Nene: Too early to say if Gigaba's budget will stave off downgrade

Finance Minister Nhlanhla Nene said on Tuesday his predecessor’s budget presented last week might not prevent further credit ratings downgrades as President Cyril Ramaphosa tries to revive the economy.

The state of government finances forced the Treasury last week to take the politically risky step of raising value-added tax for the first time in 25 years.

The move was welcomed by ratings agencies and markets priced in expectations that it would enable South Africa to hang on to its last investment grade rating in a Moody’s review due soon.

Ramaphosa, 65, hailed a “new dawn” after his inauguration and has promised to fight corruption.

He announced Nene’s return to the cabinet on Monday in a reshuffle that saw the removal of some ministers allied to scandal-ridden ex-president Jacob Zuma.

Nene, who served as finance minister from May 2014 to December 2015 before being sacked by Zuma, was asked during a radio interview whether the budget would stave off further downgrades that could make it more costly for South Africa to borrow. “I wouldn’t say that yet,” Nene told Talk Radio 702.

After being sworn in, Nene said he would meet the ratings agencies soon. “It is too early to say,” he told Reuters when asked whether he thought Moody’s would downgrade South Africa’s credit rating at the end of March.

S&P and Fitch last year downgraded South Africa’s ratings to sub-investment grade after Zuma fired Pravin Gordhan from his second stint as finance minister.

Nene’s return to the Finance Ministry came almost two weeks after Zuma was ordered to step down by his own African National Congress (ANC) party and replaced by Ramaphosa.

Ramaphosa told a traditional leaders meeting in parliament on Tuesday that land reform needed to be tackled immediately and the government was starting talks with the mining sector on a new industry charter.

In a vote in parliament, lawmakers endorsed land expropriation without compensation.

Two decades after the end of apartheid, the ANC is under pressure to redress racial disparities in the ownership of land, which remains mainly in the hands of whites.

Market reaction to the cabinet shake-up was muted but there has been a strong rally since Ramaphosa was elected ANC president in December, with the rand gaining 14 percent since then, hitting three-year highs on Monday.

CALL OF DUTY

Asked about his priorities, Nene told Reuters: “I will still have to sit down and familiarise myself with the budget.” During his previous time as finance minister, Nene was keen to rein in spending.

He was loath to rubber-stamp Zuma’s plan to build more nuclear power stations for up to $100 billion, a project Ramaphosa has said South Africa cannot afford.

After he was sacked, Nene worked in the private sector, including as a board member at fund manager Allan Gray.

ANC Treasurer General Paul Mashatile said: “What’s important for us is stabilising public finances and that is his strength.”

Ramaphosa told reporters in parliament on Tuesday: “It’s a cabinet that takes into account the various strengths we’ve got in government.”

Asked if he had to make compromises, Ramaphosa said: “No, no, no. This is a transitional cabinet that is going to take us to the next elections (due mid-2019).”

Popular with investors, Gordhan was brought back to cabinet in the public enterprises department, which oversees around 300 state-owned firms, including loss-making South African Airways and cash-strapped power utility Eskom.

Analysts said Ramaphosa sought to keep rival ANC factions represented within the cabinet. He retained several ministers appointed by Zuma but demoted them from key departments.

“The boost to the economic cluster by the appointment of Gordhan and Nene will be well received by financial markets and rating agencies,” NKC African Economics said in a note.

Razia Khan, chief economist for Africa at Standard Chartered, said: “It was clear there was more than a nod to party unity in the cabinet appointments.”