South Africa’s S&P Rating Respite Strengthens Gordhan’s Hand

  • S&P Affirms investment-grade rating with negative outlook
  • President Zuma unlikely to remove finance minister: Booysen

South African Finance Minister Pravin Gordhan.

Photographer: Waldo Swiegers/Bloomberg

South African Finance Minister Pravin Gordhan emerged in a stronger position in his tug of war with President Jacob Zuma after S&P Global Ratings decided not to cut the nation’s credit rating to junk.

“This means that Gordhan will not be going anywhere for the time being, unless he takes a personal decision to go,” said Susan Booysen, a politics professor at the University of the Witwatersrand’s School of Governance. “This is another signal that Zuma cannot survive without Gordhan, even though their relationship will continue to be very rocky.”

S&P’s decision came at a time of increasing investor concern about South Africa’s internal policy disputes, heightened by Zuma’s aborted attempt six months ago to name a little-known lawmaker as finance minister. The ratings company said June 3 that slow growth put the economy at risk and rising political tensions increased the country’s vulnerability of being downgraded to junk. It’s next due to review South Africa’s BBB- rating in December.

The rand gained 3.2 percent against the dollar on June 3, the day the S&P decision was announced, and advanced a further 1.1 percent to 14.9350 by 2:45 p.m. in Johannesburg on Monday. Yields on rand-denominated government bonds due December 2026 fell 15 basis points to 9.05 percent, the lowest since May 2.

Policy Disputes

Zuma and Gordhan remain at loggerheads over several key issues.

While Zuma has said the government will press ahead with plans to add 9,600 megawatts of nuclear energy to the national grid, Gordhan insists the plants must be affordable. Musa Zwane, the acting chief executive of the South African Airways, said last week that conflicting orders from the two men were hindering the recovery of the airline, whose board is chaired by the head of the president’s charitable foundation, former schoolteacher Dudu Myeni.

Gordhan took over as finance minister, a post he held from 2009 to 2014, in December after Zuma was forced to remove David van Rooyen four days after his appointment because of protests from members of the ruling African National Congress and the business community. Zuma has since said that Van Rooyen is the most qualified person for the job.

Speculation that Gordhan could lose his position mounted last month when Johannesburg’s Sunday Times newspaper reported that he was at risk of being arrested on espionage charges for helping establish a “rogue” investigative unit when he headed the national tax agency. The National Prosecuting Authority denied the report and Gordhan said he had done nothing wrong.

‘Toxic Narrative’

In a May 27 statement, Zuma’s office condemned the “toxic narrative” insinuating he was at war with Gordhan to gain control of the National Treasury. While the finance chief has said he serves at the president’s pleasure and hasn’t criticized him directly, he’s said the Treasury’s independence is under threat and the country would pay a severe price if what he described as the subversion of democracy was allowed to continue unchallenged.

“The ratings decision does place Pravin Gordhan in a much stronger position politically and he and his supporters will feel vindicated by it,” said Daniel Silke, director of Cape Town-based Political Futures Consultancy. “It does not mean that those who support President Jacob Zuma and the status quo within government will feel any more comfortable with Gordhan and his efforts to change the way government does business.”

Bongani Ngqulunga, Zuma’s spokesman, didn’t answer his mobile phone or respond to a message seeking comment.

The “government wants to reiterate that concerns raised by the ratings agency are being addressed through various government programs and policies,” Donald Liphoko, the acting director-general of the Government Communication and Information Service, said in a statement. “S&P’s announcement must be seen as motivation to further improve the economic climate.”

Ongoing political uncertainty means that South Africa remains at risk of a downgrade this year, according to Roxana Hulea, an emerging market strategist at Societe Generale in London.

“It’s no secret that the factions of the ANC that Gordhan and President Zuma represent are still at odds,” she said. “I wouldn’t be so sure that Gordhan winning some battles for now is a certainty that Zuma will be quieter over the next months.”

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