New South African Finance Minister Faces Same Old Problems
(Bloomberg) -- Nine years after leaving his post as governor of South Africa’s central bank, Tito Mboweni has been appointed as the nation’s finance minister and faces the unenviable task of reviving an economy that’s mired in recession. He’ll have limited room to maneuver.
With government debt at already dangerously high levels and the country at risk of losing its sole remaining investment-grade credit rating from Moody’s Investors Service, Mboweni will have little option but to stick to the National Treasury’s expenditure ceilings and deficit-reduction targets. His ability to stimulate growth through increased spending or tax breaks will also be curtailed.
Mboweni, 59, succeeds Nhlanhla Nene, who was named finance chief by President Cyril Ramaphosa in February and resigned on Tuesday after lying about his meetings with three businessmen who were implicated in the looting of state funds. Nene’s predecessor, Malusi Gigaba, had raised taxes and cut spending in the February budget, warning that the state’s coffers were bare.
“This shouldn’t really have much impact on the market or lead to any detrimental change to policy,” Natalie Rivett, senior emerging-markets analyst at Informa Global Markets, said by phone from London.
Mboweni, who went into exile during apartheid, trained as an economist and served for four years as labor minister in former President Nelson Mandela’s cabinet after apartheid ended in 1994. He oversaw the implementation of a raft of new laws to protect worker rights -- a regime that a number of analysts say has fueled a 27 percent unemployment rate.
During his decade-long tenure as central bank governor, Mboweni established a reputation as a monetary-policy conservative -- he was a fierce defender of inflation targeting, which was introduced the year after he took office, and raised the repurchase rate to 13.5 percent in 2002 to control price growth and boost the rand.
“A strong personality will help re-establish National Treasury in its place at the heart of macro-policymaking and spending oversight in government but could come at the risk of political complications,” Peter Attard Montalto, head of capital markets research at research firm Intellidex, said in an emailed note. “He meets our key test of someone who will enable and defend National Treasury staff and its core conservatism.”
After leaving the bank in 2009, Mboweni went into business, establishing his own investment company and serving on a number of company boards including as the chairman of AngloGold Ashanti Ltd.. He remained active in politics, and was elected to the ruling African National Congress’s decision-making national executive committee at a party congress in December.
“Mboweni possesses the necessary integrity, skillset and experience which can generate confidence in the markets, among investors and generally in the business community,” said Raymond Parsons, a professor at the North West University’s School of Business and Governance. His appointment “will help to ensure stability and consistency in policy direction,” especially with the mid-term budget due to be released on Oct. 24, he said.
While Mboweni is South Africa’s fifth finance minister less than three years, the financial markets welcomed his appointment and the rand erased losses and advanced as much as 1.4 percent against the dollar on Tuesday. Government bonds and banking stocks also gained. The currency was little changed at 14.5583 per dollar by 7:17 a.m. in Johannesburg.