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‘The National Treasury held the line on everything; we had to park some projects that couldn’t be executed. … those things might not have gone down well with all of my colleagues. No one was happy.’

– Nhlanhla Nene

South Africa’s jilted former finance ministers Nhlanhla Nene and Pravin Gordhan are sitting on a bench on a farmhouse veranda in the little village of Kranskop, which lies on the edge of the Tugela River Valley in the KwaZulu-Natal Midlands. They are watching Nene’s cattle wander up from the river to graze on leftover bean stalks below the house.

Gordhan turns to Nene and says, ‘Now I can see why you always come back to work so refreshed on a Monday morning.’

Back in that bucolic moment the colleagues could scarcely have imagined the assault on the National Treasury that lay ahead and how it would result in both of them being axed within months of each other, ultimately causing the economy to be junk-rated and growth to flat-line.

President Jacob Zuma’s act of summarily dismissing Nene, a highly competent finance minister, on 9 December 2015 without informing the rest of his cabinet or the top echelons of the ANC, but with the apparent knowledge of his friends, Atul and Ajay Gupta, has been dubbed ‘Nenegate’ or ‘9/12’.

The event shook South Africa to the rafters. Not only did it take government’s mismanagement of the economy to a whole new level, but it also set in motion a chain of events that cleaved the ANC into two opposing factions and blew the lid off the murky world of state capture by providing first-hand evidence of the extent of the Guptas’ influence.

The steep drop in the rand,1 a spike in bond yields and the sharp fall in the JSE All-Share Index in the days immediately after Nene’s axing revealed the investment community’s horror at his dismissal. The public was equally dismayed: #ZumaMustFall was the top-trending Twitter hashtag in South Africa; talk shows were flooded with calls for Zuma to resign.

The fact that the consumer-confidence index, released the same day, collapsed to –14 index points, approaching levels not seen since 1986, added to the sense that the economy had suffered one too many blows.

It had been evident to the media weeks before that the knives were out for the National Treasury, and Nene in particular. The story that he would be fired and offered a job at the new Brics Bank as political cover was leaked to the press at least three weeks before 9 December. Nene was aware of these reports but said he ‘didn’t take them seriously’.2

He initially laughed off the astounding revelation by his deputy, Mcebisi Jonas, that members of the Gupta family had offered Jonas the post of finance minister – dismissing the Guptas as ‘chancers trying their luck’.

The South African public were deeply shocked. For if it was true that the Guptas were peddling cabinet posts around town, it meant that Saxonwold, not Pretoria, was really running the government, and that South Africa had truly descended into a gangster state.

As Jonas noted in a subsequent press statement, asserting that he had rejected the Guptas out of hand, ‘The basis of my rejection of their offer is that it makes a mockery of our hard-earned democracy, the trust of our people and [the fact that] no one apart from the president of the republic appoints ministers.’3

Later Jonas told the Public Protector that he had been offered R600 000 in cash by the Guptas to be finance minister, together with the promise of a further R600 million over time.

After Jonas spoke out, other revelations began to snowball. Former ANC MP Vygie Mentor claimed that the Guptas had offered her the post of Minister of Public Service and Administration to replace Barbara Hogan – provided she awarded them the flight route between South Africa and India. Hogan later claimed that the Guptas had also attempted to influence her decision-making. Mentor subsequently laid formal charges of corruption against the government and the Gupta family with the police. This gave South Africa another scandal – ‘Guptagate’ or ‘Zuptagate’ – to add to its inglorious trophy cabinet.

The impression that Nene’s dismissal was part of an orchestrated plot to capture the National Treasury was corroborated by Zuma’s choice of ANC MP David Des van Rooyen as a replacement finance minister. This former small-town mayor, with no fiscal or national-government experience, arrived at the Treasury with two little-known advisors (Ian Whitley and Mohamed Bobat) in tow, promising to make the Treasury ‘more accessible’ once he was installed.

Lungisa Fuzile – who served as the director-general to four consecutive finance ministers, Trevor Manuel, Nene, Gordhan and, more recently, Malusi Gigaba before his resignation – recalls that December weekend with the new incumbents as the ‘lowest of low points’ in his 19 years at the Treasury.

