SOEs emboldened by Gordhan drama?

As Pravin Gordhan continues to dominate headlines, his department is engaged in open conflict with key state-owned companies.

Johannesburg - As Finance Minister Pravin Gordhan tries to fend off a police investigation, his department is engaged in open conflict with key state-owned companies over their management and spending plans.

Threatened court action by the National Treasury to stop a joint venture in Asia by Denel is “political, sheer opportunism and grandstanding”, the state arms maker said in a statement on Tuesday. On Monday, utility Eskom said it was “shocked and perplexed’’ after the department said the power producer was resisting a review of its contracts.

“There’s no question that the companies feel emboldened by the fact that Pravin Gordhan is apparently facing charges,” said Nic Borain, a Cape Town-based political analyst and adviser to BNP Paribas Securities South Africa. “It feels like a showdown at high noon and it’s not a situation that the country can have continue.”

The escalating disputes cap almost two weeks of political and market turmoil after reports Gordhan could face arrest and amid speculation by analysts and opposition parties that President Jacob Zuma may use the police investigation to install a more compliant Treasury head. The Eskom contract probe and Denel’s Asian joint venture involve companies with ties to the Gupta family, who are friends with Zuma.

The Treasury declined to comment publicly on Denel’s statement, it said by email.

SAA stalemate

In another long-standing dispute, Gordhan is locked in a stalemate with national flag carrier South African Airways, chaired by Dudu Myeni, who is also the head of Zuma’s foundation. The unprofitable airline needs further loan guarantees from the government, which the finance minister has refused to sign.

Gordhan was appointed in December, after Zuma’s decision to replace Nhlanhla Nene in the post with a little-known lawmaker sparked a sell-off in the rand and nation’s bonds. While the president said last week he supports Gordhan, he said he has no authority to stop the police probe. Gordhan was ordered last week to report to a special police unit investigating alleged irregularities at the tax authority, which he headed from 1999 to 2009. He refused, saying he had done nothing wrong.

The perception of poor economic management and oversight at some state-owned companies is a threat to South Africa’s credit rating at a time when the country is seeking to stave off a downgrade to junk in December, said Razia Khan, head of Africa macro research at Standard Chartered in London.

“Part of that credit rating is that there is transparency and that the institutions are strong,” she said. “Clearly for some time now, there has been reason to doubt that that is the case at a number of SOEs,” she said, referring to state-owned enterprises.

Futuregrowth Asset Management, the continent’s biggest private fixed-income money manager, will stop lending money to six of South Africa’s largest state companies because it’s concerned about how they are being run, government infighting and threats to the independence of the Finance Ministry, Chief Investment Officer Andrew Canter said.

Authority limits

That Treasury has to resort to legal action to prevent the Denel deal is also an indication of the limits on Gordhan’s authority, Theo Venter, a political analyst at North West University in Potchefstroom, near Johannesburg, said by phone on Wednesday.

“The battle lines are drawn closer and closer and clearer and clearer,” he said. Gordhan is “under political siege”, Venter said, and the pressure on him is “getting stronger by the day”.

The Treasury is presenting itself as a “countervailing force” in the government against an agenda tainted by corruption and patronage, said Borain, the adviser to BNP. “If that is the correct read, that has got to be resolved, and it can only be resolved in two ways: either the exposing and expelling of that agenda, or the exposing and expelling of Pravin Gordhan.”

* With assistance from Mike Cohen

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