Spooked markets swift to punish SA

The government’s ability to borrow on the market took a hit within hours of Pravin Gordhan’s removal as finance minister.

The official announcement of his axing came at midnight on Thursday and when the government sought to raise money from the market on Friday morning, it came up short.

“We were hoping, today, for example, to raise R600-million in the bond market on a short-term basis — and bids for just over R200-million were actually offered, because there’s this concern about the economy rising from the announcements made yesterday,” said Gordhan, addressing a room packed with public servants and the press at the treasury in Pretoria on Friday.

In his last address as finance minister, Pravin recalled how, on December 13 2015, he was summoned by President Jacob Zuma and offered the job.

This was in the midst of market panic when Nhlanhla Nene was removed from the post and replaced with parliamentary backbencher Des van Rooyen.

Gordhan, who had been toying with the idea of retirement, asked: “Why me?” — and offered the president two alternative choices: experienced deputy ministers of finance Mcebisi Jonas and Jabu Moleketi.

“He said: ‘No, they say you are the man who can calm the markets.’ ” 

Indeed, his appointment did that.

But now that he has been removed and replaced with Malusi Gigaba, the markets are again unnerved. When the week began, the rand was in a better position than it had been for some time and was the best-performing emerging market currency this year. But then news broke that Gordhan had been told by the presidency to return home from an investor roadshow, with no explanation given.

On Friday, Gordhan said the treasury would have met about 60 investors, who controlled a collective $5-trillion between them, but he had met the ratings agencies before his roadshow was cut short.

Yet Zuma used Gordhan’s day in London as an excuse to fire him on the basis of a dubious intelligence report. Zuma is reported to have claimed the finance minister had been holding meetings to undermine the government. Gordhan held up the report up for the staffand press to see. He denied the claims in it and dismissed it as nonsense. 

It sickened him that he was accused of such transgressions.

“There was no such meeting … If you don’t want us to do this job, tell us not to do this job,” he said, adding there had been no reason to manufacture reasons to fire him. The news that Gordhan had been recalled from the trip on Monday caused the currency to slide quickly from R12.20 to the dollar to R13.20, although it recovered somewhat during the week. But around 8pm on Thursday night, when warnings of a Cabinet reshuffle resurged, it began to weaken once more from R12.90 to R13.42, where it remained on Friday afternoon. 

The weaker rand buoyed the share price of resource companies on the JSE, but the shares of companies that earn their money domestically, such as the banks, took a knock.

In the United Kingdom, the FTSE 100 share index was down on midday Friday as a result of companies with an interest in South Africa trading lower, the BBC reported.

Addressing the room, Gordhan said the government’s benchmark 10-year bond yield had weakenedfrom 8.3 basis points to 8.9 in the first few hours of the day. And that means that, both as the government and as South Africans, we are paying extra to borrow money, he said.

“That doesn’t give us any pleasure because, as the finance family our responsibility is to offer as much stability to the country as possible and do whatever we can — as we have been doing very dutifully for some time now as the treasury … to reassure markets or ratings agencies or investors or business people and, most importantly, ordinary South Africans, that their financial future is safe in the hands of this government.”

With upcoming credit rating assessments imminent, Gordhan said he did not think his removal necessarily foreshadowed a downgrade, which would mean a higher cost of borrowing for the government and, in turn, curtailing development.

“Ordinary South Africans shouldn’t pay the price for nonsense elsewhere,” said Gordhan.

“I believe we have a very strong case to remain investment grade — unless we shoot ourselves in the foot, which I hope we don’t.”

Macroeconomic stability, in the form of South Africa’s fiscal and monetary policies, he said, was not treasury policy but government policy.

He added he would meet the incoming finance minister to take him through the issues and “ensure maximum stability and continuity on issues”.

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