Why a Prosecution Is Roiling South Africa’s Rand: QuickTake Q&Aby and
A struggle for control of South Africa’s finances that’s pitted President Jacob Zuma against his finance minister, Pravin Gordhan, intensified when prosecutors summoned Gordhan to appear in court on Nov. 2 to face fraud charges. Gordhan says the charges are politically motivated. South Africa’s rand and bonds are feeling the effects.
1. What’s the case about?
Prosecutors say Gordhan misrepresented facts and illegally condoned 1.1 million rand ($77,000) of wasteful expenditure during his first stint as finance minister from 2009 to 2014, when he approved the early retirement of a former colleague at the revenue service and then allowed him to be rehired on a contract basis. The National Prosecuting Authority is also considering whether to charge Gordhan in connection with allegations that he oversaw the establishment of an allegedly illicit investigative unit during his tenure as head of the national tax agency.
2. How strong is the case?
Gordhan says the charges against him are part of a political ploy to undermine him and the National Treasury and that he has no case to answer. NPA boss Shaun Abrahams says his decision to prosecute was made within the law, was based on the evidence presented to him and that politics played no role in the decision to prosecute. Zuma has previously said that while Gordhan has his support, the law must take its course. The NPA’s handling of the case so far has raised serious concerns about its competence, independence and integrity, according to civil rights groups Freedom Under Law and the Council for the Advancement of the South African Constitution. “I’m not sure they will be able to show there was a misrepresentation and I’m not sure how they will show there was intention to defraud the state,” said Pierre de Vos, a professor of public law at the University of Cape Town.
3. What happens next?
Gordhan will not be asked to plead during his initial appearance in court on Nov. 2. The judge and lawyers will agree later on a date for the trial, should it go ahead. “A lot can happen” in the weeks leading up to his court appearance, said Dirk Kotze, a politics professor at the University of South Africa, including Gordhan making a counter application to court challenging “the validity of the charges against him.”
4. How may politics have influenced the case?
Zuma named Gordhan as finance minister in December under pressure from senior ruling party officials and business leaders, after his appointment of a little-known lawmaker, David van Rooyen, sparked a sell-off in the rand and nation’s bonds. Opposition political parties and some analysts say Zuma has been the primary driver behind the decision to prosecute Gordhan because he wants to install a more compliant head of the National Treasury. The case has been “politically managed if not manipulated,” and there’s a possibility Zuma may use it to fire Gordhan, said Iraj Abedian, chief executive officer at Pan-African Investments and Research Services in Johannesburg.
5. What’s the economic fallout?
The rand dived by the most in more than three months after Abrahams announced the decision to prosecute Gordhan, while yields on government bonds soared. The case has raised uncertainty about whether the Treasury will be able to stick to its commitment to rein in government spending and the budget deficit, and raises the risk of the country’s credit rating being downgraded to junk, according to Lesiba Mothata, the chief economist of Johannesburg-based money manager Investment Solutions.