President Jacob Zuma has fired finance minister Pravin Gordhan and his deputy, Mcebisi Jonas, in a move that could be a devastating assault on the country’s economy.

Zuma announced the changes to the cabinet on Thursday night, naming Malusi Gigaba as the new finance minister and Sifiso Buthulezi as his deputy, who is currently a member of parliament.

In a fall reminiscent of that witnessed in the wake of Nenegate in December 2015, the rand continued its free fall against major currencies on Friday morning. 

At 8.16am, the rand was at R13.4656 to the dollar from an overnight close of R13.2644. 

New ministers:

  • Minister of energy, Mmamoloko “Nkhensani” Kubayi
  • Minister of transport, Joe Maswanganyi
  • Minister of finance, Malusi Gigaba
  • Minister of police, Fikile Mbalula
  • Minister of public works, Nathi Nhleko
  • Minister of sports and recreation, Thembelani Nxesi
  • Minister of tourism, Tokozile Xasa
  • Minister of public service and administration, Faith Muthambi
  • Minister of home affairs, Hlengiwe Mkhize
  • Minister of communications, Ayanda Dlodlo

New deputy ministers:

  • Deputy minister of public service and administration, Dipuo Letsatsi-Duba
  • Deputy minister of finance, Sifiso Buthelezi
  • Deputy minister of public enterprises, Ben Martins
  • Deputy minister of arts and culture, Maggie Sotyu
  • Deputy minister of trade and industry, Gratitude Magwanishe
  • Deputy minister of communications, Thandi Mahambehlala
  • Deputy minister of tourism, Elizabeth Thabethe
  • Deputy minister of police, Bongani Mkongi
  • Deputy minister of telecommunications and postal services, Stella Ndabeni-Abrahams
  • Deputy minister of small business development, Nomathemba November.

The party’s top officials — Cyril Ramaphosa, Jessie Duarte, Gwede Mantashe, Zweli Mkhize and Baleka Mbete — were shocked when Zuma told them earlier this week that he planned to fire Gordhan and Jonas. After all, it was barely 15 months since Zuma had torpedoed the rand and burnt SA’s credibility by axing then-finance minister Nhlanhla Nene.

Surely not again, they must have thought. Mantashe apparently put up the strongest resistance to Zuma’s move. Ramaphosa and Mkhize raised their voices too.

But they knew there was little they could do. The president has the constitutional right to hire and fire ministers. Zuma had evidently made up his mind — and this time, he wasn’t to be pulled back from the fiscal cliff, as he was when he was forced to replace Des van Rooyen with Gordhan in December 2015.

But the die had already been cast when, over the weekend, Zuma imperiously summoned Gordhan back from his investment road show overseas, where he was meeting 60 foreign investors, representing US$2.5 trillion, including BlackRock, Aberdeen, Vanguard and Metlife.

Earlier on Monday, Zuma informed top officials of the ANC’s alliance partner, the SA Communist Party (SACP) of his intentions. They were at Luthuli House to continue a tense bilateral meeting adjourned two weeks earlier.

Unwilling to bend rules to help Guptas

It was there that Zuma dropped the bomb, telling the communists of his plans to remove Gordhan and Jonas as part of a wider cabinet reshuffle. His reason: Gordhan was obstructive to Zuma’s vague plans for SA’s "radical economic transformation".

Gordhan did, of course, stand in the way — but only because Zuma’s project consists of a crude crony-capitalist scheme in which the interests of his friends, the Gupta family, seemed to actually drive policy.

All SA’s major banks had shut the Guptas’ accounts over money-laundering concerns. By this week, the family’s last remaining banker, Bank of Baroda, had closed three-quarters of the family’s bank accounts. Gordhan, in Zuma’s eyes, was infuriatingly unwilling to bend the rules to help them.

Malusi Gigaba. Picture: RUSSELL ROBERTS
Malusi Gigaba. Picture: RUSSELL ROBERTS

Zuma had evidently meant to make this announcement on Tuesday, but fate intervened. In the early hours of Tuesday ANC stalwart Ahmed Kathrada died — he was among the last remaining Rivonia Triallists and, aptly, a fierce Zuma critic over the past year. Kathrada had written to Zuma after the constitutional court’s damning ruling on Nkandla last year, and urged him to step down. Political sensitivities around Kathrada’s death may well have prevented Zuma from plunging ahead with his plan until after the funeral, at any rate.

Corporate leaders left fuming

This account of the ANC and SACP meetings is drawn from well-placed sources who have been extensively briefed on these meetings.

On the record, the politicians are keeping mum — no doubt well aware of the consequences of crossing Zuma.

Unaware of the machinations behind closed doors, SA’s corporate leaders sensed political treachery was afoot and were fuming.

That Zuma summoned Gordhan in the middle of meetings with the ratings agencies who have the power to downgrade SA to junk status was a stunningly cavalier act, said a number of CEOs contacted by the Financial Mail.Jannie Durand, CEO of Johann Rupert’s investment giant Remgro, seemed despondent. "Unfortunately (Nelson Mandela’s) legacy and the country that he left behind has lost its integrity completely today. It takes years to build a reputation and a track record, but only one act to totally ruin it," he said.

The chairman of a large investment firm said "removing Gordhan would be disappointing. He has a proven track record that stretches way back to the struggle days, and does not deserve to be treated so shabbily".

Others said it was evident that Zuma’s administration can’t seem to grasp the fact that consistency and stability in economic and fiscal policy were the keys to attracting investment locally and from abroad.

'People will not take it well'

Before Nenegate, the CEOs would have shrunk under political pressure. Those demure days are gone.

