gordhan and his Deputy Mcebisi Jonas, National Treasury&#8217;s Director General Lungisa Fuzile will be leaving the government department.
http://cnbc.africa/news/southern-africa/2017/03/30/south-africas-zuma-meets-top-anc-officials-amid-speculation-gordhan-sacked/
The revelation comes a day after Finance Minister Malusi Gigaba appointed Thamsanqa Msomi (political) and Kholeka Gcaleka (legal) as advisers.
Msomi, was Gigaba&#8217;s Legal Adviser at the Department of Home Affairs. He is also an Independent Non-Executive Director at Denel and has a B Juris from UNISA .
Gcaleka was previously the chairperson of the Society of State Advocates of South Africa and state prosecutor in the murder case against former crime intelligence boss Richard Mdluli.
According to a statement issued by Treasury, Fuzile’s contract was due to end in May 2018, however last week he asked Gordhan for a redetermination of his contract with the exit date of 15 May 2017.
http://cnbc.africa/news/2017/03/31/treasury/
The statement went on to add the below: 
He has been indicating his desire to leave the Treasury for some time.
In the past few days, Fuzile has been focusing on ensuring a smooth hand over to Minister Malusi Gigaba. Whilst Fuzile has indicated his flexibility to stay on for reasonable amount of time if needed, he and the Minister are in discussions on how to ensure that a smooth transition and the institutional strength of National Treasury is sustained and reinforced.
On continuity Fuzile says, his departure and that of his previous principals should not necessarily lead to a change of course as the mandate of National Treasury is reinforced by the Constitution and a number of other legislations, Fuzile says. He says, National Treasury officials are competent, highly skilled professionals who are very conscious of their higher duty. Their commitment and diligence is not attached to a Minister, and they will continue to serve the nation to ensure protection of the fiscus and the sound financial management in South Africa under the current leadership of Minister Malusi Gigaba and Deputy Minister Sfiso Buthelezi.
Fuzile, a diligent and committed public servant, leaves National Treasury after 20 years of service. He moved within the ranks from a Deputy Director after joining in 1998. In May 2017, he will be completing six years in his role as Director General of National Treasury.

