South Africa is only a year away from a new president and with economic risks mounting, foreign investors are apprehensive about who will head the continent’s most important finance ministry.
Will market favourite Trevor Manuel, one of the world’s longest serving finance ministers, stay on in the office he has held since 1996?
African National Congress president and former deputy president Jacob Zuma is expected to succeed Thabo Mbeki, worrying some investors who fear increasingly leftist policies.
Zuma may wish to start afresh, distancing his administration from Mbeki’s, while Manuel, who carried considerable clout in Mbeki’s Cabinet, has often said a minister should not stay in a post indefinitely.
As the economy struggles in the face of power failures that have hurt the mining sector, rising food and fuel-driven inflation in double digits and a gaping current account deficit, many funds have chosen to cut back on South African assets.
The rand, which in other circumstances should have benefited from record global commodity prices, has lost more than 15% so far this year.
”The only saving grace is that we have a finance minister who is reform-minded and aims to be market friendly,” said UBS head of emerging market currency strategy Bhanu Baweja. ”If it weren’t for Trevor Manuel, the currency would be much lower.”
The question for many investors is whether — and for how long — Manuel would remain in his job after Mbeki stands down having served his two terms after polls next year.
Some say they see him standing on for at least a year, others expect him to make way for a new generation.
”It is definitely something people are looking at,” said Standard Chartered chief Africa economist Razia Khan. ”Keeping him on for a period would be a good way of reassuring foreign investors that nothing important is likely to change as far as they are concerned.”
Main political economy risk’
She said Manuel’s position was particularly important with South African Reserve Bank Governor Tito Mboweni also seen leaving. Mbeki, Manuel and Mboweni have between them dominated economic policy.
Analysts say they are also looking to see how many of Manuel’s key civil servants at the Treasury stay on.
Goldman Sachs analyst said in a research note that a delay in starting a corruption trial for Zuma made his eventual takeover more likely.
”The main political economy risk appears to be succession at the National Treasury and what it means for budget surpluses and inflation targeting,” wrote Goldman Sachs analyst Ashok Bhundia in a research note.
”Manuel would probably demand a very high degree of autonomy as a condition for remaining in government … it may then boil down to how much political capital Zuma is prepared to spend on keeping the current finance minister and risk the wrath of the left wing of his support base.”
Despite being associated with Mbeki, Manuel was one of only a few of the present Cabinet re-elected onto the ANC’s national executive committee.
With Zuma and other ANC leaders seeming unwilling to discuss who might take over in the event Manuel leaves, some investors say part of the problem is the lack of options.
”It would be good if he did stay on,” said Gartmore head of emerging markets Chris Palmer, who manages a range of portfolios including the $1-billion Gartmore Sicav Emerging Markets fund.
”But it would be even better if there were five more of him waiting in the wings. We know there are a lot of people coming up through various companies in South Africa — it would be good if they were moving into government as well.”
He said the current government had made mistakes in several key areas, not least the failure to ensure proper investment in the electricity sector leading to now crippling shortages.
His fund is deliberately underweight South Africa, he said, and sees much of the appeal of companies such as MTN as lying in their ability to access the broader African continent and take advantage of growth there.
Desperate unions?
The International Monetary Fund sees African continental growth of 6,5% in 2008 — in contrast to South African growth, currently running at an annualised 2,1%.
ING economist Dorothee Gasser said she believed many investors had already accepted the loss of Manuel — and should be less concerned over Zuma’s links with union and leftist groups, saying these were backing him out of a lack of alternatives.
That gave Zuma considerable flexibility not to need to accept all their demands, she said.
She said she saw ANC deputy leader Kgalema Motlanthe, a left-leaning intellectual popular in both the Mbeki and Zuma camps, as a possible finance minister.
Motlanthe has also been touted as a possible presidential candidate if Zuma is forced to step down as a result of a corruption case. The bribery trial linked to an arms deal was expected to start in August, but his lawyers say it will likely be pushed back for procedural reasons.
”What people forget is that the unions and communists are partly backing Zuma out of desperation,” ING’s Grasser said.
”They have no one else to turn to.” – Reuters