- Rand dives as fears mount that finance minister may be fired
- Zuma controls ruling party’s National Executive Committee
Stung by his ruling party’s worst electoral performance since the end of apartheid, South African President Jacob Zuma is going for broke in a battle to maintain his grip on power. The first casualties have been the nation’s rand and bonds.
First came Monday’s announcement that he plans to run a committee that will oversee the nation’s state-owned companies. Then Finance Minister Pravin Gordhan, with whom Zuma has had fractious relationship, said he’d received a letter from a special police unit known as the Hawks to report to it on Thursday in connection with allegations he oversaw an illicit unit to spy on politicians when he ran the state tax agency. Gordhan denied doing any wrongdoing and said he wouldn’t comply with the unit’s instructions.
“Zuma’s response to the election setback and the response of many around him has been to dig in deeper and basically go on a mission of revenge,” Daryl Glaser, a politics professor at the University of Witwatersrand in Johannesburg, said Wednesday by phone.
Gordhan, 67, has tried to keep the rand bears at bay and avoid a credit-rating downgrade since he was named finance minister in December after Zuma roiled markets by firing Nhlanhla Nene from the position and replacing him with a little-known lawmaker.
He’s said Zuma’s plans to add 9,600 megawatts of nuclear energy to the national grid can only go ahead if they’re affordable and demanded the dismissal of the management of South African Airways, the loss-making national airline, and tax chief Tom Moyane, whom he accused of insubordination.
The rand fell to the lowest in almost four weeks against the dollar on Tuesday and was 1.4 percent weaker at 14.2038 by 6:01 p.m. in Johannesburg on Wednesday. The cost of insuring the government’s debt against non-payment for five years using credit-default swaps rose 17 basis points since Monday to the highest in almost three weeks.
Suggestions that Gordhan may have acted illegally in setting up the tax agency unit “are wholly unfounded,” his lawyer, Tebogo Malatji, said in a letter to the Hawks, which was dated Tuesday and distributed by the National Treasury.
The Presidency said it would issue statement later on Wednesday. A spokesman for the Hawks, Hangwani Mulaudzi, said the unit wouldn’t comment on the issue at this stage.
Zuma, the ANC’s former head of intelligence, wields influence over the Hawks through his justice minister who appoints the head of the unit. Gordhan alleged in May that the unit was being manipulated for political reasons but didn’t specify that Zuma was involved.
“The hawks and other arms of the state that do Zuma’s bidding are claiming to be doing so entirely independently,” Glaser said. “But if you look at the total picture, people who are competent in doing the best job possible seem to be getting harassed and persecuted by people who have things to hide and are on the make. It’s difficult to resist the interpretation that what is going on is high-level political interference.”
With Zuma, 74, scheduled to step down as leader of the African National Congress late next year and as the nation’s president in 2019, the president and his allies are looking after their own economic interests and see Gordhan as an obstacle, according to Peter Attard Montalto, Nomura International Plc’s senior emerging-markets strategist.
“The National Treasury needs to be onside and not a roadblock as it is now,” Montalto said by e-mail. “They need guarantees for SAA, they need a sign off on nuclear and they need the National Treasury to stop blocking tenders and contracts.”
The Banking Association of South Africa called the allegations against Gordhan “unacceptable” and said it was concerned by the recent developments surrounding the minister that sent out a damaging message to ratings agencies, investors and business.
“Zuma has little to lose after the ANC’s unprecedented losses in the local elections,” said Anne Fruhauf, vice president at New York-based risk adviser Teneo Intelligence. “The president will be keen to protect his interests even if it means risking major market fallout.”
While the ANC lost control of key municipalities including the capital, Pretoria, and Johannesburg, the nation’s economic hub, in Aug. 3 local elections, Zuma continues to be supported by the party’s decision-making National Executive Committee, which is stacked with his allies.
“After the thrashing it received in the local elections, you’d think the ANC’s leadership would do its utmost to restore unity in the party,” Nicholas Spiro, a partner at London-based Lauressa Advisory Ltd., which advises asset managers, said by e-mail. “This is patently not the case. The only thing stopping Gordhan throwing in the towel is the fear that the financial fallout would be severe.”