As S.A’s FinMin Gigaba appoints new advisers, Director General bows out

This article was first published last year as South Africa faced a possible downgrade by rating agencies
Current developments in South Africa are reminiscent of events in 1985. In that year South Africa experienced high costs from currency depreciation and adverse political developments. At the time the country faced increasing international sanctions and isolation, while the exchange rate of the rand remained under severe pressure, recording sharp falls in the international value of the rand.
South Africa’s financial stability was put under severe pressure after the infamous <a href="https://www.nelsonmandela.org/omalley/index.php/site/q/03lv01538/04lv01600/05lv01638/06lv01639.htm">Rubicon speech</a> of then State President P W Botha. Before the speech, high expectations were raised internationally about the announcement of major political changes in South Africa, but these expectations did not materialise. Following the speech, foreign banks refused to roll over South African short-term foreign debt, causing further depreciation of the exchange rate of the rand.
In 2016 South Africa might see a slow motion repeat of the events of 1985, culminating in a debt standstill. The following events, reminiscent of developments then, could unfold:
<ul>
<li>a continued depreciation of the rand, accelerated by the President’s inexplicable decision to <a href="http://mg.co.za/article/2015-12-09-nhlanhla-nene-removed-as-finance-minister">remove</a> his Finance Minister. The depreciation substantially increases the capital value of and interest repayments on foreign debt; and</li>
<li>a downgrading of South Africa’s credit rating to junk status that results in credit lines being withdrawn by foreign funders such as banks.</li>
</ul>
This time we can see trouble ahead and the government should act responsibly to avert a slow motion replay of 1985.
<h2>Debt standstill</h2>
Currency depreciation brings certain benefits to a country. The most obvious is the fact that exports become cheaper abroad and that demand for exports are therefore stimulated.
Unfortunately currency depreciation does not only bring benefits. Imported goods and services also become more expensive. More expensive imports put pressure on domestic inflation that can result in increases in interest rates. In economics it has often been said:
<blockquote>There is no free lunch, everything has a cost, even if then only an opportunity cost.</blockquote>
Currency depreciation also increases the capital value of foreign debt in domestic currency (where foreign debt are designated in foreign curreny) and the interest burden on such debt, as interest is also paid in foreign currency.
In short: in 1985 an unwillingness of banks abroad to make loans to South African entities (albeit for political reasons) plus the depreciation of the currency resulted in the inability of the country to repay its foreign debt.
The financial crisis culminated in the “Debt Standstill”, a moratorium on the repayment of most of South Africa’s private sector foreign debt, but excluded government debt. Debt repayments were managed by a Debt Standstill Committee and rescheduled over an extended time period, with the last of the rescheduled debt repaid in 2001.
<h2>The falling rand</h2>
In recent months the exchange rate of the rand has shown considerable depreciation. This is actually an acceleration of a long-term declining trend. The nominal effective exchange rate of the rand has lost around 50% of its value <a href="https://www.resbank.co.za/Research/Rates/Pages/SelectedHistoricalExchangeAndInterestRates.aspx">since 2010</a>.
The South African Reserve Bank <a href="https://www.resbank.co.za/Research/Rates/Pages/SelectedHistoricalExchangeAndInterestRates.aspx">describes</a> the nominal effective exchange rate as
<blockquote>… a weighted exchange rate of the rand measured against a basket of the currencies of South Africa’s twenty most important trading partners. The calculation is based on trade in and consumption of manufactured goods.</blockquote>
On this basis, measured against 20 currencies, the rand has therefore lost about half of its value.
In assessing the “Debt Standstill” with the benefit of hindsight, it is important to distinguish between South Africa’s foreign debt and South African government debt, as only private sector foreign debt was caught in the standstill.
The country’s foreign debt is all funds borrowed abroad by South Africans, including companies, other entities and private individuals and includes the government’s foreign borrowing. By the middle of 2015 South Africa’s foreign debt amounted to some R1.7 trillion, of which 46% was denominated in <a href="https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/6999/10Statistical%20tables%20%E2%80%93%20International%20economic%20relations.pdf">foreign currency</a>.
South African government debt is the total of all funds borrowed by the government to balance its budget. South African government debt at present amounts to some <a href="http://www.treasury.gov.za/documents/mtbps/2015/mtbps/Technical%20annexure.pdf">R1.8 trillion</a>. Of this, some R190 billion (10%) is foreign debt, while the balance is borrowed from pension funds, banks and the like in South Africa.
South Africa’s foreign debt naturally includes the portion of the South African government <a href="http://www.treasury.gov.za/documents/mtbps/2015/mtbps/Technical%20annexure.pdf">debt borrowed abroad</a>, comprising about 11% of the country’s foreign debt. The balance is supplier credit, trade credit and the like. For instance: if a foreign supplier sells to a South African company and provides a six month credit line, the credit line is part of the country’s foreign debt for a period of six month.
This credit line has nothing to do with the South African government’s debt position, domestic or foreign. Government debt and the country’s foreign debt should not be confused.
Since 2007 South African foreign debt has shown a steady increase as percentage of both the gross domestic product (GDP) and total export earnings (TEE). At the same time interest payments on foreign debt as percentage of TEE have <a href="https://www.resbank.co.za/Lists/News%20and%20Publications/Attachments/6999/10Statistical%20tables%20%E2%80%93%20International%20economic%20relations.pdf">increased</a>.
<h2>Possible junk status</h2>
South Africa’s foreign debt position (which should not be confused with the debt of the South African government) is vulnerable in three respects. First, currency depreciation raises the capital value of the funds borrowed abroad in foreign currency, hence increasing the repayment burden on South African borrowers. Foreign debt as percentage of GDP increases owing to currency depreciation.
Secondly, interest payments on foreign debt increase owing to currency depreciation. This will be exacerbated by an international normalisation of interest rates. The result might be a raising TEE if the combined result of higher international rates and currency depreciation exceeds the increase in exports owing to currency depreciation.
These two factors were present in 1985, but were exacerbated at that time by political considerations, namely banks refusing to lend more money to South Africa after the Rubicon speech. The last element for a repeat of 1985 in slow motion might be triggered by another event some 30 years later: a credit risk downgrading to junk status of South Africa by international rating agencies.
If South Africa’s international risk rating is downgraded to junk status, international banks and other companies will be much more reluctant to make loans to South African entities, or will even withdraw existing credit lines.
This might be the seismic event similar to the withdrawal of international credit lines for political reasons in 1985, culminating in a debt standstill. The South African government should introduce in a timely fashion policies to avert a repetition on the events of 1985.

