Market will respond well to better leadership - economist

Cape Town – Positive market movements on the back of the announcement that Tuesday’s no confidence vote would be secret shows South Africa would respond well, and emphatically so, to better economic management,

This was the view of Stanlib chief economist Kevin Lings, who spoke to Fin24 about the immediate strengthening of the rand against the dollar and a late rally on Monday in financial and retail stocks.

“The markets were caught out as the announcement of a secret ballot was unexpected. They then saw the possibility for change in leadership and reacted positively,” said Lings.

The way politics and policy have unfolded in South Africa recently is undermining household and business confidence. A variety of events sparked this, such as changes in the finance ministry (when former finance minister Pravin Gordhan and his deputy were summarily removed from Cabinet) and lack of policy clarity, such as the launch of the Mining Charter that unsettled the mining industry.

“In addition there are corruption allegations, the maladministration of state-owned entities and credit ratings agencies marking us down to junk status. All these things are undermining confidence which is evident in a range of indicators, including GDP figures and the fall off in retail sales,” Lings said.

He explained that markets rally because they price in the possibility that there could be a significant change in leadership.

“And the market says such a change in leadership could bring more policy clarity and put South Africa on a path of better economic prospects.”

Although there has been obvious movement on Monday following the secret ballot announcement, it has not been that significant, Lings said.

“The move in the rand was noticeable, but nowhere near the movements we’ve seen when Nhlanhla Nene was removed as finance minister in December 2015. We’re not seeing that magnitude of a move now and it would suggest the market has also priced in the possibility that Zuma would remain in office.”

The debate preceding the actual vote of no confidence started at 14:00 in the National Assembly with Democratic Alliance leader Mmusi Maimane firing the first salvo, followed by Julius Malema, president of the Economic Freedom Fighters, and the Inkatha Freedom Party's Mangosuthu Buthelezi.

ANC deputy chief whip Doris Dlakude, Pule Mabe, ANC member of the standing committee on finance, and Defence Minister Nosiviwe Mapisa-Ngqakula will state the ruling party’s case. 

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