Nigerian assets may gain as investors sell S/Africa on Zuma

Nigeria can position itself to attract capital that is currently fleeing South Africa or sitting idle in bank vaults, due to growing lack of confidence by the business community in President Jacob Zuma’s leadership, provided Africa’s top economy moves quickly on long stalled reforms, analysts say.

Early this week (Sunday), President Jacob Zuma appointed Pravin Gordhan as finance minister in a dramatic turn that gave South Africa its third finance chief inside of one week.

The earlier firing of highly regarded Nhlanhla Nene from the same position resulted to a selling frenzy in the country’s markets.

Rafiq Raji, a principal at an Africa-focused macro research, Macroafricaintel Investment Limited said recent and future events in some African countries may matter more than today’s US Fed rate hike.

“The move to fire the highly regarded finance minister, Nhlanhla Nene was widely perceived as politically motivated and was poorly received by market participants,” Raji said.

He expects some knee-jerk reaction following the anticipated Fed interest rate hike, adding that “after the initial rate hike in December 2015, global market players would re-adjust their portfolios in favour of emerging and select African markets.”

South African assets plunged in the wake of President Jacob Zuma’s shock decision to fire his finance minister on Dec. 9, the nation’s currency, the rand, weakened sharply against the dollar on Friday, shedding over 3 percent to a new record low, while the South African rand-denominated government bond yields soared to a record 10.46 percent on Dec. 11.

Nigeria, Africa’s largest economy by GDP size, is a major contender with South Africa in foreign direct investment (FDI) attraction.

While in Nigeria, the President Muhammadu Buhari -led Federal Government pushes ahead with a probe of corrupt past leaders, convincing the global economy of the All Progressives Congress (APC) readiness to check the spate of corruption which constitutes a clog in the country’s growth path, in South Africa analysts see the fallout from the sacking last Wednesday of Nene, as casting fresh doubt on the country’s political future and the eminence of 73 year-old Zuma within the ruling African National Congress party (ANC).

Many investors –particularly foreigners are usually attracted by developments in political and economic environments where their assets are domiciled.

A majority of corporates in South Africa are also negative about future growth prospects that they’re sitting with record amounts of cash in the bank.

Companies had 689.4 billion rand ($52 billion) on deposit in South African banks at the end of June, compared with 671.5 billion rand in November, according to data from South African Reserve Bank data.

A source told BusinessDay that up to 80 percent of miners operating in South Africa may be looking to exit in the next few years due to a combination of the commodity selloff, low labour flexibility and a harsh business environment.

Credit agency, Fitch, downgraded South Africa last week, leaving the continent’s second largest economy just one notch above “junk” status, saying Nene’s firing “raised more negative than positive questions”.

Kokkie Kooyman, a fund manager at South Africa-based leading investment company, Sanlam Investment Management Global said, “A leopard doesn’t change its spots. We still have the same president. We will still have high unemployment and high debt. Rating agencies will not re-rate us upwards.”

Razia Khan, managing director/ Chief Economist, Africa Global Research, Standard Chartered Bank recently at the 2015 edition of the annual capital market conference in Lagos, urged investors to appreciate growth opportunities for Nigeria.

Khan however advised Nigerian authorities to latch on to current developments in the global economy and diversify it as a way of reducing the volatility that goes with the boom and burst commodity cycles.

The Bismarck Rewane-led team of analysts at Financial Derivatives Company, in their presentation titled ‘2016 a Year of Growth and Commodity Turmoil’ at the Lagos Business School breakfast session said, “Government’s anti-corruption stance will increase investments in the Nigeria’s real estate sector. The current stock price of most companies which provides attractive entry points – could alter the markets secular bear trend.”

IHEANYI NWACHUKWU