South Africa is on a cliff edge – just as it was in 1985

At midnight on Thursday President Jacob Zuma announced the details of a widely-anticipated cabinet reshuffle. Zuma made 20 changes to his administration. Without question, though, the most significant – and concerning – is the removal of the respected and regarded Minister of Finance, Pravin Gordhan, and Deputy Minister of Finance, Mcebisi Jonas. Notwithstanding internal opposition from amongst the top six members of the ANC and its alliance partner, the South African Communist Party, eight other cabinet members were also shuffled. Immediate market reaction was palpable, with the rand moving from R12.80 to the US dollar on Thursday evening to trade as high as R13.60 to the US dollar by early Friday morning.
Zuma’s actions reek of desperation
Gordhan, who was recalled from an international roadshow at the start of the week, has been replaced by Home Affairs Minister Malusi Gigaba. Gigaba is a former ANC youth league leader, and has served in parliament and in cabinet under former President Mbeki and President Zuma. Gigaba has no financial or business experience. Put bluntly, confidence in Gigaba&#8217;s leadership at National Treasury is likely to be low given his insipid performance as Minister of Public Enterprises and the visa fiasco that transpired under him as Minister of Home Affairs. He is widely regarded to be a Zuma loyalist. As such, his appointment represents a direct risk to the institutional strength and fabric of national treasury and the maintenance of the fiscal discipline that is Gordhan’s hallmark.
		
				
		
Less surprising is the appointment of Sfiso Buthelezi who has been widely touted as a likely replacement for either Gordhan or – as is the case – deputy minister Jonas. Buthelezi is a seasoned politician, qualified economist and comes with business experience that includes having served as chief operations officer and director of the Makana Investment Corporation – an investment vehicle for ex-political prisoners, particularly those from Robben Island.
There can be no avoiding the observation that Zuma’s actions reek of desperation. Gigaba is South Africa&#8217;s fourth finance minister in 15 months, and he is appointed days ahead of the decision to be announced by rating’s agency Moody’s in the first week of April. However, of the three big agencies, Standard and Poor’s has been the most vocal by far. Although their next decision is scheduled for early June there is a chance that the agency’s announcement could be brought forward to an earlier date.
Shift in policy in short term unlikely, but downgrade on the cards
Notwithstanding growing references to radical economic transformation, it is unlikely that we will see any substantial shift in policy in the near term. Still, the growing rhetoric and nature of Zuma’s actions are likely to lead ratings agencies – and market actors – to regard South Africa as a greater investment risk at the end of this week than it was at the start. As a result, there is now a greater probability that Zuma’s actions will galvanise Standard and Poor’s into downgrading South Africa’s debt to sub-investment grade, perhaps as soon as mid-year.
Fallout expected
In terms of broader political implications, opposition parties are likely to call for a vote of no confidence and to work to put in place an impeachment motion. There is also a view that Zuma’s actions could prompt resignations from within cabinet and that this faction would enjoy the support of outspoken members of the South African Communist Party and perhaps galvanise Deputy President Cyril Ramaphosa into action. ANC Secretary General Mantashe has also commented in interviews about disagreement and lack of support relating to the cabinet reshuffle. These developments will play out in their own way, and experience suggests that those taking a stance on outcomes are, instead, likely to be met by surprise. Consider, by way of example, the overwhelmingly unanticipated political events that marked 2016, including Brexit and the Trump election.
		
				
		
