Alec Hogg with Kaya’s Mabena – Zuma captures SOEs but what now with Cyril?

Monday’s official briefing on the ruling party ANC’s cabinet lekgotla said President Jacob Zuma would now chair a new presidential state-owned entities co-ordinating committee. This decision effectively means Zuma is taking over from his deputy Cyril Ramaphosa, who since December 2014 has chaired the SOE inter-ministerial committee. But what does this mean for the inner workings of the party? Kaya FM’s Bob Mabena chatted to Biznews.com’s Alec Hogg for more…

Bob Mabena: It’s 7:11 on Kaya Fm 95.9. Alec Hogg’s with us on the line. Good morning, Alec, I would have thought that the President was the head of all state enterprises reporting to him, anyway. Of what use is this coordination committee, do you believe?

Alec Hogg: It’s not like that. Quite a lot of the state enterprises have to work through the Finance Ministry/Treasury and this is where the issues have now started to rise. If you begin with South African Airways as an example, the previous Finance Minister Nhlanhla Nene was in the process of removing the board of South African Airways, which has continued to make big losses and is being funded by the taxpayer. The feeling was that it was being inefficiently managed. Things were happening there, which he wasn’t happy about. As a consequence of that resistance, he was fired. Pravin Gordhan has tried to do exactly the same thing. He’s issued various statements and (as we well know now and in fact, the country knows) he was summonsed to appear before the Hawks this morning, which he has refused to do.

This is an example of where it should be falling underneath Treasury, where Treasury should be doling out the money but the President has now effectively sterilised the Treasury and said, “I will make those decisions directly.”

What does that make of Cyril’s job then? He was asked to overhaul the system and make sure that it’s streamlined.

I don’t know. I think that’s the biggest question South Africans have been asking. “What exactly is Cyril Ramaphosa doing? It was the hope for many that there would be some kind of check on the excesses that were quite obvious. We’ve seen enormous overruns in projects like Medupi – the Ingula project – five times the original costs and lot of that money has not been going into construction. It’s been going into pockets. Certainly, the business sector was hoping that with the insights that Cyril Ramaphosa had, he’d be able to have some kind of impact there but since Cyril arrived, he hasn’t really done a whole lot. I guess this is just another reflection that he’s pretty powerless in this cabinet.

Need we worry too much about this? The way I’m thinking about it is that the budgets are set. The Treasury also has a say about exactly what happens. There is a chain that can be traced and a paper trail as well.

Of course, we need to be worrying. The whole world is worrying about what happens in South Africa. As you know, I’m based in London at the moment and I get to talk to a lot of the big money people over here. They take a fairly pragmatic view on these things. Their feelings are “Well, as long as Pravin Gordhan is there, there would a be check on tenderpreneurship. There would be a check on money being misallocated and as a consequence of it, they could kind of live with it. As you’ve seen with the latest election results, which show competitive politics coming into South Africa, the Rand has strengthened continuously over a lengthy period. When there were the threats of Pravin Gordhan in fact being jailed, that was again interpreted, certainly in places like New York and London as Jacob Zuma wanting to get him out of the way so that he can then get his hands on the Treasury and other parts of Government.

Read also: Misfiring SOEs – Major reason SA Tax Freedom Day is coming later every year

When that news came out, the Rand took a hiding. That is telling you something. It’s telling you that whether it’s true or not, people in London and New York interpret this as being a power play between Jacob Zuma and his camp, and Pravin Gordhan. Whichever way it might be truthful, the interpretation is that Gordhan is the guy who’s actually trying to stop the public resources being plundered whereas the other camp is trying to do the opposite.

All of this (albeit serious)…I suppose there is some second guessing and a perception, Alec. A little bit?

