Zuma Begins Fightback as South Africa's Rand Gets Hammered

South Africa Rand Plunges as Much as 9 Percent
  • Markets over-reacted to finance minister's replacement: Zuma
  • Zuma's missteps may backfire on ruling ANC, academic says

President Jacob Zuma is blaming everything from market overreaction to political intrigue in a public relations fightback against criticism that his leadership is undermining South Africa’s economy and denting the popularity of the ruling African National Congress. 

In interviews this weekend, Zuma cited market “overreaction” when the rand weakened to a then record low and bond yields rose to a seven-year high last month after he fired Finance Minister Nhlanhla Nene and replaced him with little-known lawmaker David van Rooyen. The currency hasn’t recovered since he rescinded his decision and appointed Pravin Gordhan to the post. He also called criticism that his friendship with a wealthy Indian family which employs his son reeks of influence peddling “a political thing.”

Jacob Zuma
Jacob Zuma
Photographer: Sean Gallup/Getty Images

“Zuma’s comments indicate a profound lack of understanding of how global capital markets work and how trust is built between governments and lenders,” said Nic Borain, an adviser to BNP Paribas Securities South Africa. “He’s saying the rand was going down anyway and it’s not his fault, but it is his fault.”

Zuma spoke at a time when the rand is hitting record lows almost daily, South Africa’s debt is threatened by a credit downgrade to junk and the ANC is preparing for what analysts expect to be hotly contested local elections this year, particularly in the capital, Pretoria, and Johannesburg. The vote will take place against a backdrop of mounting discontent among poor South Africans over living conditions and a 25.5 percent unemployment rate.

While more than 200,000 people have signed online petitions calling for the president to quit or be ousted, Zuma’s comments indicate he won’t go willingly before his current term ends in 2019. He’ll be able to remain in office as long as he retains the backing of the ANC, which won 62 percent of the vote in the last elections in 2014.

Public Distrust

In power since 2009, Zuma has repeatedly come under attack from opposition parties for squandering taxpayers’ money on a 215-million rand ($13 million) upgrade of his private home. Public distrust in the president stands at a record of 66 percent, up from 37 percent in 2011, and a majority of South Africans believes he routinely ignores parliament and the courts, an Afrobarometer poll of 2,400 people released in November showed.

Former Finance Minister Trevor Manuel, ex-Public Enterprises Minister Barbara Hogan and former central bank governor Tito Mboweni voiced criticism after Nene was axed.

“There was an exaggeration that was unfortunate,” Zuma told the South African Broadcasting Corp. in an interview. “In any case, I’ve never come across a period in which people say the markets are happy. It differs in degrees. No one can say this is the first time we had this kind of a problem.”

Rand Slides

Even after the appointment of Gordhan, who served as finance minister between 2009 and 2014, the rand’s downward slide has continued unabated. It reached a record low of 17.9169 on Monday, before rebounding to trade at 16.5748 at 1:12 p.m. in Johannesburg.

“The president seems quite clearly to have been stung by the criticisms surrounding his decision to fire Nene, otherwise he would not still be talking about it a month later,” Judith February, a political analyst at the Institute for Security Studies, said by telephone on Monday. “He has not given any rational basis for the firing and when Zuma is left to ad lib or speak in a non-structured environment he is inclined to muddy the waters even more.”

Zuma told ENCA television the criticism of his friendship with the Gupta family was political posturing, and there was nothing untoward about their relationship. He’s previously denied playing any role in securing permission for them to land a plane at the high-security Waterkloof air force base to take friends to a wedding or using his position to further their business interests.

Election Challenge

Zuma’s failure to acknowledge his missteps may backfire on him and the ANC in the local elections that are scheduled to be held between May and August, according to Susan Booysen, a politics professor at the University of the Witwatersrand’s School of Governance.

“The president’s comments this weekend did not even offer a halfhearted apology for the Nene debacle,” Booysen said by telephone on Monday. “It seems that the president’s advisers are either not briefing him properly or that there is a general trend in the ANC to leave him to hang out and dry. Whatever, the reason, it could be disastrous for the party at the local elections.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE