NeneGate: The financial cost of political uncertainty
The financial impact of Nhlanhla Nene’s sacking were felt for years after his removal as finance minister, the Zondo commission of inquiry into state capture heard on Tuesday.
During her testimony, national treasury economist Catherine MacLeod told the commission — chaired by Deputy Chief Justice Raymond Zondo — that Nene’s December 2015 axing had long-term effects on the economy.
According to MacLeod, Nene’s removal as finance minister was a very visible point of the alleged state capture project to investors. The market reaction was a culmination of the events signalling state capture in the lead-up to Nene’s dismissal and it built up over time, MacLeod said.
MacLeod’s evidence corroborated elements of treasury director general Dondo Mogajane’s testimony. In November last year, Mogajane was tasked by the commission to compile information relating to the impact of “Nene Gate” on the country’s national debt.
Nene was unceremoniously fired by former president Jacob Zuma on December 9 2015.
ANC backbencher Des van Rooyen was appointed to replace Nene, but after a four-day stint as finance minister, Pravin Gordhan was asked to take over.
Nene appeared before the commission last October. During his testimony, he recounted the pressure he allegedly encountered to approve costly government projects like the controversial nuclear deal.
On Tuesday, MacLeod emphasised the importance of the context surrounding Nene’s firing. She conceded that Van Rooyen’s relative lack of credentials did have an impact on the perceived risk to investors. But if someone more qualified than Van Rooyen was appointed, and that person was still associated with the state capture project, a similar impact would have occurred, MacLeod said.
She further added that change in ministers increased investor’s perception of risk. “The investors were also aware of what the change in ministers might mean for the fiscus,” MacLeod said, concluding that investors became aware that the change in ministers would mean that government spending on costly projects might go unchecked.
MacLeod noted that, though Gordhan’s appointment stabilised the market for a period, the impact on the economy persisted.
The rand was much weaker a year after Nene’s axing than it was the year before Nene Gate, MacLeod said.
“Political uncertainty has real costs ... South African citizens and taxpayers are worse off,” she explained.
South Africa has not run a budget surplus since Nene was given his marching orders, MacLeod noted. Revenues have underperformed and this has put pressure on the country’s borrowing, she said.
She explained that when government incurs debt, less money can be prioritised for social priorities.
When asked about the perception that the rand can be easily picked up again after a dramatic fall, MacLeod said that anyone who thinks this does not appreciate the impact of financial asset prices on ordinary citizens.