Investors look to new Cabinet for direction

Investors will be looking to the composition of South Africa’s new Cabinet as a clue to the future policy direction, global financial services group Nomura says.

Final details of the composition of the Cabinet are not expected until the week after the inauguration, scheduled to take place on May 9.

“The Congress of South African Trade Unions [Cosatu] and the South African Communist Party [SACP] helped Zuma to power in Polokwane in 2007, and he may consider he has debts to pay.
Leaders from those organisations are high up on the ANC’s [African National Congress] seat list and are expected to get the more developmental state roles such as education,” notes Nomura analyst Peter Montalto.

Would any significant placement of these people imply anything for policy itself?

“That remains to be seen,” says Montalto.

“The new planning ministry which is due to sit inside the presidency would also provide new roles to fill. Key will be what happens in the Ministry of Finance.

“We still believe that Trevor Manuel will stay on for at least one more year before possibly moving overseas to a job at the IMF [International Monetary Fund] or the World Bank or perhaps to the planning ministry.”

Some media reports suggest that he will move straight to the planning ministry, but we doubt that this will happen. He is not popular with the left of the ANC who considered him too powerful as minister of finance, limiting spending and controlling projects in other departments.

“In light of this, we think giving him even more power in a central role would not make sense. It would make more sense, trying to think in the minds of those on the left of the ANC, to keep him in his current role in order to keep markets onside, and then transfer some of the power from that role to the planning ministry.

“If Manuel does remain in his present position, the appointment of deputy finance minister will be important as the ANC will likely be seen as grooming someone to take over the role.

“Current incumbent Nhlanhla Nene has said he is ‘small fry’ in the ANC and does not expect to become finance minister. We doubt markets would view him favourably if he were to be appointed ultimately to the top job, but we think he may well stay on if the ANC has not yet finalised Manuel’s succession,” adds Montalto.

He continues: “Other candidates include [with our expected market reaction]:


  • Cyril Ramaphosa [positive]: he is trusted by the market but is said not to be interested in a Cabinet post.

  • Tokyo Sexwale [neutral]: he is also trusted by the market but is said to want a role in foreign affairs or the deputy presidency, he also has vast business interests which could be a conflict of interest;
  • Max Sisulu [neutral]: chairperson of Sasol, he is seen as too old, although he has lots of experience, and is currently head of the ANC’s economic policy group;
  • Enoch Godongwana [uncertain reaction]: he has experience of being in charge of finance in the Eastern Cape but the market is uncertain about how well he could take on the job;
  • Matthew Phosa [neutral]: he is seen as Zuma’s right-hand man on business issues and a voice of reason, but we think he is more likely to be in the presidency with Zuma;
  • Pravin Gordhan [positive]: currently head of the tax authority, he is considered a competent manager, but we are not sure whether he can make the leap to macro-policy or if he is in favour with the left of the ANC.

“Markets are looking for Zuma to appoint people on merit not by patronage, and this is particularly applicable for the finance ministry, the Department of Mining and Minerals and the Department for Public Enterprises where investors are particularly interested in policy,” adds Montalto.

He says that further details of policy will become apparent in the state of the nation address by Zuma followed by the budget speech by the finance minister which are expected to occur in mid-May.

“We still expect the ANC to be constrained by its need to maintain market sentiment given the level of borrowing that must occur this year and this should prevent any substantial shift to the left,” Montalto adds.—I-Net Bridge

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