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Africa Commercial Insights, Issue 12

Summary:

  • South Africa: Huge uncertainty over the country’s political and economic future after Zuma fires Gordhan
  • Nigeria: Government won’t budge on IMF recommendations
  • Morocco: King Mohamed strengthens his hand against PJD party

For more information on IPSA’s Africa Services, click here.

Details:

South Africa: Huge uncertainty over the country’s political and economic future after Zuma fires Gordhan

The Issue: On Monday, Finance Minister Pravin Gordhan and his deputy‚ Mcebisi Jonas, were ordered by President Zuma to return from an investor roadshow in the UK and US amid claims the trip was “unauthorised”. By close of play last night (Thursday), it was announced that Zuma had fired Gordhan, and replaced him with Home Affairs minister and Zuma loyalist, Malusi Gigaba. The announcement has plunged South African politics and its economy into deep uncertainty. Having strengthened by 20% over the last 12 months, the Rand has this week fallen sharply.

The Insight: In Issue X of the ACI, IPSA noted that an increasingly exposed Zuma was likely to launch an attack of this nature on Gordhan in an effort to strengthen his own position.  Whilst most coverage of the event has predicted serious economic repercussions for South Africa, a former CEO of a FTSE listed South African mining firm told IPSA that the effects may yet prove overstated. The source maintains that a strengthening Rand has offset much of the recovery in commodity prices, and has compromised an already inefficient workforce by making it more uncompetitive internationally. As the likelihood of a junk status rating looks to have increased ahead of Moody’s announcement next week, the same source noted many investors will also already have factored this risk into their investment decisions, and capital flight should also not be overstated as a result. Perhaps of greater economic concern now is the access Zuma will have to treasury funds without Gordhan to act as a block on the President’s own policy agenda.

Political developments are far from settled however, and major changes may still yet unfold over the coming days. A key source close to the top echelons of the ANC alerted IPSA on Wednesday night that Zuma faces a rebellion within his own party were he to fire Gordhan. 12 ministers, including Deputy President Cyril Ramaphosa, apparently threatened to resign their positions. In a further twist however, an additional IPSA source present at Zuma’s meeting with key ANC representatives last night (Thursday) noted that when offered the chance by Zuma to step down in light of his intention to fire Gordhan, no one reacted. This included Ramaphosa. Such intelligence is extremely pertinent in light of a statement released by the Democratic Alliance on Thursday morning that the party is to table a motion of no confidence in Zuma in Parliament. Zuma seems to have calculated that he will retain the support of enough ANC members to survive, and that those threatening a coup will ultimately back down.

Nigeria: Government won’t budge on IMF recommendations

The Issue: Following the Nigerian government’s release of a 10-point fiscal roadmap to boost the local economy, the International Monetary Fund this week released a critical 68-page report which assesses the government is still not doing enough to bring the country out of recession. Central to the IMF’s recommendations are the devaluation of the Naira and a harmonisation of several varying exchange rates. There are concerns in the Nigerian media that the IMF’s assessment could further delay $1.4bn in international loans that the Nigerian government is seeking for infrastructure investment.

The Insight: Most coverage and commentary on Nigeria’s new fiscal roadmap is sceptical about the government’s capacity to deliver on such a large structural transformation of the economy within such a short timeframe. Despite the renewed pressure from the IMF for a more drastic change, a senior former board director at the Nigerian Central Bank informed IPSA that the government has no intention to de-value the Naira. The government fears that a de-valued Naira would result in inflationary pressures on the price of goods that could cause widespread unrest. Furthermore, a $500m government bond sold this week that was oversubscribed by $500m – and another bond sold earlier in the year oversubscribed by over eight times – serves as evidence that investors remain attracted to Nigeria’s fundamentals irrespective of the current Naira value. A senior debt finance executive based in Abuja told IPSA that Nigeria’s substantial oil reserves offer reassurance to investors that the country has the means to service its debt. This does mean, however, that Nigeria’s capacity to secure its oil production should be a key concern for investors. Production currently stands at 1.7 mbpd, down from a high of 2.1 in recent years. A current delay in stipend payments to former militants in the Niger delta could frustrate the government’s amnesty programme, and potentially increases the likelihood of further attacks on oil infrastructure in the Delta. A further reduction in daily crude oil production does not bode well for the economy.

Morocco: King Mohamed strengthens his hand against the PJD party

The Issue: After six months of political deadlock, Morocco’s new Prime Minister, Saad Eddine El Othmani, has brokered an agreement to form a coalition government comprised of six political parties. An inability to resolve the crisis risked tarnishing a carefully constructed image of economic stability in a region otherwise marred by turmoil. Othmani was appointed last week after King Mohammed VI ousted the charismatic Abdelilah Benkirane for his failure to advance negotiations that stalled soon after the October elections.

The Insight: The appointment of Othmani is considered a shrewd move by King Mohammed. IPSA sought discreet comment from a senior government official with close ties to the royal family, The source informed IPSA that Othmani is known to be a weaker character than Benkirane, and more likely to comply and seek approval  from the King and his royal cabinet in pursuing the government’s agenda. Since the 2011 Arab Spring, the royal family have had to play a delicate balancing act between their desire to maintain political control, and showing at least some nod to greater levels of democratic participation. The Islamist PJD party have consistently come out on top in elections, and the King has sought ways to mitigate and limit their means of pursuing a strong Islamist platform. A Moroccan-based diplomatic source told IPSA that this affair highlights the limited relevance parliament still holds in Morocco. Despite the shutdown of parliament, the financial competence of the King’s royal cabinet has preserved economic stability, and King Mohamed’s successful pivot to Africa as a place for investment has been well-received on the continent.

 

 

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