South Africa’s Big Budget Battle Is Coming to a Head

  • Political wrangling adds to risk of junk credit rating
  • President refutes reports that he intends firing finance chief

South African President Jacob Zuma’s year-long feud with his finance minister over the nation’s purse strings appears to be coming to a head.

When Pravin Gordhan presents his annual budget in Parliament on Wednesday, Gordhan will seek to keep state spending in check and fend off a junk credit rating. Zuma, meanwhile, wants to spend billions of rand on new nuclear plants and embark on “radical economic transformation” to target yawning racial inequality and widespread poverty. Those factors contributed to the ruling African National Congress’s worst electoral performance in a municipal poll in August.

Pravin Gordhan

Photographer: Andrew Harrer/Bloomberg

The two men have scrapped over the management of state companies and the national tax agency as well as a decision by the country’s biggest banks to close accounts of companies controlled by members of the Gupta family, who’re in business with the president’s son. Speculation that Gordhan is on the verge of being fired has been fueled by an announcement that the ANC will install Brian Molefe, the former chief executive officer of the state power utility, as a lawmaker, easing the way for Zuma to name him to his cabinet.

“Gordhan is under a lot of political pressure” and could be replaced in “a matter of months,” said Mzukisi Qobo, an associate professor at the University of Johannesburg and co-author of “The Fall of the ANC: What Next.” “The budget is a major battleground for Gordhan and the Treasury. He doesn’t want the economy to implode under his watch.”

Economic Conspiracy

Zuma tapped Gordhan, 67, as finance minister in December 2015 after his decision to install a little-known lawmaker to replace the respected Nhlanhla Nene pummeled the nation’s bonds and currency and spurred ANC and business leaders to plead with him to reconsider. S&P Global Ratings and Fitch Ratings Ltd. endorsed Gordhan’s economic stewardship in December by keeping their investment-grade ratings on the nation’s debt. But they warned that political turmoil, low growth and any budget-target slippage would heighten the risk of a downgrade.

Firing Gordhan would have “a very negative market effect,” said John Ashbourne, an economist at Capital Economics Ltd. in London. “To sack one respected finance minister may be regarded as a misfortune. Sacking two looks like a conspiracy against the economy.”

Police Investigation

The 74-year-old Zuma, who’s due to step down as ANC leader in December and as president of the country in 2019, denies he’s at war with his finance chief or that he intends dismissing him.

Yet Zuma has said a police investigation into allegations that Gordhan oversaw the establishment of an illicit investigative unit when he headed the tax agency that’s dragged on for more than a year must run its course. He also rebuffed his request to fire tax chief Tom Moyane for insubordination.

And while Gordhan has asked the High Court to order that he can’t intervene in the banks’ decision to shut the accounts operated by the Gupta-controlled companies after an anti-money laundering unit implicated them in irregular transactions, Zuma suggested the lenders may have been guilty of collusion.

Gordhan said “we are just humble civil servants” and that he’s “not indispensable” during an interview Monday with broadcaster eNCA.

“Treasury is an institution and ministers come and go,” Deputy Finance Minister Mcebisi Jonas said in the same interview. “We hope that the capacity embedded within the institution will be sustained.”

Disinformation Campaign

The National Treasury said last week that disinformation was being circulated to discredit its leadership before the budget. Two days later, the ANC’s youth wing, a close Zuma ally, said Gordhan had failed to exercise proper oversight over more than a dozen banks accused by an antitrust regulator of having rigged foreign-currency trades, and called for him to be held accountable.

Local newspapers have speculated that a cabinet reshuffle is imminent and that Zuma may tap Molefe to replace either Gordhan or Jonas, who last year accused the Guptas of offering him the finance ministry post in exchange for business concessions. The family denies the allegation.

Molefe resigned as the head of state power company Eskom Holdings SOC Ltd. in November last year after the nation’s graft ombudsman indicated he may have given the Guptas preferential treatment by awarding them coal-supply contracts. Molefe, the Guptas and Eskom all deny wrongdoing.

While it’s clear Molefe has been earmarked for a senior government post, Gordhan has proved his staying power and Zuma’s authority is waning as his term draws to a close, said Dirk Kotze, a politics professor at the University of South Africa in Pretoria.

“President Zuma will think more than twice before he kicks out Gordhan and replaces him with Brian Molefe,” Kotze said. “There is a growing sense in the ANC that they don’t want to be seen as ridiculous and they don’t want to support people who are almost a laughing stock.”

(A previous version of the story was corrected to accurately attribute a comment to the deputy finance minister.)

— With assistance by Arabile Gumede

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE