The impact of Nenegate: No, You can’t simply pick up a plunging rand

By Jessica Bezuidenhout 19 February 2019
Former President Jacob Zuma with Finance Minister Nhlanhla Nene. (Photo by Greg Nicolson)

The removal of former finance minister, Nhanhla Nene, and the appointment of ANC backbencher, Des van Rooyen, burdened South Africa with billions of rand more in debt costs as the markets responded against the controversial politically-motivated event.

Jessica Bezuidenhout

The impact of Nhanhla NeneNene’s firing by former president Jacob Zuma and Des van Rooyen’s weekend-long stay in the post was felt beyond a year, with financial modelling by National Treasury showing a R3-billion to R5-billion hike in the cost of the country’s long-term debt as a result of this catastrophic December 2015 moment.

Testifying before the State Capture inquiry on Tuesday, Catherine MacLeod, chief director for macro economic policy at National Treasury, illustrated the impact of Nenegate on the cost of national long term debt as the rand tumbled from R14,59 against the US$ to R15,90 48 hours later on December 11 2015.

Nenegate was a visible point in the State Capture project. The impact was long-lasting,” she testified.

Apart from spiking borrowing costs, it ultimately placed the taxpayer and South African citizens in a worse position.

The change in ministers increased the perception of risk. Investors were also aware of the perceptions of what such changes might mean for the fiscus.”

National Treasury, she said, was trying to caution against unsustainable projects (among those the nuclear deal) and the change of minister was seen as an attempt to erode prudent financial management.

We didn’t just have the currency falling, but also the price of bonds falling sharply.”

The yield of one SA’s bond, the R186, shot up from 8.82 to 9.87 (a full percentage point higher).

When the yield goes up, it means the prices go down as investors see it as risky.”

The yield on the R186 spiked to 10.83% on 11 December, MacLeod said.

These were immediate impacts because the markets were stunned by Nenegate, she said.

Asked whether the rand could simply be picked up after such a damaging series of events, MacLeod said:

It’s easy to be glib about these sort of things. Asset prices may recover eventually. But government has to go out and convince people to lend us money… during that period we have to pay more so we can fund our social spending programmes.”

That the rand could simply have been picked up, was a notion from Environmental Affairs Minister, Nomvula Mokonyane (at that time Water Affairs Minister) when she dismissed widespread panic over the impact of a 2017 Cabinet reshuffle by Zuma that resulted in the rand losing ground to the USD and ratings agency, Standard Poor, downgrading the country’s sovereign rating to junk status in April of that year.

Mokonyane has since been implicated at the State Capture inquiry as having been the alleged recipient of R50 000 in monthly cash payments from Bosasa (now African Global), home security upgrades and extended free car rentals for one of her children.

I would say that’s the statement of somebody who doesn’t appreciate the impact of a falling rand on ordinary people or on government borrowing,” MacLeod told the Commission.

Commission chairman, deputy chief justice Raymond Zondo, asked MacLeod why Nenegate was different as ministers could generally be moved or fired for a variety of reasons that may not necessarily signal policy changes or impact on the currency or the financial markets.

MacLeod said, ordinarily, yes if there was confidence in the ability of a minister – in this case, Van Rooyen didn’t inspire any.

And, there were market concerns over the manner in which Nene was removed and she then referred to previous testimony by former Treasury DG, Lungisa Fuzile, among others, about the then desperate push by Zuma and some in Cabinet to seal an unaffordable nuclear deal.

She said the impact on the rand and the market was not only about Van Rooyen, whom nobody had heard of back then.

It’s not just about the individual but Nenegate was a visible point in the State Capture project. And this is why the context within which the dismissal happened, impacted on the market response and the intensity thereof,” said MacLeod.

Although Van Rooyen was replaced days later when Pravin Gordhan returned to the portfolio, there was still market pressure as a result of continued pressure on Gordhan at the time. Gordhan was removed months later when Zuma executed a drastic Cabinet reshuffle that saw the exit of 10 Cabinet ministers.

MacLeod said policy uncertainty can be proactively managed. Efforts to engage with investors, to maintain fiscal transparency, the creation of a social compact and other demonstrable actions could serve to mitigate against it.

While not possible to eliminate such uncertainty, it can be reduced, she said. Short-term movements of the currency can be managed but for overall debt costs, there is market punishment in sustained pressure. DM

The Commission resumes on Wednesday for the introduction of a flood of investigative reports into Eskom. This round is likely to lay the foundation for the next theme, the country’s power utility and the havoc wreaked during the Gupta reign over the pastoral


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