South Africa Replaces Finance Minister

Tags:

Yesterday it was announced that the highly respected Finance Minister of South Africa, Nhlanhla Nene was fired by President Jacob Zuma and replaced by David van Rooyen.

It seems Nene thwarted Zuma and his allies one too many times (regarding South African Airlines and Nuclear Procurement) and has been replaced with a life-long Zuma supporter.  With experience in the military wing of the African National Congress (ANC) and small town government, van Rooyen is, in our view, underqualified for the post of finance minister.

We believe this is a very important development.   The institutional quality of National Treasury (NT) and the South African Reserve Bank (SARB) were two key bulwarks against the erosion of South African sovereign credit quality.  Over the past few years, despite a challenging macroeconomic environment, Nene has had a fair amount of success maintaining a binding expenditure ceiling and keeping the parastatals afloat without sinking the sovereign balance sheet.  Recently, Nene and NT strongly opposed the Zuma-backed (and ruinously expensive) plan to build multiple nuclear power plants over the coming decade.

We feel strongly that this will mark a turning point for South Africa.  We have noted before our belief that South Africa’s biggest strength was the professionalism of the Treasury and Reserve bank.  Removing a well-respected finance minister and replacing him with a loyalist who we believe will rubber-stamp spending increases and sign off on the nuclear build is, in our view, a negative turn of events for South Africa. Throughout all the political and economic turmoil in Turkey, Russia and Brazil, South Africa has managed to fly under the radar. We believe these developments have painted a big target on South Africa and that the market reaction will be negative. Indeed, since yesterday afternoon, the South African Rand has fallen by about 4% while the yield on the 10 year South African Government Bond has risen by over 100 basis points. It is our opinion that even if the new Finance Minister tries to follow in the footsteps of his predecessor, it will not make a difference to the market.

The comments provided herein are a general market overview and do not constitute investment advice, are not predictive of any future market performance, are not provided as a sales or advertising communication, and do not represent an offer to sell or a solicitation of an offer to buy any security.  Similarly, this information is not intended to provide specific advice, recommendations or projected returns of any particular product of Standish Mellon Asset Management Company LLC (Standish).  These views are current as of the date of this communication and are subject to rapid change as economic and market conditions dictate. Though these views may be informed by information from publicly available sources that we believe to be accurate, we can make no representation as to the accuracy of such sources nor the completeness of such information.  Please contact Standish for current information about our views of the economy and the markets.  Portfolio composition is subject to change, and past performance is no indication of future performance.
BNY Mellon is one of the world’s leading asset management organizations, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon is the corporate brand for The Bank of New York Mellon Corporation. Standish is a registered investment adviser and BNY Mellon subsidiary.

Share This Page


RECEIVE ARTICLES BY EMAIL