Gupta deal block wins Gordhan praise

South African Finance Minister Pravin Gordhan reacts during a media briefing in Sandton near Johannesburg March 14, 2016. Picture taken March 14, 2016. REUTERS/Siphiwe Sibeko

South African Finance Minister Pravin Gordhan reacts during a media briefing in Sandton near Johannesburg March 14, 2016. Picture taken March 14, 2016. REUTERS/Siphiwe Sibeko

Published Apr 14, 2016

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Durban - Finance Minister Pravin Gordhan’s scuppering of a controversial Gupta-linked deal by state-owned arms manufacturer Denel, has been welcomed by leading political analysts.

Analysts Daniel Silke and Dr Somadoda Fikeni hailed the move for its fiscal prudence and common sense.

Both said Gordhan’s action enjoyed wide support within the factionally divided ANC.

Gordhan said on Wednesday that due processes were not followed in the deal, thus making the transaction illegal.

Denel and VR Laser Services - a company in which the Gupta family and President Jacob Zuma’s son Duduzane Zuma hold a 25% stake - formed a joint venture, Denel Asia, which would sell Denel products to the Asian market.

Silke, director of the Political Futures Consultancy, said there was a concerted effort from Gordhan and treasury to begin a process of questioning the broader role and performance of state-owned enterprises and related institutions.

He said there was an attempt being made to clean up the “messy” activities of these enterprises.

“We are going to see more scrutiny of these deals that are undertaken by state-owned enterprises in future.”

He saw this as part of Gordhan beginning to respond to the rating agencies’ requests to tighten performance standards in South Africa.

“It is the beginning of a more concentrated effort by government to focus on what should be the core business of state owned enterprises and review the deals that have plagued the sector and contributed to its inefficiency.”

He said Gordhan had “substantial support” from the ruling party.

“He has successfully conveyed a sense of urgency when it comes to turning around what he can and putting a positive spin on the requests of the rating agencies.”

It looked like “the penny had dropped” and that people were starting to realise the country needed to do all it could to to avoid a downgrade, he said.

Fikeni, a policy and political analyst at Unisa, said: “When the economy is not doing well and ratings agencies are likely to be negative, you can’t go out borrowing more money to secure deals until you’re on safer ground.”

It stood to reason that any minister would be more cautious and stop to ask for the motivation behind the deal and see if there existed any linkages to the economic needs that were pressing for the country.

Gordhan enjoyed strong support from the mainstream of the ruling party, Fikeni said. “A few might have been eyeing the deal out but the general mood is against state capture.”

Fikeni said Treasury had been placed in a position of power now.

“The hands of ministers close to the Guptas have been weakened because almost all of them have to go through Treasury now.”

Wednesday’s announcement by Gordhan is part of a wider drive by the minster to stamp his authority on state-owned enterprises and head off questionable deals since his return in December.

He has stalled any movement on the state’s R1 trillion-nuclear power plans, making the Gupta acquisition of a uranium mine look like an expensive gamble that might well not pay off.

Gordhan also forced SA Airways to honour an existing aircraft leasing deal with French company Airbus.

Gordhan’s statement hinted at the motives and timing of December’s axing of Nhlanhla Nene from the Finance Ministry.

The deal is believed to be at the centre of the suspension of three Denel executives, who insiders allege were moved to make way for the controversial transaction after a new board was appointed by Public Enterprises Minister Lynne Brown last year.

Denel announced the joint venture in January this year, but Gordhan said on Wednesday that the establishment of the company was not approved by him or Brown.

“State-owned entities are required to obtain approval from the minister of finance and/or minister of public enterprises before establishing companies, in terms of the PFMA (Public Finance Management Act),” said Gordhan.

He added that in terms of the conditions attached to the R1.85 billion in guarantees provided by the government to Denel, any significant transaction that Denel entered into required the approval of both the ministers of finance and of public enterprises.

Zuma removed Nene on the night of December 9, by means of an after-hours media statement. He was replaced by alleged Gupta pick, Des van Rooyen.

Denel submitted its application for approval the very next morning, seemingly expecting quick acquiescence from the new minister.

A political backlash coupled with a financial markets meltdown brought a quick end to Van Rooyen’s tenure. He was replaced by Gordhan four days later. Given what the National Treasury is now saying about the status of the deal, this was before he could sign off on the Gupta deal.

But this didn’t stop Denel, now under the control of a new board and with its top executive management suspended, from announcing the establishment of Denel Asia as a done deal in January.

The controversial transaction is said to be behind the suspension of Denel’s top three executives - chief executive Riaz Salojee, chief financial officer Fikile Mhlonto and company secretary Elizabeth Africa.

Denel has refused to divulge details of the charges faced by them.

“The investigation of the three senior officials has not been finalised yet,” said company spokeswoman, Vuyelwa Qinga.

Daily News

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