Investor confidence on a knife-edge after Zuma reshuffle

By Melanie Peters | IOL |

Every time President Jacob Zuma and, the now fired, former finance minister Pravin Gordhan go toe-to-toe the rand dips.

It was no different when Zuma summoned Gordhan home from an investor roadshow in London and there was much speculation over the minister’s future.

By the end of the week, the axe had fallen.

In a major cabinet reshuffle, Gordhan, and at least eight other ministers and six deputies were sent packing.

The rand had grown stronger in past months and was even hailed as one of the strongest performing currencies from an emerging market economy.

But Zuma’s gamble made the rand wobble and set it on a downward spiral. This major cabinet shuffle and continued uncertainty, erodes investor confidence.

Here, in China, during meetings with government officials, including the Ministry of Commerce, and executives from some of the country’s top performing companies the message is clear. Chinese companies view Africa, and South Africa, as an important market. But stability, skilled labour, a steady currency, amenable visa regulations and public security are deciding factors.

According to reports Chinese enterprises in South Africa are concerned about spiralling crime, volatile labour relations, a skills shortage, a cumbersome visa system, insufficient power supply, a weakening rand and infrastructure backlog.

An NGO called the South Africa-China Economic and Trade Association reported there were more than 300 Chinese companies in South Africa and, among them, about 140 are large to medium-sized companies.

These companies were involved in fields such as real estate, mining, automobiles, finance, construction, textile, logistics and household appliances.

By the end of last year the Chinese investment in South Africa reached about US$13 billion (R174.5bn). The Chinese enterprises employed more than 26 000 people in South Africa, of whom 24 000 were locals.

China’s economy has slowed down and so investors will be treading carefully.

The UN Conference on Trade and Development World Investment Report, released at the end of last year, recorded a rise in global foreign direct investment of 38% to US $1.8 trillion. But investment into Africa dropped by 7% to US$54bn for 2015. In South Africa foreign direct investment was at its lowest in 10 years, dropping 69% to US$1.8bn. Investors are interested in less risky developed economies and developing Asian economies.

As indicated in China’s much-touted One Belt and One Road Initiative, the Chinese will be redirecting their focus on developing Asian economies, among others.

Pressure is on South Africa to meet the challenge to remain in the value chain. Politics is messy and, it would have been credulous to think Zuma and Gordhan could have found a way to bury the hatchet to prevent damage to the economy. But the political duo’s sparring is far from over as Gordhan’s court case against Zuma’s cronies, the Guptas, gets under way.

The true test is not whether our rand can withstand this power struggle but whether our democracy can endure to the final round.

Zuma’s new team, chosen, in his words, for their “energy, experience and expertise” have their work cut out to restore investor confidence.

Melanie Peters is the Live Editor of Weekend Argus. She is on a 10-month scholarship with the China Africa Press Centre. Instagram: mels_chinese_takeout.