Africa Economy: Spat between finance minister, Hawks spooks South Africa's rand

South Africa's rand took a hard knock against major currencies on Wednesday amid an intensified spat between Finance Minister Pravin Gordhan and the elite police unit, the Hawks.

This came as a delegation sent by credit rating agency Moody's arrived to decide whether SA's sovereign rating will be downgraded to junk. Standard & Poor's has a negative outlook on its BBB-rating, one level above junk.

Moody's Investors Service, which rates South Africa's debt two notches higher, put the nation on review last week for a possible downgrade.

The fight between Gordhan Gordhan is impacting negatively on the economy.

The Hawks could have managed the situation differently, the chairperson of the African National Congress (ANC)'s Economic Transformation Commission Enoch Godongwana told Xinhua on Wednesday.

"The timing of giving Gordhan 27 questions to answer, with the combined playing in the public space is not helpful to the economy at all," he added, in reference to the police elite unit's demand that the finance minister should respond to questions over a "rogue unit" at the South African Revenue Service (SARS) to spy on taxpayers when he was SARS commissioner in the 1990s.

ANC Secretary General Gwede Mantashe was reluctant to answer questions.

"I don't want to talk about this issue at the moment," he said. "I still wish this had been dealt with professionally and quietly."

"It's a cause for concern," said Shadreck Gutto, a constitutional law lecturer at the University of South Africa. "The chances are high that Gordhan may not stay in his job."

Meanwhile, investors stand on the fence fearing a repeat the run on the rand and bonds in December when President Jacob Zuma fired Nhlanhla Nene, and replace him with a little-known lawmaker, then later appointed Gordhan.

Not only are expert concerned with the public fall out between the two, financial institutions are also cautious. "While the current political wrangling continues to dominate headlines, uncertainty regarding the rand will remain entrenched," Nedbank said in a market note.

The rand traded at R15.9468 to the dollar from R15.9259 at Tuesday's close. It was at R17.6968 against the euro from R17.6878 and at R22.5272 against the pound from R22.5397.

The gloves are now off, after the finance minister missed for the second time a deadline demanded by the Hawks to respond to questions.

"Our legal team are forging a way forward, which will see the Hawks exercising our constitutional powers," the Hawks said in a statement. "The investigations will not be stalled by an individual who refuses to comply with the authorities and demand a preferential treatment," it said.

With the free fall of the rand, it is now regarded as a riskier asset, Makwe Masilela, a portfolio manager at BP Bernstein told Xinhua in a telephone interview.

"Investors can't risk hanging on to the rand - with an idea hanging - that the finance mister will be fired anytime. As a result of that, investors consider the rand as a risk asset," said Masilela.

If Gordhan is fired that could spell doom for an economy threatened with recession and on the brink of having its credit rating downgraded to junk, he added. Enditem