The South African economy has been showing signs of an improvement recently, following strong second-quarter Gross Domestic Product (GDP) data, improving inflation data and a healthier looking current account as a percentage of GDP. This has been further supported by ratings agencies giving the country breathing room earlier this year by maintaining the region as an investment grade destination.
But news that finance minister Pravin Gordhan has been summoned to appear in court on 2 November, where fraud charges relating to his former South African Revenue Services employment are likely to be laid, is set to unwind much of the progress the country has made in the short term.
The timing and motives of the summons are subject to question. Once again Mr Gordhan sees allegations arise shortly before he is set to release his budget speech and ahead of the sovereign rating review scheduled for early December this year.
Public protector Thuli Madonsela has said 'either we have a minister of finance who is a fraudster or there are shenanigans and either way we should be concerned'.
Tuesday’s market moves gave a clear indication that Gordhan is popular among the investment community, and a taste of what to expect if the finance minister is forced to leave office. On the currency front, the South African rand is at the mercy of disinvestment, as witnessed on the IN_USDZAR chart which shows the domestic currency depreciating more than 4% in a single day following the news of the court summons for Mr Gordhan.