Bobat displayed such ‘impoliteness’ and disdain for how the Treasury operated that Fuzile was enraged. ‘I suspect that had that weekend not turned out the way it did, we would’ve ended up coming to blows,’ he said.4

It subsequently emerged from the Public Protector’s State of Capture report that Van Rooyen had visited the Guptas’ Saxonwold compound for seven straight days before his appointment. Various media reports also linked Whitley and Bobat to the Guptas, and they were subsequently accused of having allegedly leaked internal Treasury documents to close associates of the family.5

Besides the political machinations, Nenegate is estimated to have cost the country about R500 billion, including the R95 billion loss suffered on the markets by the Government Employees’ Pension Fund in the immediate aftermath.

‘I was truly overwhelmed and truly, truly humbled by the market reaction because I didn’t expect it,’ said Nene. ‘I still believe that it had everything to do with the National Treasury as an institution, so I didn’t take it personally.’

Nene seems to harbour no anger or bitterness over being dismissed so suddenly without any apparent cause, despite having served the Treasury with distinction for seven years. The accepted narrative behind his dismissal is that he must have drawn a line very firmly in the sand in his dealings with Zuma in the run-up to being axed – perhaps by insisting on fiscal responsibility at technically bankrupt South African Airways (SAA) or by demanding transparency in the costing of the state’s highly controversial 9 600 MW nuclear programme. But Nene doesn’t believe he was fired for being an obstacle or an irritant to the president on either of those issues, or for any other specific act or omission.

He says fiscal discipline was ‘the name of the game’ for the entire time that he served at the National Treasury. ‘The Treasury held the line on everything and said no where it needed to say no. It wouldn’t be correct to say there were things which only affected the president,’ he explained.

‘What I know is that we were on a shoestring budget and it was clear that we had to pursue the fiscal consolidation path with vigour and reduce unnecessary expenditure. That meant we had to park some projects that couldn’t be executed. All of those things might not have gone down well with all of my colleagues. No one was happy,’ said Nene of the run-up to that fateful December day.

This confirms the general perception of society at large that the reason Nene was fired was for doing his job, for insisting on fiscal discipline.

‘Being a finance minister is an impossible task,’ said Professor Emeritus Estian Calitz of Stellenbosch University. ‘It’s a systemic thing because he’s exposed to all the ministers in the cabinet and the job of each minister is to maximise the budget for their department. Unless you have this umbilical cord between the finance minister and the head of government – like we had with Manuel and Mbeki – the finance minister is a very lonely figure.’6

In short, to function successfully, the finance minister has to have the backing of the president. One of the stand-out features of South Africa’s political economy during the Mandela and Mbeki years was the firm support that the country’s macroeconomic policies enjoyed from the top. During Zuma’s first term (2009 to 2014), things continued in very much the same way. However, once growth began to hit the skids during Zuma’s second term, that support began to evaporate.

With the economic slowdown necessitating tough trade-offs to fund new priorities or expand existing programmes, the tighter stance on fiscal policy was becoming increasingly ‘unpalatable’ to the ANC government, explained Fuzile.

‘The success of the National Treasury or the finance minister at times like that depends on continued, unwavering support from the top,’ he added. ‘Instead, there was mild support, mild to cold support, for some of the tough decisions that had to be taken. At best you could say we had limited support from the top and divided support from the rest of the cabinet.’7

It had long been apparent that elements in the ANC were uncomfortable having an economic tsar in the National Treasury who stood above everyone with his hand firmly on the budget. That Nene was forced by the country’s worsening fiscal trajectory to tighten the reins on spending ever more forcefully had clearly made him few friends in the cabinet. The unhappiness this created added fuel to the arguments of those eager to downgrade the position of finance minister, so that the president and his close cabinet allies could drive the budget process instead.

Nene was the first finance minister to be fired by an ANC government since the dawn of democracy in 1994. The timing was also critical, coming just weeks after S&P Global Ratings had changed the outlook on South Africa’s sovereign credit rating to negative. With South Africa already rated BBB– (i.e. on the bottom rung of the investment-grade ladder), it was clear that any further fiscal slippage or deterioration in the country’s institutional strength would be likely to tip South Africa over the edge into junk status.

That Zuma would shoot South Africa in the foot deliberately by placing the rent-seeking interests of his acolytes over the needs of an economy teetering on the brink of a downgrade was deeply worrying. It meant that the president either had no concept of the vulnerable position South Africa was in as a recently downgraded, twin-deficit emerging-market country or that he simply didn’t care. Either way, the sense was that Zuma had well and truly crossed the line.

