Zuma replaces Nene with David van Rooyen

NATIONAL – President Jacob Zuma removed Finance Minister Nhlanhla Nene from his post on Wednesday. This come five days after the latest downgrade to the country’s credit rating.

Nene has been replaced by David van Rooyen, the whip of parliament’s standing committee on finance and who also serves as whip of the economic transformation cluster.

Nene was appointed as Finance Minister in May last year, succeeding Pravin Gordhan.

Local economist, Glen Steyn, says the market is concerned about the sudden replacement of Nene and perceives it as a political intervention for which the economic consequences have not been considered.

Steyn adds that the fiscal strategy is delicately balanced at present, with competing imperatives for social and infrastructure spending on the one hand, and commitments towards creditors regarding fiscal discipline on the other. Under these conditions, the unexpected replacement of a finance minister is perceived as a negative shock.

“The exchange rate of the Rand against major currencies has been weakening rapidly in recent months is mainly due the decline in commodity exports. This political intervention has worsened the situation. A weak rand implies imported inflation, which could trigger increases in the interest rate. This means that debt repayments will increase for everyone who has loans,” says Steyn.

“If the dire state of many departments and state entities is the result of bureaucratic inefficiencies, then it is against sound economic principles to keep funding such inefficiencies with taxes paid by persons and business. Any increases in government expenditure relative to the current national budget will mean that taxes will have to increase or the state will have to borrow more. Both of these options will have expensive implications.”

By 21:20 on Wednesday, the rand plunged 3% to as low as 15.0563 against the dollar. R16.34 to the euro (down 2.74%) and R22.5 against the pound (down 2.5%).