Buckle up: 2017 will be a roller-coaster

Buckle up: 2017 will be a roller-coaster

Nov 1, 2016

The rand’s gains after fraud charges against the finance minister were dropped will be short-lived, a poll showed, as concerns about possible credit rating downgrades and an ANC leadership election weigh on the country.

The rand is expected to weaken by about 8% to R14.65 to the dollar in 12 months, according to a Reuters poll taken before prosecutors dropped fraud charges against Finance Minister Pravin Gordhan on Monday.

SA’s currency broke on the strong side of R13.50/$ after the news, climbing to its highest in over a month, and such healthy gains may give the poll a bearish edge.

But concerns still cloud SA’s outlook.

“I won’t say I would have changed (my forecast) after yesterday. It was not really based on the short-term developments, but more of an 18-month view,” says KADD Capital economist Elize Kruger, who submitted her forecasts last week.

Gordhan had been due to face charges on Wednesday that he fraudulently approved early retirement for a deputy tax commissioner and rehired him as a consultant, costing the revenue service R1,1-million.

He is still being investigated for his role in setting up a surveillance unit at the South African Revenue Service (SARS) a decade ago.

The rand has been buoyant this year because of a strong appetite for risk in emerging markets, but it has lost out on consistent gains due to a spate of unsettling political news.

“I think we are going to have a lot of volatility and political noise, if the credit downgrade does not happen in December, I think we might not be out of the woods,” Kruger says.

An August Reuters poll, taken days after police summoned Gordhan over a suspected rogue unit in the tax service, suggested SA’s rating, which S&P Global Ratings is due to review in December, would be cut to junk status this year.

“The negative political dynamic is likely to remain until the ANC leadership contest next year and would likely weigh on the rand,” says Rafiq Raji, chief economist Macroafricaintel. “Likely US Fed tightening over the time horizon is also a consideration.”

The ANC is due to pick a successor to President Jacob Zuma as party leader in December 2017 as it prepares for national elections in 2019.

SA’s economy is expected to grow just 0.3% this year, according to a Reuters poll last month. The central bank estimates growth at 0.4% and the Treasury puts it at 0.5%.

KADD Capital said the main challenges remained unchanged.

“SA will have to start do the right things, chasing economic growth and giving political certainty.”

By Vuyani Ndaba for www.businesslive.co.za