Business Leadership SA, chaired by Telkom chairman Jabu Mabuza, and representing the top companies on the JSE, said Zuma’s damage to investor sentiment "should not be underestimated". They called on politicians to "put the economic welfare of the country first", clearly implying Zuma wasn’t doing so.

The Chamber of Mines echoed this view, saying Zuma’s recall of Gordhan was "damaging to our country’s reputation".

A visibly frustrated Investec CEO Stephen Koseff told the Financial Mail: "I know it’s the presidential prerogative to decide who needs to be his minister of finance, but at the end of the day we are not growing, and we have to. We are going to grow only if there is stability and confidence."

Koseff says that if Gordhan is replaced, there will be a lot of "upset sell-out" from the country — and not only by international investors. "People will not take it well."

Rand most obvious casualty

"The firing of Gordhan will cause a lot of pain for SA," said Albert Botha, a fixed interest fund manager at Ashburton Investments. "We had a dress rehearsal in December 2015 of what happens when a finance minister is fired.

"If Gordhan is fired the rand will blow out and could go to R15/$ or beyond," Botha warned. "SA’s sovereign credit rating is also likely to be downgraded."

The less apocalyptically minded hoped the Nenegate lesson would limit damage.

Henk Viljoen, head of fixed interest at Stanlib, said: "It would be the second time around for the market. This time the reaction may not be as adverse."

However, he added a crucial proviso, echoed by the ratings agencies last year: "But this will only be the case if Gordhan is replaced by a person who has credibility."

Finance Minister Pravin Gordhan, right, and Deputy Finance Minister Mcebisi Jonas  arrive for the 2017 budget speech in Cape Town on Wednesday. Picture: REUTERS/MIKE HUTCHINGS
Finance Minister Pravin Gordhan, right, and Deputy Finance Minister Mcebisi Jonas arrive for the 2017 budget speech in Cape Town on Wednesday. Picture: REUTERS/MIKE HUTCHINGS

After stepping off the plane from London at about 10am on Tuesday, Gordhan told Reuters he had no idea why he’d been instructed to return.

"The president is my boss so if he asks us to come back, we come back," he said. But, he added, "there are many in government who want to do the right thing and make sure we keep our economy on track".

He then headed straight to Luthuli House, where he met Mantashe, who apparently told him of Zuma’s plans. Without letting on, Gordhan headed to the high court in Pretoria where, alongside Jonas, he watched his lawyers lock horns with the Guptas.

Why Zuma moved on Gordhan

It was a powerful symbolic move, given that it was most likely that it was his defiance of the Guptas’ crony capitalist way of doing business that cost him his job.

Zuma’s motives are often inscrutable.

But one theory why he moved on Gordhan was that he wanted a more pliable person heading treasury, who could be ordered to withdraw the lawsuit launched by Gordhan last October, seeking a declaratory order that a minister can’t intervene in the relationship between a bank and its clients.

Since Absa, First National Bank, Nedbank and Standard had closed the Guptas’ accounts a year ago, the Guptas have leant on their political connections to "convince" the banks to change their minds.

Though some of the more craven members of Zuma’s cabinet (notably mining minister Mosebenzi Zwane) had tried to help the family, Gordhan said he couldn’t intervene.

So here is the urgency: the last remaining bank that did business with the Guptas, the India-based Bank of Baroda, plans to close the family’s accounts at the end of March.

This would have left them unbanked and exposed.

There was one potential saviour: a tiny bank based in Jo’burg’s Oriental Plaza called Habib Overseas Bank, which the Guptas’ business partner, Salim Essa, and entrepreneur Hamza Farooqui, have been trying to buy for R327m. The problem was that any bank takeover would have to be given the green light by Gordhan. And the registrar of banks, Kuben Naidoo, had recommended to Gordhan that he veto the deal.

Incoherent intelligence 'report'

With a more compliant individual in the finance minister’s chair, there’d be an avenue back into the banking system for the family.

This is the dominant theory to explain Zuma’s intention, but there are others. According to another, Gordhan’s treasury had taken a fine-tooth comb to contracts signed at Eskom during Brian Molefe’s tenure, and, say well-placed sources, a number of these deals can be traced back to those close to the president.

To complicate things, the president had allegedly been receiving "intelligence" that Gordhan was plotting against him. One incoherent intelligence "report" said Gordhan’s trip to the UK and US was the launch of a secret "operation checkmate" where he would meet global bankers and inform them that his group "have the support of many in the ANC and other parties to force the president out".

Fiscal suicide

It’s a laughable conspiracy theory. But for a paranoid president, whose tenure has been marked by a rash of poor advice and even worse intelligence, it was possibly another factor.

Gordhan has certainly performed something akin to the tasks of Hercules in the past year. He battled the ratings agencies to fend off a downgrade, resisted perpetual threats of arrest from trumped-up investigations (partially successfully) and a cold war from an underperforming tax authority.

Gordhan has described the plot against him and national treasury as a "systematic and highly organised campaign" by the Gupta family and its associates.

He has been protected by the belief that Zuma wouldn’t willingly sacrifice SA’s economy. It appears Zuma has stopped worrying about creditors’ concerns, the reaction of financial markets or the economy.

Analysts say Zuma may now be on the brink of launching an all-out assault for total control over all the levers of power, and to hell with the consequences.

Replacing Gordhan with a pliable candidate would illustrate that SA has chosen the path of fiscal lunacy over fiscal probity. In other words, fiscal suicide.

 

Picture: FINANCIAL MAIL
Picture: FINANCIAL MAIL

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