South Africa will probably go into the Guinness book of records as the only country to have had three finance ministers in one week. The position of Finance Minister had controversially passed through three pairs of hands in four days. Only Israel holds the record for cabinet ministers resigning within six months or less from the date of their appointment. South Africa therefore has set a record which is unlikely to be replicated anywhere on the globe in our life time. Last Wednesday, Nhlanhla Nene was fired. On Thursday, David van Rooyen was sworn in. By Sunday, van Rooyen was out and Pravin Gordhan returned to the post he had held previously. The rapid succession of finance ministers caused the South African currency to plummet. On Monday, Gordhan, who was finance minister from 2009 to 2014, reassured the nation that the economy will be steadied.
In this disquisition, I will not dwell on the nitty-gritty of why President Jacob Zuma made those “sets” of unprecedented decisions, but rather I will expend my energies on the impact that such actions or inactions have on the financial markets at a time when the economies of most commodity export-based economies (including Zambia) are facing economic challenges.
In parliamentary democracies, individual ministers play the central role in policy formulation and implementation. Policymaking success therefore requires that governing parties assign well-qualified individuals to key cabinet posts, and that these ministers remain in office long enough to do their jobs effectively. If ministers are incompetent or if competent ministers are removed from office before they have an opportunity to make an impact on their departments, it will be difficult for governing majorities to develop and implement their preferred policy programs. Besides, shuffling cabinet ministers sends wrong signals to foreign investors, cooperating partners, and the financial markets. The quality of policymaking processes should therefore be influenced by turnover among ministers, which can impede the accumulation of experience necessary for effective governance.
At one extreme, if ministers in key portfolios were replaced daily, it would be impossible for parties to achieve their policy objectives. But changes in ministers are not always a bad thing. At the other extreme, if ministers were never replaced, regardless of their performance, this should hardly be viewed as good for democracy because democracy embraces gradual change.
In fact, turnover as observed by Dewan and Dowding (2005) can help governments improve the public’s confidence in their performance and can serve as a tool to control the ministers responsible for the most powerful and organizationally-complex departments such as the Ministries of Finance. Turnover can reflect the need for innovation and renewal in policymaking or it can reflect underlying conflict and instability. Hence, the relationship between turnover and political performance should depend crucially on the underlying causes of turnover.
Late last Wednesday, when Zuma fired finance minister Nhlanhla Nene after just 19 months in the position, the currency dropped to 15 rands to the dollar. The next day the rand slumped even further to 16 rands to the dollar. South Africa’s economy was already troubled. Just a week before, ratings agency Fitch downgraded the country to BBB-. Standard & Poor maintained South Africa’s BBB- foreign currency credit rating, but revised the outlook to negative. The country had narrowly missed entering a recession with less than 1 percent growth, said Statistics South Africa.
Zambia
Fast forward and back home, there have been calls at least from a reasonable cross section of society to fire, disdain, demote, remove, change, or dismiss our Finance Minister Alexander Bwalya Chikwanda, fondly known as ABC for reasons best known to the petitioners. Minister Chikwanda was appointed to the helm of Finance in 2011 and he has presided over the Treasury since then and has seen the Kwacha annihilated by the economic elements under his watch.
Zambia is rated B by Fitch rating agency. This rate is one grade shy of –B which means substantial risk of default by the country. The immediate interpretation is that Zambia can no longer access cheap loans on the international capital markets because of the perception of default hovering over her. Considering the fragility of the Kwacha on the heels of weak economic fundamentals, would it be a wise decision to go the Zuma route? Your guess is as good as mine. With inflation spiraling at 19.5% (November, 2015), a dollar pegged at K11.06, any rumoured turnover at the apex of the Finance Ministry would definitely trigger negative speculation and an argument can be put across that things would become worse than they are now. The prospects then for Zambia would become grim and we would probably end up in a recession with negative growth.
But what does it take to have a competent, qualified and effective Minister of Finance? The Ministry of Finance is a financially sensitive ministry which should not be compared to an ordinary ministry such as Ministry of “Chikulu Bwacha” or “Kuti Buti Bwacha”. Markets are instantaneously reactive to such changes due to uncertainty in policy direction, cut deals and assurances that incumbent ministers of Finance make to big business and any uncertainty can easily lead to capital flight with devastating consequences to the local currency and economy in general, not mentioning the likelihood of unemployment as a consequence.
