Gordhan Watch

Zuma’s private battles have South Africa on the brink

Gordhan.jpg

It could have been a Samson move or an attention-diversion strategy, but the sudden and dramatic summonsing of Minister Pravin Gordhan on fraud charges has brought South Africa to the brink of collapsing into chaos.

Huge damage has already been done and all the widespread condemnation of the move from many sectors – from various business and civil society organisations to political parties, including some within the ruling ANC – will not clear up the proverbial debris the shock left behind. Only another equally dramatic event, like the ANC recalling President Zuma, might help.

Extent of the damage

The extent of the initial damage to the economy alone was clear in the immediate reaction of the markets, which was on a par with what happened in December last year when the president fired the then Minister of Finance, Nhlanhla Nene.

The reaction included:

  • The rand immediately depreciated by 3% as the news of the summons delivered to the minister broke;
  • The banking sector alone lost R50bn in value on the Johannesburg Stock Exchange (JSE) on the day of the announcement; and
  • Local banks with foreign shareholding were the hardest hit – as much as just short of 4% in one case – indicative of the damage to the prospects of capital inflows to the country.

There is a widely held view among economists and other observers that a credit downgrading to junk status next month by credit agencies has now become a certainty.

In the process all the good work that has been done by Minister Gordhan over the past months to restore international confidence in the South African economy has probably been destroyed.

Ironically Gordhan very recently returned from a successful roadshow with business leaders to the US to make a case for investment amid a gloomy economy. Now all the uncertainty that has haunted the South African economy has returned.

Mr Gordhan probably made himself guilty of a miscalculation when, barely ten days ago, he claimed that the police investigation into him is nothing but “political mischief” and would be resolved soon.

Timing and dramatics

Both the timing and dramatic, almost stage-managed, manner of the announcement of the summons at a full-blown media briefing – where the National Prosecuting Authority (NPA) flexed its muscles – suggests otherwise.  

In fact, whoever is in the final instance behind the move, will be hard-pressed to convince anyone that it was an innocent development to protect the rule of law, against the background of:

  • The high-profile announcement came two weeks before Minister Gordhan’s tabling of the crucial Medium Term Budget Policy Statement (MTBPS), as happened with the questions sent to him on the eve of his tabling the national budget in March of this year;
  • It also came only a week after the NPA declared that there was no case against Gordhan. But it since came to light that the case number (CAS 427/05/2015) being used for the latest charges, dates back to May 2015, suggesting either that it was kept ready for when the opportune time for use came, or undue haste at the time of issuing the summons;
  • Minister Gordhan received no prior warning and was not home when the Hawks pitched with the summons, but, ironically, was addressing an Open Tender conference aimed in combatting corruption in Johannesburg,. This despite his attorney claiming extensive interactions with the Hawks over the last six months, including providing clear communication channels in the event that any further legal proceedings are initiated;
  • The high-profile move came days before the outgoing Public Protector, Thuli Madonsela, was expected to, against the wishes of President Zuma, release a provisional report on ‘state capture’, in which the president and the controversial Gupta family are central figures in regard of allegations;
  • On the very same day of the summons drama, the senior of the Gupta brothers, Ajay, released a letter to the PP in which he arrogantly warned her that she might be releasing the report at her “own peril”. Again, the timing suggests that there was a broader strategy at play, with more people and institutions involved than just a supposedly ‘independent’ NPA, the Hawks and the three accused in case number CAS 427/05/2015;
  • Like President Zuma did the previous day, the Guptas also asked for an opportunity to cross-examine the people that the PP interviewed during the course of her investigation – strengthening the impression of a coordinated strategy from somewhere being in play; and
  • The Department of Finance and the Treasury have a key role to play in the future financing of higher education and President Zuma gave assurances that he has trust in the Minister of Finance. However, Mr Gordhan and the institutions he is responsible for, were glaringly omitted when President Zuma this week announced yet another ‘task team’ to look into the problem.

Consequences

Whether by design or due to ignorance of the implications, the latest development has dumped the country in a huge crisis as the revolutionary climate is building up to a dangerous fever pitch. This week, for instance, saw the escalation of violence associated with student protest. And in Johannesburg and Pretoria it for the first time spilled over onto city streets.

The upcoming MTBPS is the last opportunity Minister Gordhan has to convince international ratings agencies not to downgrade the country in December. The credibility of whatever he is going to say has been destroyed with the new cloud now hanging over his head.

Uncertainty is further exacerbated by persistent rumours that the next move by President Zuma and his clique will be a cabinet reshuffle.

Damage to the economy has already started with signs that the markets have started discounting a credit downgrade. Credit default swap (CDS) prices for South African bonds have already jumped to levels higher than for Turkey and Russia, both rated below investment level.

Economist Mike Schussler said the summons for the arrest of Gordhan is “very unusual, to say the least”. It was also the best way to make all South Africans poorer.

“This undermines South Africans and their well-being in the clearest way possible. South Africans will pay more for petrol, bread, maize, and sugar,” he said.

Business Leadership South Africa said in a statement it was “deeply concerned” about both the timing and the decision to charge the Finance Minister, Pravin Gordhan, and two former senior SARS employees with fraud.

“Our country is experiencing a period of profound upheaval.

“With another rating agency review ongoing, the Medium Term Budget Policy Statement weeks away, serious social protest and violence occurring at our universities, and a number of contentious disputes between state institutions playing out in public, this decision could not have come at a worse time,” the statement read.

A credit downgrade will hit the poor the hardest of all and the widespread civil climate of discontent is set to rise.

Strategy could explode on Zuma, NPA

There is an almost universally consensual conviction that there is a deliberate strategy with political motives focused on the survival of President Zuma and his support structures.

With it goes the widely held opinion by experts that the charges brought against Mr Gordhan are based on very flimsy grounds. If the case is thrown out of court, it is likely to explode spectacularly in the faces of President Zuma, the NPA and Hawks.

But the damage to the country and its economy would have been done. Small wonder that some observers regard the latest developments as bordering on high treason.

 

by Piet Coetzer

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