In the immediate term, we should brace ourselves for currency weakness and market impacts in the form of the repricing of financial assets, including South African bonds and domestic banks. No doubt, there will also be a lot of noise to deal with as politicians deliberate, the country digests and markets decide.
Protecting and growing wealth doesn’t start with a question about “What’s the upside?” but rather “What’s the risk?”
In all of this, the merit of a sound investment philosophy and a disciplined process is reinforced, and we are reminded that protecting and growing wealth doesn’t start with a question about “What’s the upside?” but rather “What’s the risk?” As a consequence, of the above uncertainties, as well as others that we have anticipated – such as normalisation of interest rates in the United States, Trump’s more dramatic policy action and the likelihood of a ratings downgrade for South Africa – we have adopted a conservative stance in our portfolio construction and sought the greatest possible diversification to mitigate risk in each solution. By way of example, we have a low allocation to credit in our money market, income and bond funds; we are short duration in our bond fund; we are underweight bonds in our houseview and balanced fund; we are overweight hedge funds in our houseview; we have overweight positions in protected equity in our houseview and balanced fund; and, arguably most critically, we have held an underweight position on South African assets versus global assets.
Contrary to expectations, near-term impact of weak rand may be positive for economy; long-term effect undeniably negative
Perversely, the near-term impacts on the South African economy could be stimulatory through a weaker rand and more expansionary fiscal policy. The longer-term effects will be unequivocally negative, entrenching Zuma’s record of poor economic leadership. The most obvious long-term effects will come in the form of reduced personal income held back by slower economic growth and eroded by higher consumer price inflation. Interest rates are also likely to move to a higher plane given the implications for South Africa’s credit ratings. Damaged business confidence will keep a lid on much-needed investment spending and economic growth will remain muted. The implication, in turn, for urgently needed job creation by the private sector, is unambiguously negative. Consequently, and perversely, the sought after “radical economic transformation” will become even harder to achieve under Zuma’s revised cabinet.
RELATED:
http://cnbc.africa/news/southern-africa/2017/03/30/south-africas-zuma-meets-top-anc-officials-amid-speculation-gordhan-sacked/
http://cnbc.africa/news/southern-africa/2017/03/31/ceo-initiative-responds-dismissal-minister-finance/
http://cnbc.africa/featured/2017/03/31/economists-money-makers-react-cabinet-reshuffle/

Cabinet reshuffle and what it means for South Africa – Citadel

South African President, Jacob Zuma, has decided to remove the Finance Minister Pravin Gordhan and his deputy, Mcebisi Jonas, from their posts. Minister Malusi Gigaba, who led the home affairs ministry has been appointed as the new Finance Minister with Sifiso Buthelezi, a member of parliament, as his deputy. While the two officials are not strangers to public office, they have not served at the National Treasury before.
The new Minister of Finance becomes the fourth official to lead Treasury in just under two years. In that period, South Africa has seen three Finance Ministers come and go: the respected Nhlanhla Nene got fired and replaced by Des van Rooyen who was, in turn, hastily removed from office to pave way for Pravin Gordhan’s return to Treasury after his earlier tenure. These changes to the economic management cluster of the South African government are the most rapid and unprecedented since the dawn of democracy.
Given such instability at the helm of the National Treasury, financial markets have already responded negatively with the rand selling off sharply. Market participants were aware of the risk that Pravin Gordhan would be removed as Minister of Finance. Even though bond markets became more volatile recently, expressing a heightened sensitivity to developments in the political sphere, we do not see evidence suggesting this risk was fully priced in (see figure 1).
Our view, therefore, is that markets are very likely to react adversely now that the risk has materialised and investors should expect significant volatility in the midst of uncertainty, especially when one considers the factors highlighted below.
Figure 1: Evolution of SA benchmark 10-year government bond yield 
<div id="attachment_116264" style="width: 746px" class="wp-caption alignnone"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-116264" class="wp-image-116264 size-full" src="http://cnbc.africa/wp-content/uploads/2017/03/Investment-Solutions-graph-31-March-2017.jpg" alt="" width="736" height="394" />Source: Thomson/Reuters Datastream and Investment Solutions</div>
Capital flows
Business confidence has been depressed domestically and foreign investors have begun to sell South African assets. The cumulative outflow in equities in 2016 was around US$9 billion. Although we saw net inflows into South African bonds, on aggregate, there have been portfolio outflows from South Africa. As it is, the Institute of International Finance, a Washington-based global association of financial institutions, has warned that should protectionist policies get implemented in the US by the Trump administration, capital flows (both foreign direct investment and portfolio flows) would face a turbulent time &#8211; with countries such as Mexico and South Africa hardest hit.
Need to reaffirm South Africa’s policy position 
Investor confidence has been substantially dented by the rapid changes that have taken place at National Treasury. Given such volatility and uncertainty, the new authorities need to communicate that South African institutions remain intact. The independence of the South African Reserve Bank and the judiciary needs to be affirmed. They will also need to demonstrate that fiscal policy will not take a materially different direction from what has been established since 1994. The biggest fear held by investors is whether more populist fiscal policies will be embraced or not.
Credit ratings 
Rating agencies have warned repeatedly of the likelihood of downgrading South Africa to non-investment grade should the volatility of the political environment deepen. Although much of the decision will be heavily dependent on what the new Minister of Finance says about fiscal policy and its trajectory, markets are likely to fully price South African debt as junk. After much positive ground gained last year under the leadership of Pravin Gordhan &#8211; especially after the relentless effort by business, labour and government, which made such a positive contribution &#8211; that work could easily be wiped out should the new authorities exhibit a major deviation from the policy construct put forward at the February 2017/18 National Budget.
Lower returns 
Data from Credit Suisse Global Investment Returns Yearbook shows that South Africa has experienced the best after-inflation return in the world of 7.2% for 116 years from 1900-2016. This was better than the 6.8% achieved by Australia, 6.4% by the US, 6.2% by New Zealand and 5.9% by Sweden. Indeed, such a stellar performance is unlikely to be sustained going forward. Given the possible challenges around global capital flows &#8211; especially foreign direct investment, which has some positive correlation to equity market returns, combined with the fact that valuations at the Johannesburg Stock Exchange are still above long-term averages &#8211; future returns are likely to remain much lower than the lofty gains seen in the past seven years.
Need for diversification 
It’s in times like these that investors need to hold on to a diversified and long-term investment strategy. Even as a political storm is once again battering South Africa, history has shown that, in the long-term, markets have the ability to return to fundamentals even when short-term noise, especially from the political sphere, creates much angst.

