Matthew Lester on #PravinGordhan: Cry Havoc! And let slip the dogs of war!

Minister of Finance Pravin Gordhan (Netwerk24)
Minister of Finance Pravin Gordhan (Netwerk24)

By Matthew Lester*

I don’t associate with riffraff and I only drink on weekends. But last night (Monday 31 October) I had to break that rule. Such was my relief when the charges brought against Finance Minister, Pravin Gordhan, were dropped just 48 hours before the first court appearance.

So a magistrate on Pretoria has got Wednesday 2 November off along with a massive media contingent that haven’t had any fun since Oscar Pistorius. Abrahams has refused to resign (as expected) and nothing is being done to discipline him (and others involved in the plot.)

So it’s back to business until December when we hear if SA gets the junk status rating most are anticipating.

What an apathetic, pathetic lot we are! Only 82 signatures of protest from Captains of business when there are 512 companies with taxable income over R100 million per annum. The rest ducked for cover or passed by on the other side of the road.

Over Nenegate those businesses without forward covered lost a chunk, if not all of their 2015/16 profits. By the time they had paid that lot off the Rand had clawed its way back. Investors panicked and hastily ran their savings offshore. They are still losing.

Those who are trying to build up a pension are told ‘you’re lucky of you haven’t lost anything this year.’ That’s before administration fees. Over the last two years everything I have invested in my retirement annuities has stood still. I am two years closer to retirement and inflation has eaten away 15%. I will be lucky if my retirement is a case of ‘bring and braai.’

But those who got it right must have made a pile. imagine if you knew, as some did, that Nenegate was on the way. Or you got a tip off that a policeman was on the way to drop a summons on Gordhan. Or you correctly read the writing on the wall that the NPA’s case would collapse before it went to court. You could have made a fortune – at the expense of others.

Businesses hammered by Nenegate learned their lesson and covered forward at well over $1 =R14. When they could have weathered the storm and paid at around $1 = R13,60 today.

This is by no means over. Now comes the fun and games leading up to the rating agencies decision in early December 2016. Will they or won’t they pull the plug on SA.

If the rating agencies take a positive view on the Medium Term Budget Policy Statement of 25 October they may, just may, be kind enough to say ‘inspite of all the self-inflicted injuries South Africa is still there and the numbers are pretty robust under the circumstances. So give SA the benefit of the doubt!’ In which case we fight on.

Some say that the downgrade is already priced into the market. So the downgrade won’t mean much. Perhaps just another short-term glitch in exchange rates.

I am not buying that. Why?

In spite of the charges being dropped on Gordhan there are many of his colleagues who want him gone forever. No matter what he has achieved for SA. No matter what the consequences.

I forecast that if the downgrade happens it will be the most convenient moment for Gordhan’s enemies to justify sticking the knife in one final time.

I hope the rating agencies in some way take this into consideration when coming to their final decision.

  • Rhodes University Professor Matthew Lester was educated at St Johns College, Wits and Rhodes universities. He is a chartered accountant who has worked at Deloitte, SARS and BDO. A member of the Davis Tax Committee investigating the structure of aspects of the RSA tax system, he is based in Grahamstown. Follow him @ProfMattLester.
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