ANALYSIS
"Tjo!" said a Treasury official as news ricocheted of President Jacob Zuma's 13 Cabinet reshuffle last week without telling his Finance Minister Malusi Gigaba, who is sweating blood pellets over his maiden medium-term budget policy statement due on Wednesday.
There's nothing in the budget-policy statement to support Energy Minister David Mahlobo's enthusiasm for nuclear. Beyond R200-million allocated in last October's budget policy statement and confirmed in the February budget, there is no other allocation, said a Treasury source. Twice in his first three days in office last week, the energy boss said he approved of nuclear power.
South Africa's Cabinet is divided on whether the country needs nuclear energy: in a low-growth economy, the need is not urgent and the cost of renewable energy is quickly becoming cheaper than nuclear. President Jacob Zuma is an ardent proponent of nuclear power and he has taken personal command of a committee on energy in order to drive the process. It is well-known that Nhlanhla Nene was fired as finance minister because he would not sign the protocols for the deal to go ahead.
While Gigaba may not be budgeting for nuclear, the markets are still skittish. Standard Chartered Bank's chief economist for Africa, Razia Khan, said: "Market reaction to the Cabinet reshuffle, especially the new appointment at the energy ministry, was clearly negative. This appears to stem from the concern that the reshuffle may make nuclear spending persist.
"Any nuclear spending, contributing to higher debt, may only accelerate worsening credit metrics. So, yes, the markets may well be thinking the latest news increases the likelihood of further downgrades," said Khan.
At the World Bank and International Monetary Fund (IMF) meetings in Washington, D.C., earlier this month, Gigaba said a nuclear-building programme was not affordable for South Africa.
If Gigaba pushes back on giving the thumbs-up to a nuclear deal that both Zuma and his confidante, Mahlobo, are straining for, it could put the young finance minister up against the powerful new energy minister.
Khan says markets are looking for reassurances from Treasury. "It will be a difficult balancing act," she said.