Property & Wealth

Attack on Gordhan a deliberate strategy for financial chaos?

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This past week’s papers told the story of what looked like a final onslaught on Finance Minister Pravin Gordhan – or was it a calculated move to bring about financial chaos?

It’s almost as if some of the country’s top political leaders thrive on the power of constant disruption of stability – like they would utilise all possible avenues to sow uncertainty – especially to undermine the country’s fragile fiscal position to achieve their own political ends.

In the words of Konrad Reuss, MD for Standard & Poor Sub-Saharan Africa, speaking at the Thomson Reuters Africa Conference in Cape Town this week: “What has changed in SA is that political tension and turmoil has come to the fore” – and, we may add, has been accepted by our citizenry as the ‘normal’.

The latter, however, has now changed dramatically.

The position of Minister Gordhan has become a rallying point for the citizens’ ‘empire’ to strike back, using the many tools and institutions it has available.

No longer is the strategy of sowing turmoil causing widespread panic. Instead, the allied front is gaining traction and media sympathy by resisting the bolts of lightning thrown their way.

In broad terms, there are on the one side the Zupta forces comprising the presidency, Hawks, NPA, and the minister of cooperative governance and traditional affairs. On the other side are the forces for stability, a broad alliance of like-minded people across a wide spectrum of leading societal, political and economic personalities. It is almost, one may say, the SA version of Star Wars played out in our courts, institutions and parliament.

Exactly what is at stake?

What is at stake for generally stable markets and economic progress?

First of all, there’s the diabolical effect all this instability has had on the country's monetary policy, despite the best intentions and efforts of the minister of finance and the South African Reserve Bank.

The biggest irony here is that South Africa, a leading player in the emerging markets sector, has maintained extremely favourable interest rates with which to attract the constantly searching capital of the developed world, where interest rates are falling into negative territory. In, for example, Japan you pay institutions like banks to hold your money.

It took our former finance minister, Trevor Manuel, to explain at a Times Media Group event just how high the stakes are. In his view the powers that be are failing to protect SA’s constitutional democracy from flagrant breaches, of which the rating agencies are fully aware.

For instance, he viewed the recent failure by both the executive and parliament to implement the 31 March constitutional court judgement, finding that they had violated their oaths of office and affirming the powers of the public protector, as both failing the country and edging it closer to a constitutional crisis.

Quite coincidentally, the business confidence in the South African economy also took a knock. The most recent Business Partners Survey of owners of small and medium-sized businesses indicated a decline of confidence in the third quarter by two percentage points to 56%.

This negative outlook can be generally attributed to local macro-economic imbalances such as the current account and fiscal deficits, skyrocketing indebtedness among the population at large, and, especially, unstable monetary markets.

It is clear that all sectors of the economy are negatively affected by the chronic state of uncertainty and instability, including the property market, which has remained a bastion of wealth protection in a world of financial uncertainty.

Not just doom and gloom

All, however, is not just doom and gloom.

Critically, our foremost economists generally do not expect a recession in 2017. A recent poll among 33 of them showed that the general expectation of the probability of a recession is less than one in three.

Nevertheless, when all is said and done, one cannot help but wonder what and/or who is actually behind all this self-inflicted volatility.

This immediately raises the question of who benefits most from the massive currency volatility that has become synonymous with the rand?

As pondered by the Biznews Weekender team: who exactly knew when the policemen were on their way to minister Gordhan’s house with a summons, unannounced?

Knowing would made for a great and profitable ‘short’ play in the hazy world of forex dealings.

Is all the turmoil just unintended consequences born from ignorance of how the economy and markets work or are at least some of the latest moves deliberate ones for narrow self-interests?

In this regard, just think of the billions recently moved elsewhere in the world in some of the “suspicious” Gupta-related transactions Minister Gordhan revealed last week in his affidavit filed at the North Gauteng High Court in Pretoria. 

The 72 transactions worth R6.8bn that feature in the court application filed by Minister Gordhan were flagged by the FIC because there had been “no apparent business or lawful purpose” for the transfers.

 

by Eve van Basten

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