A new era for South Africa’s Treasury

South Africa&#8217;s President Jacob Zuma in what could be described as the night of the long knives has reshuffled his Cabinet, see list below. Those to receive the purge include Finance Minister Pravin Gordhan and his Deputy Mcebisi Jonas.
This is what money makers and economists had to say:
<blockquote class="twitter-tweet" data-lang="en">
It&#8217;s so painfully tragic:with so much poverty&amp;social backlogs,our leaders spend our scarce resources on crude King of the Castle games.pity!
— Iraj Abedian (@IrajAbedian) <a href="https://twitter.com/IrajAbedian/status/847418601107636225">March 30, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
<blockquote class="twitter-tweet" data-lang="en">
In more ways than one Zuma&#8217;s reshuffle is the nuclear option cc <a href="https://twitter.com/RanjeniM">@RanjeniM</a> <a href="https://twitter.com/rationalhill">@rationalhill</a>
— Adrian Saville (@AdrianSaville) <a href="https://twitter.com/AdrianSaville/status/847566465821814784">March 30, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
<blockquote class="twitter-tweet" data-lang="en">
Thank you so much, but honestly, I am feeling as strong as ever. But deeply concerned about what is happening. <a href="https://t.co/zuLmo5M2Xx">https://t.co/zuLmo5M2Xx</a>
— Derek Hanekom (@Derek_Hanekom) <a href="https://twitter.com/Derek_Hanekom/status/847586275322458112">March 30, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
The new ministers are: 
1. Minister of Energy, Ms Mmamoloko “Nkhensani” Kubayi
2. Minister of Transport, Mr Joe Maswanganyi
3. Minister of Finance, Mr Malusi Gigaba
4. Minister of Police, Mr Fikile Mbalula
5. Minister of Public Works, Mr Nathi Nhleko,
6. Minister of Sports and Recreation, Mr Thembelani Nxesi
7. Minister of Tourism, Ms Tokozile Xasa
8. Minister of Public Service and Administration, Ms Faith Muthambi
9. Minister of Home Affairs, Prof Hlengiwe Mkhize
10. Minister of Communications, Ms Ayanda Dlodlo
Several deputy ministers were also affected.
1. Deputy Minister of Public Service and Administration, Ms Dipuo Letsatsi-Duba
2. Deputy Minister of Finance, Mr Sifiso Buthelezi
3. Deputy Minister of Public Enterprises, Mr Ben Martins
4. Deputy Minister of Arts and Culture, Ms Maggie Sotyu
5. Deputy Minister of Trade and Industry, Mr Gratitude Magwanishe
6. Deputy Minister of Communications, Ms Thandi Mahambehlala,
7. Deputy Minister of Tourism, Ms Elizabeth Thabethe
8. Deputy Minister of Police, Mr Bongani Mkongi
9. Deputy Minister of Telecommunications and Postal Services, Ms Stella Ndabeni-Abrahams
10. Deputy Minister of Small Business Development, Ms Nomathemba November.

Economists, money makers, former ministers react to Cabinet reshuffle

This is a power show by Zuma who clearly believes he has enough power in the NEC and low enough risk of a parliament split to be removed, to basically do what we wants here.
As expected PGxit occurred and the Deputy removed as well in an open attack on National Treasury. The reshuffle is designed to lubricate the way to the elective conference through NT and a variety of major other ministries.
		
