South Africa Treasury in line of fire as ANC factions squabble


For investors hoping that South Africa might be over the worst of its damaging economic and political impasse, the court summons issued yesterday morning to finance minister Pravin Gordhan came as a rude awakening.

“They know who my lawyer is,” was Mr Gordhan’s characteristically sangfroid response to the summons by the anti­corruption Hawks unit to appear on fraud charges as part of a long running and byzantine probe into an alleged rogue spy unit at the South African Revenue Service, which he once led.

Markets were less sanguine about the fate of a minister held in high regard internationally for his stewardship during a difficult period for Africa’s most industrialised economy, which is barely growing amid low commodity prices and unemployment of 27 per cent.

The news sent the rand tumbling 3.8 per cent against the US dollar, while an index of South African banking stocks dropped 5 per cent. Analysts at BNP Paribas warned that rating agencies would immediately downgrade the country to junk if Mr Gordhan was removed from office.

The development has reignited fears that President Jacob Zuma, buffeted by numerous scandals, is looking for a pretext to dump Mr Gordhan. In December the president replaced Nhlanhla Nene, the well­regarded finance minister, with a more pliant appointee, David van Rooyen, setting off a slump in the rand which led to Mr Gordhan’s appointment as a safe pair of hands.

The issue is not the substance of the charges against Mr Gordhan, which are obscure. Although prosecutors alleged that the spy unit was illegally set up under his watch, they instead accused him of fraudulently approving the early retirement of a Sars employee.

“It does appear to be on legally shaky ground,” said Lawson Naidoo, head of civil society group the Council for the Advancement of the South African Constitution.

More worrying to observers is that the police and national prosecuting authority appear to be renewing a politically driven assault against the Treasury at the worst possible time. It has been preparing the country’s medium­term budget, due later this month.

“Given the history of this particular saga, there is ample room to suspect that there has been political interference in this process,” Mr Naidoo said.

Few legal experts believe that transgressions of South Africa’s public finance laws ­ the essence of the charges against Mr Gordhan ­ actually constitute a criminal offence. By contrast Mr Zuma himself has 783 counts, including corruption, hanging over him.

“We do not think ‘factions’ and ‘forces’ within the ANC and aligned to President Zuma want to see Pravin Gordhan in jail, or indeed that this case could ever come to trial given the politically damaging evidence that could be produced,” said Peter Attard Montalto, a Nomura analyst.

“The issue here is about access to the National Treasury and the ability of factions within the ANC to control it and use its powers to win the elective conference in December 2017,” when the ruling party is set to choose its next president.

Mr Zuma is under pressure to go well before national elections in 2019, with the ruling party licking its wounds after local polls in August delivered its worst electoral performance since 1994 ­ blame for which largely fell on the president’s shoulders. But he may also be moving to secure his succession through patronage despite the damage done to institutions in the meantime.

Some opponents of Mr Zuma both inside and outside the ANC now refer to the clash over control of the Treasury and other agencies as ‘the second struggle’ ­ fought between old comrades who were once united during the first, against apartheid.

Mr Gordhan, a former communist who was jailed by South Africa’s white minority rulers, is seen as fighting to preserve the institutions of a young democracy, 22 years after the ANC took power.

The ANC has publicly equivocated over Mr Gordhan’s fate, saying yesterday that the Sars investigation “has had a detrimental effect on the South African economy”, while simultaneously urging him to “fully co­operate” with the investigation.

Investors are left with a case of déjà vu. Mr Gordhan first faced questions from the Hawks unit in February, before he presented the year’s budget. “And here we are again, two weeks before the next budget statement,” Mr Naidoo said.

‘Rogue unit’

Tensions grow between minister and Hawks

A summons demanding that Pravin Gordhan appear in court next month on fraud charges follows months of tension between the South African finance minister and the Hawks, a special police unit.

Critics maintain, however, that the tensions relate more to investigations into the establishment of a “rogue unit” within the South African Revenue Service than Mr Gordhan’s alleged fraudulent activity in granting early retirement to a deputy commissioner of the tax agency.

In 2007, Sars created a unit to “penetrate and intercept the activities of tax and customs related crime syndicates”, according to a statement issued by Mr Gordhan in March.

Allegations surfaced in the media that a “rogue unit” in Sars, long seen as one of the country’s most credible institutions, had used its position to spy on senior officials. An external committee set up by Sars in 2014 to look into the unit determined that its establishment was unlawful.

Members of the unit have denied any wrongdoing. Mr Gordhan has insisted that the unit was legal and that if “it or any of its members engaged in unlawful activities, then they did so without my knowledge or consent”.

In February, weeks after Mr Gordhan was reappointed finance minister to steady the economy, media reports surfaced that Mr Gordhan had received a letter from the Hawks with a long list of questions about the unit.

The Hawks clarified that they were investigating the “covert unit” within Sars, not Mr Gordhan. Mr Gordhan claimed opponents were trying to intimidate him.

In May, the South African Sunday Times newspaper reported that Mr Gordhan faced “imminent arrest” and would be charged with “espionage”. The National Prosecuting Authority and the presidency dismissed the report, but the uncertainty sent the rand plummeting. In August, Mr Gordhan was summoned to appear before the Hawks in connection with the probe, although he was not charged. Mr Gordhan declined to appear.

Yesterday, Shaun Abrahams, the national director of public prosecutions, said establishment of the unit was in conflict with South Africa’s constitution, and the investigation into the unit continued. Krista Mahr in Johannesburg.


By Joseph Cotterill

Published on Oct 18,2016 [ Vol 17 ,No 859]



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