Nothing comes as a surprise in South Africa when it comes to the likes of President Jacob Zuma who last night made a sweeping announcement surrounding the standing between himself and finance minister Nhlanhla Nene who got the boot and will be replaced with a political puppet, a one David Van Rooyen or should we rather say David Van Ruin, who barely has the qualification to run a municipality let alone the fiscus of an entire country.
The news came as a shock to foreign investors who sold off the Rand in quick succession to the announcement which saw the commodity driven currency falling to all time lows of R15.25 to a US Dollar further putting strain on the South African Reserve Bank to raise interest rates at a much faster rate than would be necessary to prevent economic catastrophe.
To add insult to injury Zuma further went on to say that Nene had done very well under difficult economic circumstances, not the kind of statement you would expect from someone who has just fired the person who he had just stated was being deployed to another strategic position, thus implying failure to meet his requirements, the kind of contradictory rhetoric South Africans have gotten use to over the past 6 years of Zuma's rule.
I had written a blog towards the end of last year in which I felt worrisome about the state of the South African economy and how two key figures of both fiscal and monetary policy both bowing out of their respective positions following a similar tumultuous period in which Mr Zuma and his merry men (and women) of cronies were caught red handed wasting precious tax payers money on building a R200 million kingdom on his homestead in Nkandla.
The government spin was laughable to the point where officials tried desperately to cover up the overinflated prices paid with some being insulted that government would even feed the media with such drivel that resembled that of a manure farm.
This fell in the face of then finance minister Pravin Gordhan who saw a very uncertain future that lay ahead for the country. By this time the credit rating agencies began their circling and started picking on the government's debt grade of investment as the risk began to pile up. The Marikana Massacre put the ball in motion and Mr Gordhan was heaving in strain to prevent any more concerns that would dash confident investor perceptions.
Nkandla was the final straw for Mr Gordhan who saw his cries of discipline in spending fallen on deaf ears with blatant defiance together with hungry state owned enterprises knocking on the door of Treasury with their begging bowls looking for more cash injections from the state to fund their own failures for which no accountability was needed. It should also be note that these enterprises have been and still are used to place Zuma's cronies in employment to reward them for the loyalty they afforded him through his darkest political hour with no considerations to the qualifications needed to run organisations such as these.
In came in Nhlanhla Nene, a deputy to Gordhan who had been working on a policy that would see government rein in spending and lift revenues with various measures to mitigate the risk of falling prey to credit rating agencies predictions that South Africa, put into a basket with other countries defined as developing economies, could face tougher economic times as a result of externalities uncontrollable by itself.
The market was satisfied by the appointment on a number of reasons the most important one being that they saw Pravin Gordhan as the voice of reason and the government wasn't willing to jeopardize the good faith it had built up with international lenders since the dawn of democracy. It reaffirmed this view in the fact that Nhlanhla Nene was known to the market as having a persuasive nature about his dealing and perhaps he could be the right man to arrest the wasteful expenditure by government.
It further saw the continuity of such policies in the way in which Mr Nene presented his case to the market in this Budget Speech this year by laying down the plans he and his predecessor had been working on. The rating agencies saw this as a sign of acknowledgement of a problem but also a proactivate stance to tackling the matter which helped blow the scent off the trail but only for a little while government officials regrouped to figure out the next card to play.
However the Zuma administration has never been far from controversy as was the case earlier in the year when it was said that Zuma had agreed a nuclear deal with the Russians worth trillions. Figures like this don't often fall short of jaw dropping so it was only a matter of time before the media got hold of the story and started raising doubts to how the government was going to fund this costly deal.
Then there was the matter of SAA needing funding to enter into a new lease agreement with Airbus to lease out new planes. The company who has in recent years become the poster child of why government shouldn't bail out state owned enterprises was headed up by a close affiliate of Zuma, Dudu Myeni. It is very difficult to say what the exact status of this relationship is but it is known that the two have a child together.
With the public hot on the heels of a scandal surrounding the nuclear deal, Nene simply refused to fund such project which left Zuma feeling rather embarrassed after initially expressing his confidence and value it would bring the country (or should we say his bank account).
So when Dudu Myeni came to Treasury for funding Mr Nene once again refused, this time implicitly knowing that he had made guarantees in his budget proposals, one of them being to cut away funding to state owned enterprise, so any action to this accord would simply be a case of backtracking on his part which would harm his reputation but more importantly that of the country. There was no way of him agreeing to this.
Zuma tried to apply pressure on Nene as Myeni, a close affiliate of Zuma, may have made known to him her unhappiness about the decision even though her aptitude to run the ailing enterprise has been called into question a number of times over the past year.
With a stalemate met between the two parties Zuma was forced to choose which side of the political allegiance his support lies, that where the interest of the country as a whole or or his own personal pursuits that have supported him all the way to the top. I think it's safe to say it doesn't take a genius to figure what decision he was going to make judging previous occasions.
In one foul swoop, Zuma has plunged the finance ministry into disrepair with confidence in the policy it makes being tarnished to such an extent that one begins to compare the current situation to that experienced during the 1980s under the apartheid regime where sanctions imposed on the then government of PW Botha forced policymakers to keep finding ways of bypassing the market to reverse the negative impacts they would have on the economy but to no avail.
Fiscal constraint played a big role in undoing that horrendous regime and in saying so will do the same to Zuma and his band of cronies. The great tragedy is its at the cost of the entire nation and the future prospects of South Africans who will have to bear the mark of ill considered policies enforced to keep one's own alliances pockets lined.
Where to from here?
Part 2 tomorrow
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