				
		
The market will struggle to digest Gigaba. Someone who has been effective at home affairs but is clearly being put in a role to do a particular job by Zuma and viewed as loyal to Zuma. Similarly with Buthalezi. As we laid out in the piece on Wednesday we view this as an open attack on Treasury to replace people who are conservative and anti-corruption with people loyal to Zuma to help the Zuma faction win in December. This is an attack on the institution of National Treasury and as such will trigger multiple downgrades. As we&#8217;ve highlighted before whilst there are some fiscal risks we are more worried about NT&#8217;s role in procurement, preventing corruption and oversight of SOEs including nuclear and banking. We think this is bad for the market and for SA. Equally there are questions hanging over Buthalezi around his role at PRASA and the links of both to various others such as the Guptas. This will concern the market and I think the market will be deeply worried by these appointment.
Looking at this list is really is a list of largely unknows&#8230;. Importantly Zwane mining minister remains which was a top 6 ask that he be removed and given his closeness to Zuma. Other ministers also not removed who were seen as under-performing Zuma loyalists like Social Development Minister and Comms Minister moved portfolio but staying in cabinet.
Zuma is taking a risk here and the next step is to watch what happens with resignations. A key risk of resignations now from SACP members and it was a surprise that more of them haven&#8217;t been removed. Maybe he wants to goad them to go to allow for a bigger reshuffle next. It is odd that for instance NDZ hasn&#8217;t entered at this stage&#8230;. maybe he is waiting for Ramaphosa to resign and then put her there? This is the next step we watch for. This is not over yet.
We must also consider the growth shock here like after Nene-gate is going to make things harder on the fiscal side with difficult choices on revenues and probably a decision to debt finance instead. This will reinforce the need for ratings downgrades. But as we said before, fiscal will not be the main focus but procurement etc.
The market has been far too complacent that Zuma cannot remove PG but he has now gone and done it and yet the market is still hanging onto the hope of a credible candidate which has not come with a complete clear out at NT. This is a full whack Zuma led reshuffle which will lead to multiple imminent downgrades where Zuma is confident he has the upper hand over weak internal ANC opposition. The market will be watching blowback risk now as the next reason to be too positive on this. The opposition to Zuma is too split with too weak a leadership in the NEC to be effective here. Zuma believes he is, and we think he is, much stronger than the market thinks he is. The market has a lot of cathhing up to do still I think to the reality on the ground.

Nomura: S.A’s Cabinet reshuffle is an “open attack on Treasury”

South Africa&#8217;s President Jacob Zuma called a meeting of the ruling African National Congress&#8217; (ANC) top six officials late on Thursday, media reported, after ANC ally the South African Communist Party said he planned to sack Finance Minister Pravin Gordhan.
<a href="http://cnbc.africa/news/financial/2017/03/30/sacp-told-planned-cabinet-reshuffle-included-s-finmin-gordhan/">The SACP said it objected to that plan</a>, while the main opposition said it would call a vote of no-confidence in Zuma over the matter.
But online news service News24 cited sources saying that nine ministers, including Gordhan, and six deputy ministers were about to be reshuffled.
Just after 11:15pm ENCA reported that Finance Minister Pravin Gordhan will by replaced by Malusi Gigaba, Minister of Home Affairs and Deputy Finance Minister Mcebisi Jonas by Sfiso Buthelezi.
		
				
		
