South Africa’s Finance Minister, Pravin Gordhan, has received a summons to appear in court on charges of fraud. Gordhan, who was also finance minister between 2009-2014 , is faced with allegations of misconduct during his time at the country’s tax collection service a decade ago. The summons requires him to appear in court on 2 November, but Mr Gordhan has refuted the allegations as wholly unfounded and politically motivated. The reputation of the finance ministry, largely lauded as incorruptible and objective, has taken several hits. Not least because in December, South Africa appointed three finance ministers in the space of a week. The uncertainty around the finance ministry and the minister, in particular, has already done some damage and may be enough to plunge the economy back to negative growth.
Mr Ghordan’s efforts to rein in government spending won him points with the capital markets and any uncertainty surrounding his position is bound to affect investor sentiments. News of his summons rattled the markets and the South African rand fell more than 3 percent. Pravin Gordhan was appointed after President Jacob’s Zuma attempt to install David van Rooyen fell through and could see the charges as politically motivated. If the minister maintains his position up till he is summoned, he will become the first minister in South Africa to be tried while in office.
Susceptibility to negative growth
South Africa exceeded expectations when GDP figures revealed a 3.3 percent growth in Q2 up from negative 1.2 in the first quarter. However, closer inspection of the data shows a slowdown in that both manufacturing and mining output, two key sectors to the nation’s growth. Weak external demand along with structural domestic issues are the factors set to place pressure on the mining industry in the second half, with overall real GDP growth also expected to slow from the rebound seen in the second quarter.
“Should the extent of weakness registered in the July figures be repeated in the coming months, it can be expected that the sector will make a much smaller contribution to GDP in the subsequent quarters. As such, the annual GDP outcome is still likely to be closer to the zero percent mark.” Said Kamilla Kaplan, an economist at Investec.
South Africa’s debt rating is one rung above junk status, and ratings firms Fitch and S&P Global Ratings have stated low growth as a possible trigger for a downgrade in debt status in December. If ratings fall, SA would have to offer higher returns for their debts, which would crowd out needed investment as the economy flirts with recession.
The South African rand fell sharply in August over fears that Gordhan may be arrested. In the same vein, markets responded unfavourably to the announcement of Gordhan’s summon. South Africa’s economy remains shaky despite the buoyed figures in Q2 and Gordhan’s arrest or removal from Treasury may tip Africa’s largest economy into junk status and back to negative growth.
