Johannesburg - The rand yesterday led a free-fall in the markets as stocks tumbled on the stand-off between Finance Minister Pravin Gordhan and the country’s elite police unit, the Hawks.
Yields on benchmark government bonds due in December 2026 surged 46 basis points to 8.99 percent, the most since President Jacob Zuma riled markets in December by firing then-finance minister Nhlanhla Nene and replacing him with a little-known lawmaker.
Bonds also slumped with the yield on benchmark 2026 issue rising 46 basis points to 8.935 percent. The banking index opened almost 4 percent down.
Gordhan yesterday confirmed receiving a letter telling him to present himself to the Hawks at 2pm today, but said, after taking legal advice, that he had decided not to present himself.
“I am advised that I am under no legal obligation to present myself to the Hawks as directed in their letter,” Gordhan said.
An unrelenting Gordhan said Hawks head Berning Ntlemeza had previously assured Gordhan that he was not a suspect in the Hawks’ probe.
Asking the Hawks to leave him alone, Gordhan said: “I have a job to do in a difficult economic environment and serve South Africa as best I can. Let me do my job.”
On Tuesday, when the news emerged that the Hawks were circling Gordhan and his former colleagues at the Sars, Ivan Pillay and Johan van Loggerenberg, the the rand slumped 3 percent against the dollar.
On August 10, the rand was bid at R13.20 to the dollar - its best performance this year, on the back of the UK’s decision to vote in favour of leaving the EU and the incident-free local government elections held a week before.
But the currency retreated to R14.16 to the US dollar by yesterday morning before paring off the losses to R13.9032 by 5pm.
The latest saga involving Gordhan and the Hawks comes as the economy remains in a precarious position with the SA Reserve Bank forecasting 0 percent growth this year.
The country earlier this year avoided a downgrade to non-investment grade status by ratings agencies, S&P Global Ratings and Fitch Ratings following a scramble - largely led by Gordhan - to restore confidence in the economy amid low economic growth and concerns about fiscal sustainability.
In a no-holds-barred open letter to President Jacob Zuma, lobby group Business Leadership South Africa said the Hawks investigation of Gordhan lacked legitimacy.
“It is shocking that our national collective effort to avoid a ratings downgrade and to restore inclusive economic growth is now being so insidiously subverted.
“If this sinister behaviour is allowed to continue the consequences will be devastating for our economy, and will fatally undermine our national efforts to address poverty, inequality and unemployment,” the body said.
Sanisha Packirisamy, an economist at MMI Investments and Savings, said the rating agencies had previously warned that South Africa’s institutional credibility had already come under scrutiny after the removal of former finance minister Nhlanhla Nene.
“If the strength and the independence of South Africa’s key institutions (such as the) National Treasury, the SA Reserve Bank and the public protector office come into question again, this could create several question marks over South Africa’s ability to adhere to the government’s fiscal consolidation targets, as well as their commitment to reining in the country’s public debt, which increases the risk of a ratings downgrade,” Packirisamy said.
Investec chief economist Annabel Bishop said yesterday that the financial markets were particularly worried that if Gordhan was charged, his replacement would not be as experienced and well respected.
Bishop said as such, the markets doubted if the replacement would be able to deliver the degree of fiscal consolidation required by the credit rating agencies and the financial markets. She warned of dire consequences for the country’s rating if the stand-off between the Hawks and Gordhan continued.
Efficient Group economist Francois Stofberg said the letter to Gordhan cast a long shadow over so-called state capture and the overall independence of government finances.
“The last thing we had in our defence was confidence in the strength and independence of our government finances, as fought for by the Minister of Finance during his visits to the US, and negotiations with the business sector in South Africa,” he said.
“With independence under question, the economy’s performance, therefore, also comes under question,” Stofberg said.