At midnight News24 reported the new ministers as: &#8220;Minister of Energy -Mmamoloko “Nkhensani” Kubayi; Minister of Transport &#8211; Joe Maswanganyi; Minister of Finance &#8211; Malusi Gigaba; Minister of Police &#8211; Fikile Mbalula; Minister of Public Works &#8211; Nathi Nhleko; Minister of Sports and Recreation &#8211; Thembelani Nxesi; Minister of Tourism &#8211; Tokozile Xasa; Minister of Public Service and Administration &#8211; Ms Faith Muthambi; Minister of Home Affairs &#8211; Hlengiwe Mkhize; Minister of Communications- Ayanda Dlodlo.&#8221;
The rand turned negative against the dollar on news of the cabinet reshuffle. South Africa&#8217;s currency and markets have been under pressure since Monday, when Zuma ordered Gordhan to abandon an investor roadshow in Britain and fly home. Zuma has not given a reason for the recall.
The SACP&#8217;S deputy secretary general Solly Mapaila earlier told a news conference the party had registered a formal objection to the planned dismissals of Gordhan and his deputy Mcebisi Jonas during a meeting with Zuma on Monday.
http://cnbc.africa/zdnl-mc/2017/03/29/s-business-leaders-written-ancs-top-six/
After days of rumors, Mapaila&#8217;s comments were the first public confirmation that Zuma intends to dismiss the ministers.
&#8220;We objected both to the removal of the comrades as well as the intended replacements &#8230; even the reasons given,&#8221; Mapaila said referring to Gordhan and Jonas. &#8220;Comrade Pravin (Gordhan) has run that ministry with absolute cleanliness.&#8221;
Gordhan said on Tuesday that he was still finance minister. On Wednesday, he said he would &#8220;open a new chapter&#8221; of his life if sacked. Volatile trading in the rand has underlined Gordhan&#8217;s reputation among investors as a guardian of policymaking stability in South Africa.
On Wednesday, sources within the ANC told Reuters there was a split down the middle among its six most senior officials, who include Zuma, over whether Gordhan should be sacked.
Zuma does not need the support of the top six to hire and fire ministers but should top ANC members openly criticize his decision it would likely weaken his position in the party.
Nomura analyst Peter Attard Montalto said it was likely Zuma had made up his mind on the cabinet changes.
&#8220;It would seem odd to drag the Top6 all the way to Pretoria to simply rehash the division&#8217;s of Monday&#8217;s meeting. Minds won&#8217;t be changed, the splits are set, it seems either he backs down or informs them he&#8217;s all in for a full reshuffle.&#8221;
For the second consecutive day, the influential ANC Youth League issued a statement backing Zuma&#8217;s planned cabinet changes.
Zuma chaired a cabinet meeting late on Wednesday. A statement issued late on Thursday steered clear of any mention of a cabinet reshuffle.
Zuma did not address the subject when speaking to the National House of Traditional Leaders in Cape Town on Thursday but appeared composed and cracked jokes.
ECONOMY STAGNATES
He was ushered out quickly and security officials shielded him from reporters as Zuma entered his luxury sedan. He laughed off questions by reporters on whether he would fire Gordhan.
Some pundits say Gordhan is being pressured by a faction allied to Zuma, which has clashed with him over his plans to rein in government spending, the management of state enterprises and the running of the tax agency as the economy stagnates.
Africa&#8217;s most industrialized economy grew by 0.3 percent in 2016 versus 1.3 percent in the previous year.
Pressure has piled on Zuma over his plan to sack Gordhan.
Two senior sources told Reuters Zuma is considering offering to step down next year, at least 12 months before his term as South African president ends, under a deal with opponents in the party that would see Gordhan leave office now.
http://cnbc.africa/news/2017/03/29/expectations-gordhan-will-go-leave-south-african-markets-edge/
The main opposition leader Mmusi Maimane, leader of the Democratic Alliance, said he plans to bring a motion of no confidence against Zuma in parliament after his intention to fire Gordhan was confirmed.
Julius Malema, leader of the ultra-left Economic Freedom Fighters (EFF) and a former protege of Zuma, filed a court application for disciplinary or impeachment proceedings against the president on Thursday.
(Additonal reporting by Joe Brock in Johannesburg and Wendell Roelf in Cape Town; Writing by James Macharia; Editing by Hugh Lawson)

South Africa’s Zuma reshuffles cabinet; Gordhan replaced by Home Affairs Minister Gigaba