It is but the facts are quite scary if you consider that when Pravin was head of SARS, he had a team around him that was admired. He squeezed a lot of money out of businesses that hadn’t been paying taxes for a lengthy period. No one was above the law. No one was immune. They went after billionaires like Dave King and continually and doggedly pursued them on behalf of the South African taxpayer. They served the public. He left there to become Finance Minister. Everything was well but once he left the Finance Ministry portfolio in the first reshuffle, there was a new person put into SARS and his whole top team was taken out. That whole team is now being accused by the Hawks of things, which literally, if you look at it; it’s all trumped up. The charges are pretty trumped up. No doubt, we would like to see that appearing in court for the Hawks to go further but the problem here is the levers of state that are being used to make things happen and are not in the interests of the public…

Every single little bit of internal fighting that goes on there is amplified and interpreted very poorly around the world. One has to remember this most important issue: South Africa is a developing country. It does not have the resources on its own to grow. We need to borrow money every year from people in other parts of the world and they will only give us money if they see a stable system – one where their money will grow and in fact, they’ll get their money back. Those people who lent money into Zimbabwe for instance, have lost it years ago. Similarly, with places like Argentina and Brazil, they’re very scared and very wary. If South Africa does not grow, people do not get jobs and you get the situation that we’re seeing at the moment with zero economic growth, no job growth, and young people coming into the job market with no prospect of getting a job.

A three percent dip in our currency against the Dollar since this news came out. What kind of damage do you anticipate, should Pravin Gordhan indeed be arrested?

Well, I watched on the Internet (a wonderful thing). When you’re outside the country, you can keep so informed. I watched Trevor Manuel being interviewed yesterday. You have to believe him when he says, “It would be a disaster for the country. The economy could collapse.” What Trevor was trying to explain was that if we had another Nenegate… Very briefly, what happened with Nenegate: Nhlanhla Nene was fired on the Wednesday and on the Thursday, investors didn’t really understand, but they started selling the Rand. On the Friday, more people came in as they were rushing for the exit because the perception was that a plundering regime was going to take over in totality and as a consequence of that… Fortunately, we had a Friday so the markets were closed. On that Saturday and Sunday there was a lot of analysis and the forward markets were showing that the Rand was going to take a hiding but worse than that, interest rates were soaring.

The money that South Africa pays on its bonds and the money that we borrow… Remember, we’re a developing country and we’ve got to borrow to develop. That went up from eight percent to 10 percent in three days, which was unprecedented. It was expected that that could get to 11 or 12 percent on the Monday and ‘who knew thereafter’ because once you get a runaway train in the financial market, you don’t know when and how it’s going to stop. There are many examples of how this has occurred and it’s been a self-fulfilling, disastrous policy. Trevor Manuel was saying, “Watch out. Didn’t we get enough of a lesson with Nhlanhla Nene’s firing?” When Pravin Gordhan was appointed on the Sunday night of Nenegate (or what Treasury calls 9/12), the markets immediate took faith that it had stabilised positively.

In fact, three months later, it had recovered everything that was lost in those two days (partly due to what’s going on internationally), but the reality is that they recovered all of that ground. If there were to be an arrest of a Finance Minister in a country where the perceptions are so dodgy already (like South Africa’s right now) in the current international environment, Trevor Manuel’s prediction that it would be a disaster and of course, these things always hurt the poor most. It’s the poor who are the people who don’t get the jobs. In an economic collapse, it’s companies that collapse and that’s fine. The people who run the companies usually have some kind of a safety net but the people who are employed at the companies (pay check to pay check) … What happens then? South Africa doesn’t have a social security system that will be able to cover everybody who would be unemployed in that situation.

They’re playing with fire here, Bob. That’s what Trevor Manuel is trying to say and I have absolutely no reason to believe that he doesn’t have it spot on.

The next question is going to be a bit of a stretch, Alec. Let’s say for instance, that the Hawks came out and said, “We are going to charge Pravin Gordhan for 1, 2, 3, or 4”, what would the scenario be? Would the markets react in the same way because now we would have had a rather dodgy Finance Minister? Would the markets be reacting in the same way if the Hawks had a case?

Well, if the Hawks had a case the world would know that they had a case and this is the reality of it. Yesterday, South Africa came out with an announcement to say, “Please don’t do this. You are taking the country back to the edge of the abyss.” We all know. It’s been well articulated, exactly what’s happened in this situation. The unit within SARS that was established to go after the cigarette counterfeiters, people who are bringing in clothes from China by avoiding duties, people who aren’t paying their taxes (the VAT dodgers) … This unit was set up there within the law (according to Gordhan and his boss at the time, Trevor Manuel). It was then leaked into the Sunday Times that it was a unit that was starting with a brothel (or producing brothels, etcetera). The Sunday Times has subsequently apologised for a story that was planted there and was a lie.

