Gordhan returns, promises fiscal prudence

Pravin Gordhan has dramatically returned as South Africa’s finance minister after President Jacob Zuma was forced to scrap his appointment of an obscure backbench MP.

The appointment of Gordhan, finance minister from 2009 to 2014, represents a humiliating about-turn for Zuma, who earlier this week shocked markets when he replaced the respected Nhlanhla Nene with the unknown Douglas Van Rooyen.

Zuma’s decision to name Gordhan as the third finance minister in a week is likely to find favour among investors after days of turmoil which saw the rand plunge to historic lows against the dollar. By Monday morning the rand was recovering ground, returning to R15 against the dollar from R16 on Friday.

In a press conference on Monday morning, Gordhan said that he would prioritise fiscal responsibility, hinting at possible tax rises and spending cuts. 

“We will stay the course of sound fiscal management. Our expenditure ceiling is sacrosanct. We can have extra expenditure only if we raise extra revenue. We will unreservedly continue our fiscal consolidation process and we will stabilise our debt in the medium term. We will accelerate this by either cutting spending or making selective changes to tax policy,” he said. 

The ANC veteran is known for his stable leadership of the economy, which he steered after a decade in charge of South Africa’s revenue service. Gordhan was most recently serving as minister of cooperative governance and traditional affairs – a post which will now be assumed by Van Rooyen.

Zuma’s decision to replace Nene – well regarded among investors for his fiscal prudence and stable leadership – was widely seen as a worrying sign of political interference in the Treasury, a body which has long cherished its independence from government.

The shock decision to replace Nene was widely criticised by both foreign investors and South African organisations. In an unusual step, the Johannesburg Stock Exchange released a statement expressing their “concern” with the replacement of Nene. The Congress of South African Trade Unions – a key ally of Zuma’s ANC – called the decision “ill-timed”. Other commentators suggested that Nene’s firing was related to his decision to scrap a deal between the state-owned South African Airways – managed by a Zuma ally – and Airbus. 

In his press conference, Gordhan suggested that he would maintain Nene’s scepticism towards state-owned enterprises. 

“Its time that individuals or groups of individuals stop playing with state entities…as if it’s a personal toy from which you can extract money when you feel like it. These are public institutions.”

Peter Attard Montalto, analyst at Nomura, said that the markets will be waiting for clarity on Gordhan’s policies towards South African Airways and a recently approved nuclear procurement programme. 

“He is very market friendly, fiscally conservative and a welcome move (though I suppose this begs the question why we simply couldn’t go back to Nene?!). But what on his views of SAA and nuclear? That’s the question now he has been appointed and those issues need to be watched carefully still even with Pravin back.”

South Africa’s economy has struggled this year, narrowly avoiding a recession in the third quarter by registering growth of 0.7%. The country has been hit particularly hard by the fall in commodity prices, with the crucial mining industry forced to lay off thousands of jobs and close mines.  

David Thomas