Under pressure from the markets, banking CEOs and other captains of industry, as well as from within his own party, Zuma back-tracked and by Sunday evening, four days after he had fired Nene, he had reappointed the well-respected Pravin Gordhan (South Africa’s finance minister from 2009 to 2014) to the hot seat.

South Africa had gone through the ignominy of three finance ministers in five days. Van Rooyen lasted little more than a weekend, earning him the unflattering moniker ‘weekend special’.

When the markets opened on Monday morning, the rand started to recover some of its losses but it was subsequently clear that investor confidence in South Africa had taken a severe knock and would not be easily regained.8

Nene’s dismissal had been a rude wake-up call for the investment community, which, until then, hadn’t acknowledged the ‘voracious criminal conspiracy’ that had state spending by the throat, the generalised looting that was occurring, or the fact that South Africa’s democratic project had been hijacked by a Gupta/Zuma/Premier League set of interests, said political analyst Nic Borain.9

At the time, there was speculation that Zuma may have recanted immediately after Nene’s axing and asked him to resume his duties. Nene denied this. He also ruled out the possibility of taking a government job at ministerial level in some future administration. ‘I’ve had my innings. I would really like to retire to my farm.’

When he talks about his farm in Kranskop, the former finance minister becomes boyish and animated. The break from public service has allowed him to reconnect with his family and community. Besides, he is ‘having fun’ in the private sector. As a non-executive director and an advisor at various investment companies, Nene works a four-day week, allowing him to spend more time pulling cabbages and watching those peaceful cows grazing.

Gordhan, on the other hand, had the most torrid year in office after 9/12. Despite his getting off to a flying start at the beginning of 2016, Gordhan’s fate and that of the National Treasury became the epicentre of a high-stakes battle over the heart and soul of the ANC – and the very future of the nation itself.

All this culminated, 15 tumultuous months later, in Zuma’s axing of both Gordhan and Jonas in a midnight cabinet reshuffle, which plunged the country into a fresh crisis in a sickening replay of 9/12.

Why did it happen? ‘Their crime is incorruptibility,’ said Jackson Mthembu, the ANC’s parliamentary chief whip, summing up the situation in one line.10 Indeed, throughout those 15 months, Gordhan and Jonas had held the line on the country’s fiscal position and against a relentless assault on their integrity by state forces.

In his parting press conference at the end of March 2017, Gordhan said to loud cheers: ‘Our souls are not for sale. Our country is not for sale.’

Adversity had turned Gordhan from a grey-suited bureaucrat into the nation’s foremost hero.11 His axing became the rallying point for a broad-based civilian campaign against the unchecked power that the president was wielding on behalf of a rapacious clique.

Tens of thousands of South Africans of all races joined the People’s March around the country on Friday 7 April, united in their desire to see Zuma booted out of the presidency. A few days later, on 12 April, Zuma’s 75th birthday, rival opposition parties together led thousands through Pretoria on a march to the Union Buildings demanding Zuma’s resignation under a sea of banners bearing the words ‘Zuma Must Fall’.

But back in the promising early days of 2016, all that drama and intrigue was still a long way off. Gordhan’s focus was on shoring up the economy, and not on the politics around his appointment. His immediate priority was to prevent South Africa from losing its investment-grade credit rating. This meant getting business on board and presenting a united front to the international investment community, as well as to the president.

‘We calmed markets down, we created a new sense of unity with business and labour, we won the ratings battles, we launched projects that were a concrete expression of that partnership and we would’ve done even greater things as the partnership progressed notwithstanding many contradictions between the principal players,’ said Gordhan. ‘The country would’ve benefitted from that.’12

With the president’s annual state-of-the-nation address scheduled for mid-January, Zuma needed to show after the debacle of Nenegate that he understood the country’s economic predicament and was committed to instituting business-friendly reforms to re-ignite growth.

He did both in a speech that appeared to have been penned by the National Treasury specifically around the needs of business. This was an indication of how significantly the balance of power had shifted in the few weeks post-9/12. The speech acknowledged that South Africa was at risk of losing its investment-grade status and required an effective turnaround plan.

‘It is about doing things differently and also acting on what may not have been acted upon quickly before,’ said Zuma before going on to promise action on a list of eight demands made by business, including that legislative and regulatory blockages to investment would be removed, that state-owned enterprises (SOEs) would be properly governed, and that the private sector would be given greater scope to partner with government in the provision of energy and other infrastructure.

