One day after the South African rand tumbled on the suprising report that president Zuma had ordered his finance minister Pravin Gordhan to cancel roadshow meetings with investors in the UK and US and return home on Monday, overnight the rand plunged for the second day in a row, after the 74 year old president told senior leaders of the South African Communist Party that he plans to fire Finance Minister Pravin Gordhan.
The rand weakened as much as 2.9% and was at 12.8757 to the dollar after sliding as much as 3.2% a day earlier. The government’s rand-denominated bonds due 2026 fell, driving the yield 42 basis points higher to 8.78% over the two days (hint for all you yield chasers).
According to Bloomberg, citing people present, Zuma told officials from the party, which is allied to his ruling African National Congress, during a meeting on Monday in Johannesburg. He didn’t say when he planned to fire Gordhan.
Zuma said during the meeting with the communists he had taken the decision to remove the finance minister because he’s the president with responsibility for leading the government and Gordhan is blocking him, according to the people. “There is a power struggle between the politics of patronage and politics of constitutionalism,” Colin Coleman, a partner and head of Goldman Sachs Group in South Africa, said Tuesday in an interview on Bloomberg Television. “We may certainly see a very strong battle emerge in the days and in the months ahead.
On one hand, the report notes that on Monday a meeting of the top six leaders of the ANC was held after the SACP gathering and there was no indication that they agreed with the decision to fire Gordhan. Zizi Kodwa, a spokesman for the ANC, said the people were misinformed. However, speculation that Gordhan, 67, is on the verge of being fired has swirled for months, as he clashed with Zuma over the management of state companies and the national tax agency. “While Gordhan has led efforts to keep spending in check and fend off a junk credit rating, Zuma wants to embark on “radical economic transformation” that he says will tackle racial inequality and widespread poverty.”
Gordhan said that while in London, he and his delegation of finance minister officials and business and labor union leaders met with about 50 investors who have “great faith” in the South African economy.
“There are many in government who want to do the right things and make sure that our economy is on track and keep our development moving in the right direction so we can say we have done our job and done it well,” he said.
As Bloomberg adds, Gordhan’s dismissal may be delayed because ANC officials will be preoccupied with ceremonies to honor Ahmed Kathrada, the anti-apartheid activist jailed with former South African President Nelson Mandela, who died Tuesday at the age of 87.
Zuma and Gordhan have had a checkered past: the president named Gordhan finance minister in December 2015 after he was forced to backtrack on an earlier decision to install a then little-known lawmaker in place of Nhlanhla Nene. The president’s decision to fire the respected minister had hammered the nation’s bonds and currency and spurred ANC and business leaders to pressure him to reconsider.
“I don’t know if it’s true that Gordhan will be fired,” Enoch Godongwana, the head of the ANC’s economic policy committee, said by phone. “If that were to happen, it would be tragic for the economy. We are trying to move our growth to better levels. The growth numbers are beginning to reflect a positive trend. This sort of issue will be damaging.”
The termination of the finance minister may be just the catalyst rating agencies need to downgrade the nation, pushing prices on its sovereign debt, not to mention the currency, even lower. That said, despite the two-day drop in the currency, the Rand remains one of the better performing EM currencies YTD, with the USDZAR having started the year just shy of 14, and trading north of 15 one year ago this time.