Government At War With Itself? South African Finance Minister Faces Fraud Charges, Rand Plunges
South African prosecutors on Tuesday ordered Finance Minister Pravin Gordhan to appear in court on Nov. 2 for allegedly breaking public finance rules by granting a colleague early retirement — news that sent the rand and share prices reeling, Reuter reported.
The rand dropped as much as 3.4 percent against the dollar on the latest legal problems for the finance minister who says he has been the victim of a politically motivated campaign over the last few months.
In his previous role as head of the South African Revenue Service (SARS), Gordhan approved early retirement for tax agency deputy commissioner Ivan Pillay and re-hired him as a consultant, costing the tax agency around 1.1 million rand ($79,000), according to Prosecutor Shaun Abrahams.
Gordhan is also being investigated for his role in setting up a surveillance unit at the tax department a decade ago which is suspected of spying on politicians including President Jacob Zuma, Abrahams said, according to Reuters.
Prosecuting Gordhan will be “a disaster for the economy” and will make a credit ratings downgrade more likely, said David Maynier, shadow minister of finance for the main opposition Democratic Alliance party.
Gordhan said the special police unit conducting the investigation — the Hawks — are trying to intimidate him, BBC reported.
Prosecutor Abrahams denied any political interference.
Gordhan earned respect in the financial markets for his efforts to rein in government spending.
Gordhan was appointed in December 2015 after Zuma hired three finance ministers in a week. He replaced David van Rooyen, who had the job for a few days. When Zuma fired previous finance minister Nhlanhla Nene, the rand sank to record lows and the stock market reeled.
Gordhan also served as South Africa’s finance minister from 2009 until 2014. Many analysts believe that Zuma would like to replace him, BBC reported.
Since being reappointed finance minister, Gordhan has regularly clashed with Zuma loyalists after promising to fight corruption in a government often engulfed in corruption scandals, AFP reported, according to Africa Review.
Prosecutor Abrahams denied that the country’s National Prosecuting Authority is politically influenced, and he blasted criticism that it was not independent.
“The days of disrespecting decisions of the National Prosecuting Authority are over,” he said. “The days of non-accountability and not holding senior government officials accountable are over.”
Gordhan was engaged in a fierce battle within the ruling African National Congress (ANC) party over control of the treasury, AFP reported. He has often clashed with Zuma and senior ministers over excessive spending, especially at struggling state-run entities such as South African Airways.
Zuma said publicly that he backs Gordhan. Abrahams said Zuma, who is visiting Kenya, knew about the prosecution.
Investors and rating agencies support Gordhan’s plans to rein in government spending in an economy forecast by the central bank to grow at less than 1 percent this year, Business Insider reported.
Some of the challenges facing the country’s economy include unemployment, drought and Zuma’s political scandals.
Ratings agencies S&P and Fitch have South Africa a notch above junk, while Moody’s has the country two notches above. The country is set to go through a review at year-end. Gordhan’s summons has led to speculation that South Africa will now be downgraded overnight by the ratings agencies. The news will make a sovereign ratings downgrade more likely in South Africa, Independent Online reported.
Gordhan said the transaction giving early retirement to Ivan Pillay, former Deputy Commissioner of the South African Revenue Service, was entirely lawful.
“We must now trust the courts to determine whether there is any merit to these charge,” said shadow Finance Minister Maynier. “We hope that there will be no delay in bringing this matter to court because justice delayed is justice denied.”
In August, ANC Deputy President Cyril Ramaphosa said publicly he had confidence in Gordhan amid talk of Gordhan’s possible arrest by the Hawks, News 24 reported.
Ramaphosa said he was concerned about battles in the government where one wing of government seems to act against another.
“The minister of finance is today almost facing what could be arrest,” Ramaphosa said at a funeral service for Rev. Makhenkesi Stofile. “This is something that should concern us. It should concern us because when a government works well it should be a government that does not wage war with itself.”
Economic Freedom Fighter party leader Julius Malema said the Gordhan investigation is connected to the investigation by outgoing Public Protector Thuli Madonsela into alleged state capture by the Gupta family, News24 reported.
Malema tweeted: “Zuma is fighting back because of evidence presented by treasury to Public Protector on state capture. We support #Pravin and not criminals.”
Malema called on South Africans to protest in support of Gordhan.