Above all, business had stressed in its conversations with government the need for the country to unite behind South Africa’s long-term economic vision, the National Development Plan (NDP). Zuma assured the nation that government was not only implementing the NDP, but that all government’s programmes were now aligned with the document – a completely false assertion, as it turned out.

He called the plan the country’s ‘foremost blueprint’ and the ‘cornerstone of our economy’. It was, he said, the ‘basis for collective action to stabilise the economy, build confidence, raise the level of investment and return South Africa to a path of inclusive economic growth’.

But Zuma’s listless delivery was uninspiring. Having heard this kind of empty rhetoric before, the markets were not convinced. The rand remained extremely weak, having plum­meted to a worst-ever level of R16,89/$ on 20 January 2016, while financial markets continued to price South Africa’s credit risk on a par with Russia’s and even worse than Turkey’s – two junk-rated countries.

Gordhan managed to prop up the country’s savaged credibility a few weeks later with a national budget that did a great deal more to rein in debt than previously. This was a clear bid to reassure a sceptical audience that South Africa’s commitment to fiscal discipline had not wavered. It was well received, but what the investment community really needed to see was that South Africa had an actionable plan to get growth going. What was still missing was a list of specific pro-growth reforms and a timetable for their implementation.

Raising the nation’s flag: Team South Africa

Immediately after his appointment, Gordhan put together a working group of chief executives from South Africa’s listed companies to help him address South Africa’s economic crisis.

Recalling their first meeting, which Gordhan convened at the Nedbank offices, with more than 60 CEOs, Discovery Group CEO Adrian Gore said, ‘The message wasn’t about politics ... it was all positive. It was brainstorming with government about how we build the country.’13

Several CEOs subsequently toured with Gordhan on roadshows to London and New York, selling the idea that under the united banner of Team South Africa, the country had got its act together and would do whatever it took to prevent further credit-rating downgrades.

‘Every crisis has a silver lining,’ said Nene. ‘In this case it was that the lack of trust between business and government was put much higher on the agenda with the full understanding that if this ship sinks, we all sink together.’

It appeared as if South Africa had made more progress on economic-policy reform in a few short months than in the preceding five years. It looked like business and government had finally begun to have a real conversation about how to tackle the fundamental shortcomings of the South African economy. And it seemed that, for the first time, the government was actually listening.

‘It was a watershed moment in a tired and resentful marriage in which both partners have given up trying to save the relationship and [have] simply been going through the motions for years,’ observed the Financial Mail.14

Commentators began speculating that Gordhan had, through his bold, decisive leadership, allowed the National Treasury to regain some of its former stature within govern­ment. The expectation was that, since he could hardly be fired now, he would make rapid headway on politically tough reforms, liberalising the labour market and hauling into line delinquent SOEs, like the South African Broadcasting Corporation (SABC) and SAA.

After all, to get the economy growing, it had become imperative that the government take politically unpopular decisions. These meant cracking the whip on government underperformance in all spheres. None more so than among those SOEs whose boards were stuffed with Gupta associates and offered sheltered employment to a few of Zuma’s close friends. Senior executives seldom lasted more than a few months under the weight of political interference. (SABC CEO James Aguma, appointed in July 2016, was the national broadcaster’s seventh in as many years.)

More than piecemeal reforms were required, however. With growth having slowed to a crawl, it was clear that government had to change its whole approach to managing the economy. What South Africa needed was less government inefficiency, less economic and institutional mismanagement and a more business-friendly environment characterised by deregulation and greater policy certainty.

In essence, the state-led development model was crumbling through the state’s inefficiency and incapacity. It had become clear to many that South Africa’s best shot at raising the growth rate was to give the private sector a bigger role in government’s traditional terrain, including providing infrastructure and helping run SOEs. The objective was to raise the economy’s competitiveness and reduce the funding burden on the fiscus.

‘We’ve got to change the way the ANC thinks about the economy,’ said Old Mutual Investment Group’s chief economist, Rian le Roux. ‘We need a mind shift, a fundamental change of heart from a government-must-do-it-all approach to [one which understands that] we don’t need an SAA, we must sell underperforming SOEs, and we must allow the private sector to get involved in education, in power generation and so on.’15

This was the path the Treasury had begun to lead South Africa down in partnership with business and a smattering of labour representatives under the Team South Africa outfit. But, for the tenderpreneurs allied to Zuma, this challenge to the status quo threatened to end the opportunities for rent-seeking, which had served their interests so well.

