Financial markets are reacting negatively after the country’s finance minister was summoned by police. He is being called to answer questions about his previous role as the head of a spy unit under the tax office.
South Africa's Finance Minister Pravin Gordhan is a thorn in the eye of for members of the governing African National Congress (ANC) who have been working for years to get unlimited access to the country's finances. For example, they have been trying to appoint their own people into top positions at state-run companies like South African Airways (SAA) and energy producer Eskom. Worried about the country's increasing national debt and seeing a possible credit devaluation on the horizon, Gordhan has always vehemently opposed such moves.
Thus, the 67-year-old minister has made further financial support for the technically already bankrupt SAA dependent on putting in place new management. The current management is led by a close confidante of South Africa's President Jacob Zuma. Observers accuse her of chaotic leadership of the company.
Gordhan receives summons
Apparently led by the goal to publicly discredit the finance minister and to prepare the ground for his dismissal, a special unit of the police loyal to Zuma, the so-called Hawks, has been investigating questionable accusations against Gordhan from his time as chief of the South African tax authority. Supposedly, Gordhan built up a department which was not officially approved. The department has been said to not only target tax evaders but also politicians and possibly President Zuma himself, who has been tainted by numerous accusations of corruption.
Even though there has not yet been any indication of wrongdoing by Gordhan, the investigations are continuing unabated. This week, Gordhan was officially summoned for the first time by the Hawks. Due to scant evidence and the perceived political motivation behind the summons, Gordhan, on the advice of his lawyers, did not appear. Zuma himself only commented that he has no authority to stop the investigation by the police against his minister.
Reports about an imminent arrest of the minister, which are currently circulating again in relation to the police summons, already surfaced in May but where repudiated denied by the government.
Rand in freefall
The financial markets reacted quickly to the possibly recalling of a competent finance minister. Within a few hours the rand, which of late has been recovering, experienced a massive decline in value, falling more than five points versus the euro and US dollar. On the Johannesburg stock exchange bank stocks were especially hard hit but also government bonds came under massive pressure.
Since the end of Apartheid, the finance ministry and especially its office-bearer have been an excellent seismograph for the trust of investors in the country. The intensity with which the finance minister is being watched shows the extreme agitation which Zuma caused last December with a widely-criticized personnel decision. Allegedly to push through an expensive nuclear deal with Russia, Zuma replaced then Finance Minister Nhlanhla Nene, who was regarded as competent, with backbencher David van Rooyen, an economic nobody but Zuma loyalist. Immediately market prices on the Johannesburg stock exchange fell drastically and the Rand crashed to an all-time low.
The markets only calmed down when Zuma recalled van Rooyen four days later after massive pressure from the business community as well as influential circles in the ANC and replaced him with Gordhan.
Continued warning signs
South Africa's former Finance Minister Trevor Manuel, who helped to rehabilitated the country's finances between 1996 and 2009, has warned of the catastrophic consequences of an arrest or even the replacement of Gordhan. He warned that the damage in this case has the potential to destroy South Africa's economy.
All the signs are that Zuma wants to stay in power and that he is willing to do whatever it takes. Instead of unifying his tattered party after weak election results he and his allies are only looking out for their own economic interest and view Gordhan as the biggest obstacle. In doing so, Zuma is knowingly risking a brutal punishment of South Africa by the markets and the total loss of trust in the country and its economy.