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Rand drops as Zuma recalls finance minister

March 27, 2017

South African President Jacob Zuma has ordered Finance Minister Gordhan to return from an overseas trip. The recall spooked foreign exchange markets and fueled speculation about a cabinet reshuffle.

Südafrika Präsident Jacob Zuma
Image: Imago/Gallo Images

South African President Jacob Zuma asked his Finance Minister Pravin Gordhan on Monday to return home "immediately" from an investor roadshow in London, fuelling speculation about a cabinet reshuffle and unnerving investors who see Gordhan as a emblem of stability.

The rand fell more than three percent against the US dollar, bonds tumbled and banking shares slid more than three percent after Zuma's office said Gordhan had been recalled. It did not give a reason, but a government source said: "The presidency did not give permission for the trip."

Speaking in London, Gordhan - who the Treasury said will return to South Africa on Tuesday - said he was "just asked to come back". Asked if he expected a cabinet reshuffle, Gordhan said: "That's the boss's prerogative."

The decision comes a day before a court is due to rule on a request by Gordhan for a declaratory judgment that he cannot interfere with decisions by banks to cut ties with businesses owned by the Gupta brothers, who are friends of Zuma.

Zuma's decision to recall Pravin Gordhan from Britain has led to media and opposition speculation that he could be sacked. The two men have had an increasingly uneasy relationship in recent months. Friction has soared between Zuma, who is seeking to fund a "radical economic transformation", and Gordhan, who is taking a stand against graft and heavy spending.

The main opposition Democratic Alliance warned that the developing incident would be seen as "a major setback for the economy in South Africa" and was a prelude to a reshuffle.

"(It) is so bizarre that it appears, at best, calculated to humiliate the minister or, at worst, to suggest that the minister is about to be fired in a cabinet reshuffle," said shadow finance minister David Maynier.

Südafrika Finanzminister Minister Pravin Gordhan (R) und Zuma (L)
South Africa's finance minister Pravin Gordhan (right) and president Jacob ZumaImage: picture-alliance/dpa/N. Bothma

Local media have also speculated that the recall is a precursor to a change of personnel at the top of government. "Fears are growing that President Jacob Zuma will finally pull the trigger and reshuffle his Cabinet," wrote the Daily Maverick news site.

South Africa's credit rating at risk

Business executives and union leaders had also accompanied Gordhan to London to woo potential investors for whom he is a reassuring figure given weak economic growth and tensions within the ruling African National Congress (ANC).

Currently rated investment-grade, South Africa was granted a reprieve at the end of last year when rating agencies did not drop it to the "junk" investment category following a series of downgrades. However, Africa's most industrialised economy is still seen at risk of slipping into said "junk" territory because of sluggish growth and political uncertainty.

Fraud charges brought against Gordhan and then dropped last year, prompting accusations of a political "witch-hunt", badly rattled financial markets, as did rumors before last month's budget speech that he might be moved from the Treasury.

Gordhan first served as finance minister from 2009 to 2014 and was reappointed by Zuma in December 2015 to calm markets spooked by the president's decision to replace respected finance minister Nhlanhla Nene with an obscure lawmaker, triggering panic among investors and a sharp drop in the rand.

Analysts said Zuma's move could spell another bout of political uncertainty and possibly a cabinet reshuffle. "Any suggestion Zuma is interfering with Gordhan's business dealings will be a concern for investors and could signal political instability on the horizon," political analyst Daniel Silke said.

Rating agencies S&P and Fitch both rank the sovereign debt of Africa's most industrialised economy one level above junk, while Moody's puts it two notches higher.

Moody's, which put South Africa on negative watch in its latest review, is due to review that rating on April 7, followed by S&P at the beginning of June.

bb/bea (reuters, AFP)

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