Initially, Zuma was on the back foot as a result of his forced climbdown over Nenegate, which was followed in quick succession by two serious court defeats. The first was the Constitutional Court’s momentous finding on 31 March 2016 that the president had flouted the Constitution over his failure to submit to the Public Protector’s order that he pay back some of the R246 million of taxpayers’ money spent on ‘security upgrades’ to his private rural homestead, Nkandla.

Zuma had spent the previous two years refusing to pay, despite the Public Protector’s finding that he had unduly benefited from the improvements. These included a cattle kraal, visitors’ centre, a chicken run and a swimming pool. The court subsequently ruled that Zuma personally pay back R7,8 million towards these frills.

His second legal defeat was the North Gauteng High Court’s finding on 29 April 2016 that the National Prosecuting Authority’s (NPA) decision to drop 783 fraud and corruption charges against him in April 2009 was irrational. This had happened two weeks before the 2009 general election, which had paved the way for Zuma to become South Africa’s president. The same court denied Zuma and the NPA leave to appeal against its judgment.

For a while it seemed as if Zuma had been immeasurably weakened, but those who had expected real reform to ensue had underestimated the bare-knuckled resolve of those ranged against it – and Zuma’s staying power.

In a failure-to-cross-the-Rubicon moment, Zuma apologised for the Nkandla scandal on television but refused to resign, maintaining that he had always intended to pay back some of the money. His delay in doing so, he claimed, was merely because his lawyers held a different legal interpretation of the extent of the Public Protector’s powers. The country was in an uproar. Opposition parties succeeded in getting Parliament to hold a vote of no confidence in the president but, lacking the required two-thirds majority, were inevitably trumped by a united ANC.

Civil society staged mass protests and even ANC struggle stalwarts, like the late Ahmed Kathrada, church-based organi­sations and ANC leaders, including former finance minister Trevor Manuel, called for Zuma to resign for the good of the country. But Zuma dug in, supported by a network of patronage that depended for its lifeblood on his remaining in power until his exit could be carefully managed and a successor of similar ilk anointed.

The Hawks swoop on Gordhan

Gordhan, meanwhile, had been fighting battles of his own. On 30 March 2016, he revealed in the first of a series of remarkably candid press statements that he was being subjected to harassment and intimidation by the Hawks, South Africa’s special investigative unit for priority crimes.

The Hawks’ first salvo had been fired just days before Gordhan’s presentation of the 2016 budget, when it sent him a list of 27 questions, demanding answers by a deadline that disregarded the budgetary process under way.

Their aggressive questioning related mainly to a special investigative tax unit – subsequently dubbed ‘the rogue spy unit’ – which Gordhan had established at the South African Revenue Service (SARS) to investigate major tax fraud in 2007. At issue was whether SARS had exceeded its legal mandate in establishing such a unit, and whether the unit had engaged in illegal surveillance of other government agencies, including the NPA.

By revealing the details of the Hawks’ interrogation – and his responses – Gordhan took the public into his confidence. This had the effect of forcing the clandestine issue of state capture out into the open and turned his running battle with the Hawks into South Africa’s hottest news story day after day.

The row between Gordhan and the Hawks flared up again in the run-up to S&P’s visit to the country to finalise its 2016 mid-year ratings assessment. This followed an extraordinary exposé in the Sunday Times on 15 May 2016 that Gordhan faced imminent arrest by the Hawks for espionage related to the so-called rogue unit.

Two days later, Gordhan hit back at his accusers in a press statement for ‘manipulation of the law’ and for acting with ‘ulterior motives’. He accused individuals in government of conspiring to ‘intimidate and harass’ him, and made an impas­sioned plea for all South Africans to rally behind the National Treasury to protect the integrity of this world-class institution.

Gordhan even revealed the personal toll the Hawks cam­paign was taking on him, stating that media reports about his possible arrest had been ‘extremely distressing’ for him and his family. ‘I cannot believe that I am being investigated and could possibly be charged for something I am completely innocent of,’ he added. ‘It is indeed true that no one is above the law. But no one should be subjected to the manipulation of the law and agencies for ulterior motives.’16

Unlike the president, who dismissed claims of state capture out of hand, Gordhan warned that ‘millions of people will pay the price (there will be less money to relieve poverty and support job-creation programmes) if this subversion of democracy is left unrestrained and unchallenged’.

