This week the IFN Poll takes a look at the potential impacts of two major developments that occurred in South Africa over the past week. In spite of the successful sale of its maiden Sukuk offering, the rand was under heavy pressure last week, testing the five-year low it hit earlier this year. At the same time, concerns were also raised following the resignation of Gill Marcus as the country’s central bank governor. NABILAH ANNUAR investigates whether these developments could have an effect on South Africa’s prospective Sukuk issuances?
The poll results indicate a legitimate concern that the rand’s volatility and the stepping down of the country’s governor could have a negative impact on the country’s future
Sukuk issuances: 80% voted that it will, while the remaining 20% believe that their Islamic fundraising activities will not be affected.
According to local reports, over the past year the rand lost 13.1% against the US dollar. In January, the rand crossed the symbolic ZAR11 to the dollar, at one point hitting ZAR11.395 against the greenback, recording the weakest it had been since October 2008. After a considerable period of relative stability the rand fell again below the key mark at the end of September, hitting a seven-month low of ZAR11.194 against the dollar. It has been suggested that the rand’s weakness in 2013 and early this year was due to the
US Federal Reserve’s decision to begin tapering its quantitative easing program. However at present, the dollar strength along with expectations that the US will move towards monetary ‘normalization’ – which could result in a rise in interest rates from historic lows – are seen as the main factors affecting the rand.
Supporting the minority view Nadir Thorkan, an investment analyst at
27four, a South African investment firm, explained to
IFN that the matter of debt funding and potential sources of capital raising to fund South African government expenditure is a policy matter set out by South Africa’s
National Treasury. “In line with all major economies, South Africa’s
National Treasury is responsible for all fiscal policy matters. In contrast, the
South African Reserve Bank is the central bank of South Africa and its primary responsibilities are matters of monetary policy much the same as the role fulfilled by the
US Federal Reserve within the US economy,” he said.
Replacing present governor Gill Marcus, former deputy-governor Lesetja Kganyago has been appointed by the South African president Jacob Zuma to take the helm of the
South African Reserve Bank in November. According to Thorkan, the changing of governors will not affect actions taken by
National Treasury in its funding plans, as the two entities remain and operate independently with merely an understanding of how each individual party’s policy will affect the operating environment of the other.
“Notwithstanding this, South Africa’s debut
Sukuk issuance of US$500 million dollars this year is equivalent to a third of total foreign debt issuance for 2014. Although a relatively small number as a proportion of total outstanding debt, the enthusiasm of investors to participate in the issuance (with it being four times oversubscribed) is likely to encourage
National Treasury to further investigate an increase in future issuance,” affirmed Thorkan. Apart from providing South Africa with a well-diveresified funding base, the successful issuance has also spurred increasing interest amongst entities such as state-owned enterprises to investigate the merits of
Sukuk and its attraction for asset-rich entities seeking funding over the medium to long-term.
However, only time will tell if these factors will indeed negatively impact the future of South Africa’s
Sukuk issuances and other
Shariah compliant fundraising activities.