In his study of the turnover of key finance personalities in developing and developed economies, Professor Guillermo Vuletin (2012) made a stunning conclusion based on his extensive study on what causes the Ministers of Finance to be fired and the subsequent impact on the financial markets and economy in general. His conclusion was stark that Finance Minister turnover generates a lot of volatility, even in developing countries where markets are not so sophisticated.
On average, MOF turnover is relatively similar between advanced and emerging economies, except developing economies have a higher replacement rate for finance ministers relative to advanced economies during years in which there is no presidential turnover. Greece has the highest mean ministry of Finance turnover, while China has the lowest.
The same political variables affect both developed and emerging economies. However, the economic variables of importance differ. Inflation matters more for the Ministry of Finance turnover in advanced economies—in keeping with the view of finance ministries as having a role of “economic stewards,” while default episodes and changes in RGDP (real gross domestic product) matter in emerging economies.
Conclusion
The role and influence of the Finance Minister within the cabinet are discussed with increasing prominence in the theoretical literature on the political economy of budget deficits. It is generally assumed that the spending ministers can enhance their reputation purely with new or more extensive expenditure programs, whereas it is the sole interest of the Finance Minister to balance the budget.
From the extensive discussion above, it is apparent that removal of a minister finance of any country, worse still in unclear circumstances can have a devastating effect on the economy. The Greek example is a case in point. And now the record-breaking South African saga is beyond belief.
By Sidney Kawimbe
The author is a lecturer in Finance and Financial Risk Management
Abena Sidney, if you describe RSA as “a saga beyond belief”, how then do you describe Zed with a”Living FOSSIL” at the helm of MOF??????
I think the author misses an important point: that market forces are sensitive to a competent Minister of Finance, not to any Minister of Finance, and the SA case teaches us exactly this. The Rand plummeted because the market saw Nene, who was fired for reasons not related to his competence, as a credible and effective minister – qualities that his successor lacked, prompting Zuma to make another change. For Zambia, Chikwanda is similar to Nene’s successor and his removal, I believe, may actually lead to the appreciation of the Kwacha and the opposite of many negatives that the author is afraid it would trigger. Lesson: the mere dismissal of a Minister of Finance does not lead to lead to a particular outcome. The standing of that particular minister in the eyes of the market, including…
…consistency of his policies ad his personal integrity, have to be factored in. Sydney, let us write when we have something sensible to say, especially if you are a lecturer.
@ Village Headman
Confidence is a must for fiscal policy. Slogans are for low intellect cadres.
When it comes to Zambia, well, who trust Chikwanda?
The notion that replacing an MoF has a more negative effect than a positive one is simply monolithic and flawed at best. You have to replace such an individual with someone with higher qualifications and caliber.
For instance, if a former Bank of Zambia Governor took over finance, that would be a boost because I don’t know if Lecturer Sidney knows that nothing takes place at Finance without collaboration with BoZ in a sense.
I believe Bashikulu Ba Chikwanda has done his part for the smart people of the Zambian Enterprise, it is now time to move to a more vibrant, highly innovative Minister of Finance to take us to the next level.
I rest my case … thanks a trillion.
Zumba retained a previous Minister. So why change Chikwanda now, when we know he will be retained?
Zambia should complain about Deputy Ministers, you know Chikwanda has that Alcoholic Minister, what is his name again? He looks like an homeless man.
Ma Tsotsi!
Surely articulate writting and alot of sense
Sidney writes with consummate ease and he knows his onions. The turnover of 3 Finance Ministers in a week beggars belief and is unprecedented. It smacks of Kafwafwa in the SA domain and could rock the boat for ANC.
@ Dr.
Do you know your English onions?” beggars belief” or “begs belief”? Different type of medical onions doctor?
@my good friend IQ138
Beggars belief is correct. So is knowing one’s onions. Disagreeing with the good doctor (medical or otherwise) is a personal choice though. Forgive me. Couldn’t resist it…
My friend Phiri, please read whole sentence.
” …The turnover of 3 Finance Ministers in a week beggars belief and is unprecedented. …” or
“… The turnover of 3 Finance Ministers in a week begs belief and is unprecedented. …”?
Neither I can resist. (lol)
Breaks monotony of reading every day same things with different content.
@IQ138,
‘Begs belief’? Mmmm? I know this is hardly the site to dwell on semantics, but I can’t resist this one either. But then again I am running close to ‘E’. I have not had my supper yet. – ‘Akabomba kabiye kamunda’ so goes an African proverb.