Read also: Zuma on Nenegate: “Markets over-reacted to the firing.” Rand tanks again.

Now if you get to that kind of a situation, what is happening here? Then take it a little further. If there was any truth to any of these charges then Pravin Gordhan – believe me – would have, by now, been exposed by 100 journalists who would love to find a story like that, if there was any reality to it. Here’s a man who helped the country in CODESA. He’s a man who was in the very first parliament, helping to set up the Constitution in our constitutional democracy. He served his country admirably. He’s 66 years old. He should now be looking to have a bit of an easy time with his children, but he’s not. He’s back there, serving his country in its time of need. What happens to him then? He’s threatened with trumped-up charges which, if they weren’t trumped-up, we would certainly know about them by now. It’s an awful situation that we are experiencing and as Trevor was saying, “Mr President, get your cabinet together. Bump a few heads. We can’t afford this as a country. This is not the time for power games.

Alec, this is Kuli Roberts. Explain to me as you would to a six-year-old, how does one individual impact the Rand/the economy the way that Pravin Gordhan has? You’ve mentioned what his accolades are. I’m just so confused.

The international markets are very confusing. They are driven by desk jockeys. These are guys who sit in London or New York. They will be sitting in front of computer screens, making decisions based on the narrative that they understand and interpret. They try to get that narrative right. Now, Mr Market is like a manic depressive. The one morning he’ll wake up and be terribly excited about things and he’ll push the prices very high. The next morning he’ll wake up and he’ll be incredibly depressed for whatever reason and he’ll knock the prices down. You know that lovely saying, “When a butterfly flutters its wings in the Amazon, there’s a tornado in Texas”. It’s a similar situation in the market. People are interpreting the narrative in their own way and the way they’re doing it right now…

That’s why I was saying a little bit earlier – according to Bob – is whether it’s true or false, the reality is that the interpretation’s the way that I’ve said it and that interpretation is one that’s being held in the markets around the world. If they see the continuation of what we’ve seen at the SABC, SAA, and Denel is now going to be throughout the economy. If the good work that Kenneth Brown has done at procurement where they’ve now brought all the procurement together – the government’s procurement budget. They’ve said they’re going to save R25bn, just by cutting out the worst of the excesses this year. That’s in the budget. Otherwise, we would have paid one percent more VAT if that hadn’t happened. When the world makes a quick interpretation, which is ‘well, South Africa will have to pay more tax. The economy’s already in trouble.

The interest rates will have to go up. The economy will get into more trouble as a result. The Rand is going to get weaker. If we put in Pounds today, we’ll get our less Pounds tomorrow. Let’s leave it alone’ and they’ve got about 150 other options. That’s really what it’s about – finding a home for the global capital that South Africa needs to develop, grow, and employ its people.

They are convinced that this one man is the one who’ll make things right.

The record has shown that he is prepared to do the right things. Remember, it’s not one man. It’s the army of loyal people around him. The people in Treasury: they all talk. They talk to their counterparts in other parts of the world and they will be giving their counterparts a view. Their view is 9/12. Get rid of Nene. Bring in Gupta employees as they interpreted them. We call it 9/12 because it’s like the day that those planes flew into the World Trade Centre (for the people at the Treasury) so the people at the Treasury believe that Pravin Gordhan will do the right thing. These are very smart guys who are running it – related to others in their field in other parts of the world. It’s all connected and we must never underestimate the intelligence that is going all over the world. I think the point that you make is “Why is it one person?”

It’s just reflection of perhaps, a system and if/when a new head of SARS was put in there, the other top members of the Revenue Services were taken out and then all kinds of question marks were raised as a consequence. Similarly, at SAA, when the head of the Jacob Zuma Foundation was made chairman of South African Airways and decided to have seven different chief executives in a period of two years. Things have been happening there as well. They’ve been well publicised. The world sits up and says, “What the heck is going on in this country?”

Thank you very much for really trying to get us to understand this issue. I suppose we’ll be calling you shortly because there’s so much that’s going to happen between now and Monday. Of course, in politics, an hour is a lot. Thank you very much, Alec.

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