The last thing South Africa’s struggling economy needs is further financial crisis, yet that is what is in the offing with the news that the country’s finance minister Pravin Gordhan has been charged with fraud.
The belief that this prosecution is politically motivated has sent the South African rand and the price of equities plunging. It has also brought warnings that the country’s international debt rating could be reduced to “junk”, meaning that borrowing by both state and business will become costlier, if indeed investors are actually willing to lend at all.
A collapsing currency was precisely why President Jacob Zuma brought in Gordhan early this year. The respected civil servant who had run the tax agency, the South African Revenue Service, managed to quickly restore international confidence in the rand. Widely seen as a competent administrator who would get a grip on the government’s finances, it appears that Gordhan’s grip has in fact been too good and too tight. Factions within the ruling African National Congress have been frustrated in their attempts to have the Treasury grant favorable treatment to ministries, all of which are under a budgetary cosh as the economy stagnates and unemployment approaches 30 percent.
Ministers and party officials want to fund projects that will advance their position and chances of power ahead of this December’s ANC conference to choose a replacement for Zuma. Gordhan has not been prepared to make any exceptions to his austerity policies which are nominally backed by the president. He thus finds himself under investigation for the way in which he ran the revenue service, specifically that he authorized a special spy unit of taxmen and also that he permitted a staff member to take early and pensionable retirement.
Neither of these accusations seems particularly heinous - tax authorities around the world run covert operations which could be characterized, especially by tax dodgers, as “spying”. This is seen as a perfectly legitimate method of catching those who are busy concealing income. And giving favorable treatment to an employee pales into insignificance when compared with the payola, nepotism and sheer incompetence of the government and the organizations it runs, not least the power company Eskom.
But the Zuma administration seems to have learned little about the important international role of the finance minister. It was Zuma’s replacement of widely-respected Nhlanhla Nene with a man seen as clearly more biddable that brought about the first collapse in confidence in overseas markets. Now this assault on Nene’s successor is having the same impact.
The South African economy, once the continent’s strongest, is struggling with depressed commodity prices. It no longer has the fat that can sustain a corrupt and inefficiently-run government machine, hence the rush to grab whatever financial resources that may be available.
The ANC has enjoyed unbroken power since the end of apartheid in 1994. Those 22 years have brought a feeling of political entitlement even as the party has presided over economic contraction and failed to deliver the promised improved living standards.
It is clearly not appreciated that the dubious attack on Gordhan is doing nothing for the country’s international reputation. Those who want to bring him down clearly do not recognize that they are busy sawing off the very branch on which they themselves are actually sitting.
