Expect South African rand to plunge as Gordhan crime case firms

South African currency traders expect the rand to plunge if the country’s finance minister Pravin Gordhan is arrested or replaced soon. In a sign the rift between President Jacob Zuma and Gordhan is deepening, a controversial investigative unit has been pointed at the finance minister. Gordhan has positioned himself as protecting state funds, while Zuma has been exposed as feathering his nest with taxpayers’ money. If Gordhan goes, it is widely believed that the rand will plummet and stock prices will follow. Ratings agencies have been seriously considering downgrading the country’s debt to junk status, with the removal of Gordhan from his position as finance minister likely to fuel fears that the South African economy will continue to deteriorate amid ongoing political interference. Investors can expect a bumpy ride as the Hawks build a dossier against Gordhan and line up the witnesses against him. The Hawks case focuses on allegations that:

  • Gordhan approved the early retirement, and rehiring, of a commissioner at the South African Revenue Service (Sars) when he was Sars commissioner in 2007; and,
  • of greater relevance to Zuma, that Gordhan facilitated the creation of a Sars unit which gathered intelligence covertly on tax evasion and a range of transactions, including in the illicit cigarettes industry.

Adding to the pressure on Gordhan, Sars has launched a probe into tenders granted during Gordhan’s time at the head of the tax collection organisation. Late last year, a reshuffle of finance ministers over a few days – called #Nenegate – shook the rand and highlighted tensions between South Africa’s president and those with responsibility for the management of the country’s finances. Gordhan’s appointment helped to stabilise the rand. – Jackie Cameron

By Matthew le Cordeur

Cape Town – The rand could this week swing up or down depending on what happens to Finance Minister Pravin Gordhan and the Hawks investigation into an alleged illicit investigation unit at Sars.

The rand lost R1 in the past two weeks against the dollar, with the currency trading 0.82% lower at R14.32/$ on Monday at 07:45.

South African bank notes featuring an image of former South African President Nelson Mandela are displayed at an office in Johannesburg January 17, 2013. REUTERS/Siphiwe Sibeko

Gordhan could be arrested within the next two weeks by the Hawks in a case steeped with allegations of political infighting in the ruling ANC party, according to a report in City Press on Sunday.

“If we do get rumours (regarding Gordhan) then R14.55/$ will be tested quickly,” said Umkhulu Consulting’s Adam Phillips on Monday. “If nothing is said then some stale dollar longs might cause it back to nearer R14.00/$.”

A Rand Merchant Bank survey revealed that there was a 50% probability that if Gordhan is fired as minister, the rand could decline by R3 against the dollar. That would see the rand trading at around R17/$, a low point last seen when Zuma fired former Finance minister Nhlanhla Nene in December 2015.

The rand’s decline was further impacted by a speech by US Federal Reserve chairperson Janet Yellen on Friday, who was “more bullish on the US economy than usual”, Phillips said.

“That was all operators needed to push the dollar up,” he said. A stronger dollar weakens the rand.

“Given what the dollar has done, the rand would have been nearer R13.80/$ in any case, but the move up into the R14.30s due to local news clearly has everyone nervous.”

Also read: Zuma vs Gordhan: South Africans speak out as financial crisis looms