I think the author misses an important point: that market forces are sensitive to a competent Minister of Finance, not to any Minister of Finance, and the SA case teaches us exactly this. The Rand plummeted because the market saw Nene, who was fired for reasons not related to his competence, as a credible and effective minister – qualities that his successor lacked, prompting Zuma to make another change. For Zambia, Chikwanda is similar to Nene’s successor and his removal, I believe, may actually lead to the appreciation of the Kwacha and the opposite of many negatives that the author is afraid it would trigger. Lesson: the mere dismissal of a Minister of Finance does not lead to a particular outcome. The standing of that particular minister in the eyes of the market, including the…
…consistency of his policies ad his personal integrity, have to be factored in. Sydney, let us write when we have something sensible to say, especially if you are a lecturer.
@Village Headman,
You have put it very well. Unfortunately the appointing authority in this case IS EVEN MORE INCOMPETENT THAN THIS INCOMPETENT MINISTER OF FINANCE!
So it looks like Zambia is doomed to be ruled by the blind leading the blind, and reversion into economic decline and poverty is inevitable.
The appointment of a credible MoF would immediately reverse the free falling Kwacha but such common sense is definitely not common in PF, if there is any sense at all!
One Jacab Zuma is a clueless buffoon who is driving that country to disaster oh I forgot he is the hero to our lazy one in State House. In all honesty how can a black South African man be walking around with a name such as David van Rooyen!!
Iwe Jay Jay ndi mbuzi, u wanna tell me that u ve’ never heard a black African having western name? it’s like asking why 50cent is Curtis Jackson by real name, wake up man, don’t be just loud for nothing……….
@Viyazi Tembo
It seems you do not know the history of RSA, there is nothing strange about a black African/ American having a Western name but its strange for a black South African having a Boer name like Van Rooyen…maybe he is Dutch.
Thi is the problem to have the president without CV just like Edgar Lungu who has no CV.
He has. In his CV there are two convictions for embezzlement.
Without a SHADOW OF A DOUBT if Chikwanda was fired today the Kwacha would gain value! Even if a total IDI.OT replaced him, it would be an improvement, as it is simply NOT POSSIBLE to do any worse that he has done ——- TWICE!
Zambia has its very own WORLD RECORD. We allowed Sata, through nepotisim, to appoint his uncle Finance Minister when that man had BANKRUPTED the Nation once before. And then we allowed it to HAPPEN ALL OVER AGAIN! What were we thinking? Can we not learn from our mistakes?
If we made a PIG Finance Minister, the Kwacha would regain value!
@ Joker
Please Bro do not tempt fate. Imagine instead of pig, Kambwili gets job of MoF.
IQ 138, in Orwells Animal Farm, the book ends with the animals looking at the humans and the pigs drunk on whisky and says “they could not see the difference”!
Read it again!
What has this got to do with Zambia?
Let South Africa deal with their issues; don’t draw Zambia into this.
Sorry, it is not necessary to disgrace our nation at every opportunity, including a forced one.
The disgrace to the Nation of Zambia is appointing a PROVEN clueless IDlOT who already failed once before as MoF!
That shows either total ignorance and stupidity or otherwise a callous disregard for the people that they are elected to serve!
The South African mess shows just how important this appointment is to a Nations currency, and why the Zambia Kwacha is becoming as worthless as the Zimbabwe Dollar. Just this caused the Rand to lose 20% OVERNIGHT! And these clowns here are saying “it is GLOBAL” What rubbish! It is the appointments they have made!
Just FIRE this fossil dinosaur Chikwanda now, and you will see the economy and the Kwacha IMPROVE overnight!
Mama Nawakwi, any comment on this one please? I know you and Chikwanda have unfinished business so here is an opportunity for you. Even after SA having a record three (x3) Finanance Ministers in a space of seven days, has the Rand gained or worsened? I long to hear from the “economic manager” and dribbler Nawakwi.
But it has been Chikwanda even when kwacha was doing well and when Zambia was promoted to a higher grade .
I don’t see any reasoning in some of the bloggers , who seem not to be thinking though they can write .
However with Zuma could it be that he allowed the innocent blood to be shed as he watched , and encouraged those murderers to kill those souls in the streets.
We have seen drought eating that nation, bringing some good farm land to deserts .
He is facing his toughest times lets hope he survives.
Would love to try three different presidents in a week. How about it ED?
Why not? Can it get worse?
If he resigned sighting age, that would boost the economy. Why are most of these Kambwili loyalist in thought that we can’t think? Maybe ABC is the Author’s relative.
On another note, South Africa needs a better president.
Only South Africa?