On May 15, the Sunday Times (English, Johannesburg) published rumors of the impending arrest of Finance Minister Pravin Gordhan over alleged revenue service irregularities. However, on May 16, Beeld (Afrikaans, Johannesburg) reported that President Zuma denied the Sunday Times report. Nevertheless, the South African national currency, the rand (ZAR), fell the following two days, reaching its weakest level in two months; it has fallen 2.1 percent against the U.S. dollar since March 15.
Bloomberg sees the Gordhan investigation as evidence that Zuma is trying to get rid of the finance minister, who has been curbing government spending and corruption and seeks to retain the country’s investment-grade credit rating. Bloomberg quotes Peter Attard Montalto, an emerging markets strategist, as saying, “We think that markets are vastly underestimating the political risk. The arrest of a respected finance minister in order to engineer a reshuffle to achieve rent-extraction aims would be a major, catastrophic, market event from which it would be difficult to recover.”
The Daily Maverick, long critical of Zuma, suggests credibly that the Sunday Times report of the rumor of Gordhan’s impending arrest could have been designed to test the market’s reaction should he be removed. The fall of the rand indicates that the markets would respond as negatively as they did in December 2015 when Zuma fired the respected Nhanhla Nene as finance minister and replaced him with a largely unknown parliamentarian. The blowback was so strong that Zuma was forced to appoint the well-regarded Gordhan as finance minister. He had previously held the position from 2009 to 2014.
Few think the drama is over. Warrick Butler, head of emerging market spot tradition at Standard Bank Group, Ltd., is quoted by Bloomberg as saying, “People are getting tired of the circus and investors don’t like uncertainty.”