Business leaders say the re-appointment of Pravin Gordhan as Finance Minister will bring much needed stability, but damage to investor confidence won’t be undone overnight.
President Jacob Zuma’s decision to undo his previous decision to replace former minister Nhlanhla Nene with David van Rooyen by removing the latter and replacing him with Gordhan, helped the markets recover somewhat from last week’s value destruction.
Over R169 billion in market value had been wiped out last week and may take time to recover. The rand has also started retracing its steps from the sub-R16 level seen last week, but was struggling to break out of the slump. By 4pm, the Financial Index was up 6.01%, Gold Mining lost 7.66%, and the All Share was slightly up by 0.42%.
The bond market also saw some recovery yesterday and financial shares, which were particularly hard hit by the announcement, rose sharply. But concerns remain about the long-term impact of the events. Donna Oosthuyse, head of capital markets at the JSE, says the expectation is the rand’s depreciation will impact inflation.
Against this background, as well as the current drought, South African will be importing about a million tons of white and yellow maize – about twice the usual quantity – which will have a knock-on effect on food prices. Oosthuyse says even though the president reappointed Gordhan, who is well-known and respected, the re-pricing is likely to have a long-term impact.
Concerns remained about structural issues in the economy that will need to be tackled before the long-term impact can be addressed, she says. Christo Botes, chief executive officer of the Afrikaanse Handelsinstituut (AHI), welcomed Gordhan’s return, but said the damage caused over the past week wouldn’t be erased immediately.
Cas Coovadia, managing director of The Banking Association South Africa, says Gordhan’s return would help market confidence. While the recovery may not be as quick or as sharp as the fall last week, he expects markets, investors and ratings agencies to view the move as positive. What the country needs is confidence and certainty that will attract investors and create jobs to address inequality, unemployment and poverty.
Nico Vermeulen, director of the National Association of Automobile Manufacturers, says the key challenge is confidence. “The biggest challenge he has as minister of finance now is to re-establish confidence in South Africa’s economic and financial administration.”
Business Leadership South Africa (BLSA) said the turmoil “demonstrated SA’s resilience in crisis and responsiveness while under pressure”. It stressed that a commitment to fiscal prudence, the creation of a positive investment climate, rectification of the governance and performance of key state-owned enterprises and decisive action on corruption were imperatives.