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Rand Volatility Surging Ahead Of ANC Leadership Conference

Volatility in the Rand is surging in the run up to a conference when the ruling ANC could replace Jacob Zuma as its leader.

According to Bloomberg, the South African rand’s price swings are set to increase over the next two months as the ruling African National Congress prepares to replace President Jacob Zuma as party leader during a Dec. 16-20 conference.

Two-month implied volatility for the currency against the dollar surged to the highest in more than 11 months on Thursday, a day after Finance Minister Malusi Gigaba rattled markets with a bleak budget speech. At 20 percent, it’s by far the highest among major emerging currencies, with Turkey’s lira next at 13 percent.

On Wednesday, Gigaba said he could no longer “sugarcoat” the South African economy’s problems, as he delivered bad news on growth and the nation’s widening deficit.

As Bloomberg details, South Africa forecast higher debt and wider fiscal deficits over the next three years, heightening the risk of further credit ratings downgrades as a fight for control of the ruling party limits policy choices. The nation’s currency and bonds weakened. Finance Minister Malusi Gigaba painted a bleak picture of the state of the country’s finances in his first mid-term budget on Wednesday, with growth and revenue set to fall well short of projections made in February. He warned there was little scope to raise taxes or cut spending. “It is not in the public interest, nor is it in the interests of government, to sugarcoat the state of our economy and the challenges we are facing,” Gigaba said…

The deteriorating debt trajectory threatens to trigger a downgrade of the country’s local-currency debt rating to junk by S&P Global Ratings and Moody’s Investors Service, which could spur massive capital outflows. S&P and Fitch Ratings Ltd. stripped South Africa of its investment-grade foreign-currency assessment in April, citing concerns about policy uncertainty and lackluster growth, just days after Gigaba replaced Pravin Gordhan as finance minister.

Bloomberg detailed Gigaba’s downgraded metrics for the economy.

The Treasury expects the economy to expand 0.7 percent this year, down from 1.3 percent predicted in the February budget, and trimmed its growth forecasts for the next three years. Tax revenue for this fiscal year will fall 50.8 billion rand ($3.7 billion) short of the initial forecast. Lower growth and revenue will feed through to a higher budget deficit. The gap is expected to jump to 4.3 percent of gross domestic product in the current fiscal year, up from a projected 3.1 percent. The shortfall will probably stay at 3.9 percent of GDP for the next three years. That’s a break from the Treasury’s past pledges to steadily narrow the deficit.

From the same report, a BNP Paribas analyst commented on prospects for the credit rating.

“Fiscal consolidation plans seem to have been largely abandoned,” Jeffrey Schultz, an economist at BNP Paribas in Johannesburg, said by phone.

 

“We believe that not enough was done to instil confidence that fiscal consolidation remains front of mind for the Treasury and as such I think ratings downgrades by S&P and Moody’s and Fitch are inevitable before the end of the year.”

Earlier this week, sacked cabinet minister and head of the South African Communist Party said that Zuma would become a “non-factor” after the December ANC conference.

According to The Citizen, former higher education and training minister Blade Nzimande says President Jacob Zuma will be a non-factor after the African National Congress’ upcoming national conference in December. In an interview with Talk Radio 702 on Monday night, the South African Communist Party (SACP) boss, who was fired from Cabinet last week and replaced with former home affairs minister Hlengiwe Mkhize, said Zuma was a major problem for the ANC-led tripartite alliance and country. “He must go because he’s the single biggest problem in the ANC, in our alliance and in the country. That’s why we’re calling on him to step down as the president of the Republic,” said Nzimande. Following last week’s Cabinet reshuffle, the SACP said the president’s actions would have wider implications on the tripartite alliance. The party said the reshuffle was a declaration of war on the entire SACP. Nzimande said he was not surprised that Zuma fired him from his portfolio, which he held since 2009.

We wish we weren’t so sceptical that Zuma’s “influence” is going to become a “non-factor” in South Africa politics in the next few months.

South Africa will go to the polls in 2019 to elect a new president, whoever the ANC picks as leader in December is likely win. Last week, the Rand weakened on rumours that Zuma would fire his ANC deputy, Cyril Ramaphosa, who is the most likely challenger in 2019 to Zuma’s chosen successor and ex-wife. From a Reuters report.

Jacob Zuma’s spokesman said on Friday there was no basis for reports that the South African president would axe his deputy Cyril Ramaphosa, speculation about which has weighed on the currency and bonds. The ruling African National Congress (ANC) party, of which Zuma is leader and Ramaphosa deputy, has been riven by bitter infighting ahead of a party conference in December at which a new leader will be chosen.

“It’s rumours and gossip, and we don’t comment on them at all,” Zuma’s spokesman Bongani Ngqulunga told Reuters. Ramaphosa, a trade unionist-turned-business tycoon, is viewed as the most likely rival candidate to Nkosazana Dlamini-Zuma, the former chairwoman of the African Union, who is Zuma’s pick for the leadership and is the president’s ex-wife. He has recently stepped up criticism of Zuma’s scandal-plagued government. Asked in parliament on Thursday whether he might be sacked, Ramaphosa said only that he would accept the president’s decision if he lost his job. On Friday, a spokesman for the deputy president said: “We are aware of the speculation, but it is just speculation.”

Trade union federation Cosatu and the South African Communist Party (SACP), both partners in the ANC’s ruling alliance, have endorsed Ramaphosa, 64, for the leadership. Zuma is under pressure to step down before then, with a recent South African court ruling that nearly 800 corruption charges against him should be reinstated prompting more calls for the president to go.

But hey, given what we have seen 'politicians' get away with in supposedly more developed nations, what's 800 corruption charges?