Old hand Gordhan back at national treasury after Zuma climbdown

In naming his second finance minister in the space of a week, President Jacob Zuma has chosen an experienced hand well-known to foreign investors.

Pravin Gordhan, 66, will retake the role he held between 2009 and 2014, replacing little-known lawmaker David van Rooyen, whose appointment on Dec. 9 sent the rand to a record low against the dollar.

“The markets will welcome back Gordhan to National Treasury,” John Cairns, a currency strategist at Johannesburg- based Rand Merchant Bank, wrote in a note Monday. “He is a known entity, is his own man and did well when in the post previously.”

Zuma’s U-turn sees the return of a finance minister who in 2009 steered the economy through the first recession in 17 years, while fending off pressure from labor unions to increase spending in the face of a widening budget deficit. With a reputation for fiscal prudence, Gordhan retakes the role at a time when output is expected to grow just 1.4 percent this year, with the economy having narrowly avoided recession in the third quarter the nation on the verge of being downgraded to junk status by rating companies.

Gordhan’s reappointment should stabilize markets in the short term, according to Peter Attard Montalto, an emerging- markets economist at Nomura International Plc in London. The rand tumbled to a record 16.05 against the dollar on Dec. 11 after Zuma fired Nhlanhla Nene, who had served 19 months as finance minister, without giving reasons. The currency rallied 5 percent to 15.1437 rand per dollar by 8:33 a.m. on Monday, the most since 2008, while yields on benchmark government bonds due Dec. 2026 plummeted 97 basis points to 9.41 percent.

In his previous role as finance minister Gordhan stressed the need to curb government spending, telling reporters in April 2014, shortly before he was replaced, that South Africa had to “start consolidating our fiscal position and reducing the amount we have to borrow.” He will present the national budget to lawmakers in February.

Markets will want to know his views on South African Airways and spending on nuclear energy, Montalto said. Nene was fired shortly after he clashed with chairwoman of SAA, Dudu Myeni, who also heads Zuma’s charitable foundation, when he refused the loss-making national carrier permission to restructure a plane-leasing deal. He also urged caution in proceeding with Zuma’s plan to build nuclear power stations.

“Those issues need to be watched carefully still, even with Pravin back,” Montalto said.

Gordhan graduated as a pharmacist from the University of Durban Westville in 1973 and became involved in politics as a student, helping organize opposition to all-white rule for the ANC and the South African Communist Party. He was detained several times by the police and tortured.

Key Role

Gordhan played a key role in negotiations between the ANC and the National Party government leading to South Africa’s first all-race elections in 1994. After the ANC took power under Nelson Mandela he was appointed a lawmaker and chairman of a committee overseeing the implementation of a new constitution.

He joined the South African Revenue Services in 1998 and was tasked with overhauling its customs and revenue administration. The following year he was named head of the agency and served for a decade before heading the National Treasury as finance minister. He will have his work cut out in his second stint, said Gary van Staden, an analyst at Paar, South Africa-based NKC African Economics.

Gordhan “will likely achieve some success in calming the collective nerve, but the longer-term consequences of presidential blundering and Mr Zuma’s thoughtlessness and knee- jerk decision-making will leave its own negative legacy,” Van Staden said in a note.

 – Bloomberg