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Cape Town - The issue about the latest step against Finance Minister Pravin Gordhan is access to the National Treasury and the ability of factions within the ANC to control it and use its powers to win the elective conference in December 2017.
That ultimately would require the removal of Pravin Gordhan who has defended the institution’s conservatism and independence, emerging markets economist Peter Attard Montalto of Nomura said on Tuesday.
The news that Gordhan has been issued with a formal summons to answer charges of fraud is only a small cog in a much larger and existential succession battle within the ANC, in his view. This succession "war" will continue until the end of 2017 and dampen investor confidence and growth.
The National Prosecuting Authority (NPA) is summoning Gordhan for fraud alleged to have occurred while he was Sars commissioner, relating to the granting of early retirement to Sars employees.
In Montalto's view, the key is to see the context within which the latest action against Gordhan takes place.
"We do not think 'factions' and 'forces' within the ANC and aligned to President Jacob Zuma want to see Pravin Gordhan in jail, or indeed that this case could ever come to trial given the politically damaging evidence that could be produced," said Montalto. He gives it a 50/50 chance that Gordhan will exit - a much higher probability than the market has priced in in recent months.
"Markets continue to grossly underestimate political risk and its macro implications in South Africa in our view," said Montalto.
READ: Rand tanks on Gordhan summons news
Defending independence
He pointed out that much of the NPA press conference announcing the latest step against Gordhan centred on the NPA defending its supposed independence. This defence was especially against comments by Gordhan last week that the NPA - among others - was engaged in “political mischief”.
The NPA also referred to the so-called Sars spy - or rogue - unit under the watch of Gordhan when he was commissioner.
"The NPA has stated clearly it sees actions within the spy unit as 'unconstitutional' and 'unlawful', but the investigations are continuing and no charges are being laid on that issue at this time," said Montalto.
"The line taken by the NPA here is clearly new but, as we have highlighted previously, the NPA is looking for a more solid case before it moves to charge – something we think is still possible in the coming months."
READ: Rand unusually strong despite Gordhan shock - economist
What must be learnt from the latest steps against Gordhan, in Montalto's view, is that an institution in the NPA that is viewed as aligned with President Jacob Zuma has shown itself to be “risk loving” in the sense of moving forwards with charges and may well move forward further on the spy unit issue shortly.
"Downgrade risk, markets as a constraining factor, the businesses community’s calls for calm are all not stopping this from moving forwards – very much against the market view," said Montalto.
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