South Africa finance minister’s departure drives rand down to all-time low
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Version 0 of 1. The surprise departure of South Africa’s finance minister has driven the country’s currency to an all-time low and led to sharp falls in the share prices of companies listed on the London Stock Exchange with a major presence in Africa’s second largest economy. The political fallout from the removal of Nhlanhla Nene led to a near-11% fall on Thursday in FTSE 100 financial services group Old Mutual, and an 11% slump in Investec, the stockbroker listed in the FTSE 250 index. South Africa’s president, Jacob Zuma, removed Nene, who had been in the post for less than two years, late on Wednesday, giving no explanation. David van Rooyen, a former mayor and member of parliament who has served on financial committees, was sworn in on Thursday during a brief ceremony in Pretoria. The main opposition party, the Democratic Alliance, called Zuma’s decision “reckless and irrational”, saying Nene had been sacked because he opposed “excessive spending” on a proposed deal with international energy companies to build nuclear power stations and on new aircraft purchases for South Africa’s struggling national airline. Economists at Capital Economics said Nene had been regarded as an “advocate of fiscal discipline” and the sell-off in the markets also drove yields on government bonds above 10% for the first time since 2008. While London-listed companies with large presences in South Africa were hit hard, so was the Johannesburg stock exchange where its banking index lost 13.5%. “The sell-off in South African markets on Thursday was probably a sign of things to come,” Capital Economics analysts said. “That added to a sharp sell-off of the rand, to … its weakest ever rate against the US dollar.” Ratings agencies have already pushed the country’s credit rating to just above junk status – which pushes up the cost of borrowing. Ratings agency Fitch downgraded the country to BBB-, while Standard & Poor’s maintained South Africa’s rating, but revised the outlook to negative. In response to Nene’s departure, Fitch said there were questions about “the motivation for the change in personnel and the implications for economic policy”. “The change [in finance minister] would be relevant to our sovereign rating assessment if it led to a loosening of fiscal policy, such as an upward revision to the government’s nominal expenditure ceilings, and a faster increase in government indebtedness,” Fitch said. Many economists questioned Van Rooyen’s ability to steady an economy being hammered by the collapse in prices of South Africa’s commodity exports that range from coal to gold, and raised concerns that public spending could spiral out of control. London-listed Anglo American, which employs around half its 135,000 workforce in South Africa, rocked the mining industry this week by announcing plans to cut 85,000 roles and sell off more than half its mines in response to the plunging price of iron ore and other metals. Its shares stabilised on Thursday but are still down 13.5% since it announced the restructuring. |