The South African Communist Party (SACP) was informed of President Jacob Zuma&#8217;s plans to reshuffle cabinet, including the finance minister&#8217;s post it revealed at a press conference. It also confirmed that one of the reasons Zuma recalled Gordhan, his Deputy Mcebisi Jonas and Director-General Lungisa Fuzile from their non-deal international investor roadshow in London was due to &#8216;intelligence&#8217; report alleging a plan by the three to start &#8220;Operation Check Mate&#8221;, see more in the tweet below:
<blockquote class="twitter-tweet" data-lang="en">
Here is the fake, Gupta manufactured &#8216;intelligence&#8217; report that made Zuma recall Minister &amp; DM and threaten to fire them: <a href="https://t.co/rmBhpyyl2O">pic.twitter.com/rmBhpyyl2O</a>
— Floyd Shivambu (@FloydShivambu) <a href="https://twitter.com/FloydShivambu/status/847167194769379330">March 29, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
In response to these issues the SACP will hold a politburo meeting tomorrow.
Other issues discussed at the SACP press conference included:
<blockquote class="twitter-tweet" data-lang="en">
. <a href="https://twitter.com/SACP1921">@SACP1921</a> concerned by rogue intelligent unit that is feeding fake news to the public
— CNBC Africa (@cnbcafrica) <a href="https://twitter.com/cnbcafrica/status/847365581569314817">March 30, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
<blockquote class="twitter-tweet" data-lang="en">
Breaking: <a href="https://twitter.com/SACP1921">@SACP1921</a> confirms intelligence report was part of the reason SA&#8217;s Gordhan and Jonas were asked to come back from overseas trip
— CNBC Africa (@cnbcafrica) <a href="https://twitter.com/cnbcafrica/status/847368413160681472">March 30, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
<blockquote class="twitter-tweet" data-lang="en">
We knew Brian Molefe was going to go to <a href="https://twitter.com/ParliamentofRSA">@ParliamentofRSA</a> via the North West, we objected to his appointment &#8211; <a href="https://twitter.com/SACP1921">@SACP1921</a>
— CNBC Africa (@cnbcafrica) <a href="https://twitter.com/cnbcafrica/status/847369955406356480">March 30, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
<blockquote class="twitter-tweet" data-lang="en">
SACP was opposed to Brian Molefe being brought into any executive position
— CNBC Africa (@cnbcafrica) <a href="https://twitter.com/cnbcafrica/status/847370350643904513">March 30, 2017</a></blockquote>
<script async src="//platform.twitter.com/widgets.js" charset="utf-8"></script>
READ:
<h3 class="news-title"><a href="http://cnbc.africa/zdnl-mc/2017/03/29/s-business-leaders-written-ancs-top-six/">S.A’s Business leaders have written to the ANC’s top six</a></h3>

Pravin Gordhan

South Africa must look beyond individuals to solve the current crisis

South Africa’s finmin Gigaba committed to fiscal consolidation after downgrades

S.A’s Treasury, CEO Initiative, BASA respond to Fitch downgrade

S&P downgrades seven South African banks

Former Deputy SA finance minister Mcebisi Jonas resigns as MP

“Junk”-rated debt could cost South Africa more than $10bn in lost funds

Barclays Africa responds to S&P downgrade of South African banks

IRR’s Frans Cronje: Why SA’s Finance Minister Gordhan was fired and what will happen next?

S.A: ANC rejects calls for Zuma to quit

As S.A’s FinMin Gigaba appoints new advisers, Director General bows out

South Africa is on a cliff edge – just as it was in 1985

Cabinet reshuffle and what it means for South Africa – Citadel

A new era for South Africa’s Treasury

Economists, money makers, former ministers react to Cabinet reshuffle

Nomura: S.A’s Cabinet reshuffle is an “open attack on Treasury”

South Africa’s Zuma reshuffles cabinet; Gordhan replaced by Home Affairs Minister Gigaba

SACP was told of planned Cabinet reshuffle, that included S.A’s FinMin Gordhan

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Pravin Gordhan

South Africa must look beyond individuals to solve the current crisis

South Africa’s finmin Gigaba committed to fiscal consolidation after downgrades

S.A’s Treasury, CEO Initiative, BASA respond to Fitch downgrade

S&P downgrades seven South African banks

Former Deputy SA finance minister Mcebisi Jonas resigns as MP

“Junk”-rated debt could cost South Africa more than $10bn in lost funds

Barclays Africa responds to S&P downgrade of South African banks

IRR’s Frans Cronje: Why SA’s Finance Minister Gordhan was fired and what will happen next?

S.A: ANC rejects calls for Zuma to quit

As S.A’s FinMin Gigaba appoints new advisers, Director General bows out

South Africa is on a cliff edge – just as it was in 1985

Cabinet reshuffle and what it means for South Africa – Citadel

A new era for South Africa’s Treasury

Economists, money makers, former ministers react to Cabinet reshuffle

Nomura: S.A’s Cabinet reshuffle is an “open attack on Treasury”

South Africa’s Zuma reshuffles cabinet; Gordhan replaced by Home Affairs Minister Gigaba

SACP was told of planned Cabinet reshuffle, that included S.A’s FinMin Gordhan

News Tips

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