Johannesburg - News that the police’s elite unit - the Hawks - has summoned finance minister Pravin Gordhan over an investigation into a suspected rogue tax unit has unsettled the market and caused great concern about the implications for the economy.
The largest politically non-aligned union, the Federation of Unions of South Africa (FEDUSA), says in a statement issued on Wednesday that it is concerned the summons has already destroyed investor confidence.
General secretary Dennis George notes workers will suffer when the economy goes into a recession.
“It is abundantly palpable that the battle between SARS [the South African Revenue Service] and the Minister of Finance is once again raging out of control.”
Gordhan and other former officials at the South African Revenue Service (SARS) have been told to report to the Hawks on Thursday morning over what Reuters reports is a contravention of surveillance regulations. The wire service’s source said they will receive a 'warning statement', which given to someone before they are charged with an offence.
The Hawks have declined to comment on the ongoing investigation. Local media reports in May said Gordhan may face arrest on espionage charges for setting up the unit to spy on politicians including President Jacob Zuma.
The news has already caused a fall out with the rand dropping to its weakest level in nearly a month, while bonds and the JSE also slumped.
Read also: SA assets sink as Gordhan summoned
The news of Gordhan’s summons comes just months before rating agencies S&P and Moody’s are set to review SA’s grading, with many fearing the country could be downgraded to junk status.
It also comes after South African Reserve Bank has reduced its forecast to zero percent growth for 2016, down from 0.6 percent.
George speculates that pressure is being placed on Gordhan because of his unwillingness to agree to a SAA request for government support until a new board has been appointed.
“Former finance minister [Nhlanhla] Nene was removed after refusing the acquisition of new aircrafts. President Zuma has now taken a direct interest in the management of state-owned companies, including SAA, from Deputy President Cyril Ramaphosa, which were previously placed under National Treasury, following a Cabinet Lekgotla.”
Fedusa has already slammed Cabinet for this move, which it says is illegal.
Worried
Investec says in a note that financial markets are particularly worried that, if Gordhan is charged, on what it perceives may even be trumped up charges, the minister’s (even temporary) replacement could not be as experienced and well respected, and so not deliver the degree of fiscal consolidation required by the credit rating agencies and the financial markets.
“This is not the first time the internationally respected finance minister and previous head of SARS is seen to have come under personal pressure from the national government in what have been viewed by financial markets as possible attempts to appoint an individual that may be potentially more malleable to personal interests of some members of the national government.”
Investec explains Gordhan’s replacement by someone the markets deem to be unsuitable has the potential to jeopardise the health of SA’s government finance. Last December, Zuma spooked investors by replacing then finance minister Nhlanhla Nene with relatively unknown lawmaker David van Rooyen. After markets tumbled, Zuma demoted van Rooyen and appointed Gordhan, in his second stint in the job.
David Maynier, the Democratic Alliances’s shadow minister of finance, adds Gordhan may now also be the subject of a second investigation reportedly being conducted by SARS, which it has has reportedly engaged Grant Thornton to conduct a forensic audit.
These, Maynier says, relate to contracts for the modernisation and technology programme and were inked between 2007 and 2014.
Maynier notes SARS commissioner Tom Moyane has not commented on the probe, but has also not denied it.