Nenegate impact was long lasting, Zondo commission hears

This resulted in an increase in bond yields and a depreciation in currency, says Catherine MacLeod

Nenegate impact was long lasting, Zondo commission hears

19 February 2019

National Treasury economist Catherine MacLeod told the state capture commission of inquiry that South Africans were worse off after Nhlanhla Nene's removal as finance minister in December 2015, as a result of financial market movements caused by political uncertainty.

MacLeod was testifying before inquiry chairperson, Deputy Chief Justice Raymond Zondo, on Tuesday.

Her testimony corroborated that of National Treasury director general Dondo Mogajane.

In a move which South Africans later dubbed Nenegate, Nene was replaced by Des van Rooyen, who was only in the post for a weekend before he was replaced by Pravin Gordhan. Gordhan is now Minister of Public Enterprises.

Former president Jacob Zuma removed Nene from his Cabinet on December 9, 2015, and the financial market impact was immediate. MacLeod explained that the rand had been trading at R14.59 to the dollar and then fell to R15.27 on December 10. It declined even further to R15.90 on December 15.

She testified that Nenegate resulted in an increase in bond yields and a depreciation in the currency when markets opened the morning after his removal. At the time, investors repriced the risks associated with investing in South Africa.

She also told the commission that the change in ministers increased perceptions of the risk that the South African government's commitment to fiscal sustainability was weakening.

She said what made Nenegate different was that there were concerns about the manner in which Nene had been replaced and the person who replaced him.

"It wasn't clear if there were good reasons for firing minister Nene and equally, there were concerns that Minister Nene was fired because of the timing of events mentioned by [former National Treasury director general Lungisa] Fuzile yesterday (Monday)," she said.

MacLeod also said that a large part of political uncertainty that generated market movement could have been avoided. She added that nothing was ever certain, but that levels of uncertainty as a result of Nenegate could have been avoided.

MacLeod also confirmed that the Nenegate effects were still felt a year later.

She said when Nene was removed, they noticed the price of bonds falling, saying when the yield goes up, prices go down.

"Investors view this as more risky," she said.

MacLeod also elaborated that investors' perceptions changed when a country borrowed a lot from banks as changes in ministers signalled change in perceptions around what was done to change growth.

Zondo said, without passing judgment on Nene's replacement at the time, that it seemed to him that logically, "the reaction of the markets and investors to the dismissal of Nene must…have been influenced by their lack of confidence in [his] replacement".

"I am thinking that if minister Nene had been replaced by, for example, Trevor Manuel, it is unlikely that the markets would have reacted the way that they did.

"I am saying Trevor Manuel because he had been minister for a long time and he had been popular as far as I understand.

"So, if minister Nene had been dismissed and replaced by somebody that the markets had confidence in, I seem to think it is unlikely they would have reacted in the way that they did," Zondo said.

MacLeod replied and said it was more about the context in which Nene was dismissed.

She added that there were still questions about why he was dismissed.


"Political uncertainty has real costs. It can be hard to trace the exact impact of a political event, but in terms of what we have seen before us, Nenegate's impact was long lasting because of subsequent events as well," she said.

MacLeod also spoke about the impact of Nenegate on government borrowing costs.

She said the ultimate incidents of these borrowing costs would depend on the taxation and spending choices of the government, but "ultimately South African citizens and taxpayers are worse off as a result of these financial market movements which are caused by political uncertainty".

Before she concluded her testimony, evidence leader advocate Phillip Mokoena asked MacLeod about a comment that suggested that if the rand fell, "we would pick it up again".

The statement was made by the ANC's Nomvula Mokonyane when she told supporters during at an ANC youth League rally in Germiston in 2017 that: "The rand falls. It fell in apartheid and we will pick it up again now."

However, MacLeod said: "I would say that's the statement of someone who neither appreciates the impact of financial asset prices on ordinary citizens and certainly not on government borrowing."

The commission continues on Wednesday at 10:00.