Economy, Africa

South Africa: Storm over sacking of finance minister

Fitch Ratings warns of dangers of looser fiscal policies

Hassan Isilow   | 11.12.2015
South Africa: Storm over sacking of finance minister

Ankara

By Hassan Isilow

JOHANNESBURG

 A storm of criticism has arisen after South African President Jacob Zuma’s decision to remove Finance Minister Nhlanhla Nene.

Experts from around the world have joined with opposition politicians in criticizing the move, after Nene's replacement by David van Rooyen, a member of parliament. 

"Zuma's bad decision has influenced our economy negatively. The rand has now fallen to a record low," Professor Andre Duvenhage of South Africa’s Northwest University told Anadolu Agency on Thursday.

He said the removal of the minister creates uncertainty among investors regarding the country’s future economic policies.

 "The new finance minister is completely unknown, and we are concerned about this," Duvenhage said, adding that, "It is highly unlikely that he will do a good job because he lacks the experience."

The South African rand dropped by about 5.7 percent against the dollar after the announcement, holding at record low of about 15.5 to the U.S. currency.

Zuma gave no reasons for removing the highly respected Nene, who became the country’s first black finance minister in May 2014.

Prof. Duvenhage believes Nene’s removal might be because of his strict policies on spending, such as his refusal to bail out the national carrier South African Airways whose board chair has a close relationship with the president.

The political analyst further said the country will be heading into local government elections in 2016 and the ruling ANC needs money for campaigns which Nene would probably have been reluctant to release.

Credit agency Fitch Ratings also criticized the move. 

"The replacement of Nhlanhla Nene as South Africa's Finance Minister increases uncertainty about fiscal policy and contingent liabilities from state-owned companies, although it is unclear at this stage whether this will result in significant policy changes," Fitch Ratings said in a note Thursday.

"The surprise announcement, coupled with the lack of clarity on why Nene was replaced or the preferred policies of his relatively inexperienced successor, inevitably raises questions about the motivation for the change in personnel and the implications for economic policy," the note said.

Fitch warned: "Van Rooyen is less experienced in policy-making than Nene, who had built up a reputation for fiscal conservatism in difficult economic times."

Fitch expressed concern that the new minister would support  a loosening of fiscal policy, such as an upward revision to the government's nominal expenditure ceilings, and a faster increase in government indebtedness.

"We identified looser fiscal policy that resulted in a failure to stabilise the ratio of government debt/GDP as a rating sensitivity when we downgraded South Africa to 'BBB-'/Stable last week," the note said.

Opposition politicians joined the chorus of dismay.

"President Zuma has failed to take the necessary action to rescue our economy or to take the decisions that conserve our fiscal stability, and has instead removed the minister who showed signs of fiscal prudence," federal leader of the opposition Democratic Alliance party Mmusi Maimane said in a Thursday statement.

South Africa's Economic Freedom Fighters party described the removal of Nene as a serious "pathological" crisis in the leadership and direction of the country.

The party said in a statement that David van Rooyen was inexperienced with questionable political credentials.

"Zuma has appointed him because he knows that Van Rooyen will not stand up to him when he wants to do the wrong things," spokesman Mbuyiseni Ndlozi said in a statement.

He further alleged that Nene was removed because he was reluctant to approve the country’s new nuclear deal, which the president supported.

The ruling ANC party answered criticism, releasing a statement Thursday stating that it welcomes Van Rooyen’s appointment and that the party believes he has what it takes to lead the ministry.

He was sworn Thursday afternoon. Prior to his appointment he served as a Whip of the Standing Committee on Finance as well as the Whip of the Economic Transformation Cluster in parliament.

He was also an Executive Mayor of Merafong Municipality and also worked as the North West provincial chairperson of the South African Local Government Association.

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