Economists warned that the rand could hit R20/$ and a junk rating would be inevitable should Gordhan be arrested or quit his post, because, despite the Presidency’s denial that Gordhan’s post was under threat, rumours persisted that he would be ousted in one way or another, possibly in a cabinet reshuffle, which would see him replaced with Brian Molefe, then CEO of Eskom.

It was clear that any further interference around Gordhan and the Treasury would be perceived even more negatively by financial markets than 9/12 had been. For one thing, it would imply that the government hadn’t learnt anything from Nenegate. It would also suggest that the government didn’t care about the reaction of the markets or the economic fallout that such meddling would cause.

‘South Africa’s very future is at risk,’ said Michael Spicer, former head of Business Leadership South Africa (BLSA). ‘The stakes are enormously high. My worry is that South Africa is heading towards a Putin-type authoritarian state – one that is enormously corrupt, riddled with patronage and an undermining of all the key institutions.’17

Gordhan’s view, that the campaign against him by the Hawks was part of a bigger attack on the integrity of the Treasury, was bolstered by the demand by 27 former director-generals for an urgent independent public inquiry into the alleged capture of the state by the Gupta family. ‘Unless these challenges are attended to urgently, our country may be plunged into a crisis of governance and [it could] lead to the collapse of public services in general,’ they warned in a press statement.18

What the director-generals wanted flushed into the open was the way cronyism and patronage had metastasised right through South Africa’s body politic. For years this cancer had been allowed to spread almost unchecked, hollowing out the morale and management of key South African institutions, and rendering several parastatals a severe drag on the public purse and on economic productivity.

Key institutions, including SARS, the Hawks, the NPA, the Independent Police Investigative Directorate (IPID), Denel, the State Security Agency, and crime intelligence in the South African Police Service have all had senior leaders removed on tenuous grounds over the past few years.

In a press statement on 17 May 2016, Robert McBride, the IPID’s suspended executive director, Ivan Pillay, former SARS deputy commissioner, and Anwa Dramat, former head of the Hawks, contended that this purge of the leadership of South Africa’s criminal-justice system was aimed at undermining the fight against corruption.

They attached a list of names to their statement of 14 other top IPID, Hawks and SARS officials who had been removed through a very similar pattern of ‘questionable administrative processes’. Gordhan, they alleged, was just the latest in a long line of dominoes to be targeted.

In an interview with BizNews’s Alec Hogg in London, forensic consultant Paul O’Sullivan, who has found himself at the wrong end of battles with South Africa’s security establishment on several occasions, warned that Zuma was appointing ‘what can best be described as criminals’ to run the criminal-justice system. ‘If it goes unchecked,’ said O’Sullivan, ‘we’re going to see a police state in South Africa and I think that’s what scares a lot of people.’19

Ann Bernstein, executive director of the Centre for Develop­ment and Enterprise (CDE), agreed that the country was in a precarious position: ‘There is an enormous battle going on between those who want to build on South Africa’s reputation for world-class fiscal management and those who want a system of crony capitalism and tenderpreneurship.’20

Several commentators urged business to act in public with the same robustness it had shown behind the scenes on 9/12 when it had managed to persuade Zuma to retract Van Rooyen’s appointment. ‘The last time the business sector stood up to a president like that and started pleading the issues was in 1985 when they said, “Enough is enough!” to P.W. Botha after he failed to cross the Rubicon,’ recalled Chamber of Mines CEO Roger Baxter.21

For despite the new rapprochement between business and government, and Gordhan’s plea to civil society to rally behind the Treasury, organised business refrained almost entirely from commenting publicly during Nenegate and throughout Gordhan’s early travails with the Hawks.

The corporate world appeared to have defaulted to its long-held position of ‘going along to get along’ – a tendency that can be traced back to the second Mbeki administration where business learnt to be silent on those issues that were guaranteed to provoke a scathing backlash. (In Mbeki’s case, these were HIV/Aids and Zimbabwe.)

Certainly business found itself in a tricky position, for it appeared to be enjoying closer ties with government than at any time since Zuma had taken power in 2009.

Under the direction of Gordhan and BUSA president, Jabu Mabuza, several practical, action-orientated work streams were formed, headed by senior CEOs working with state officials. These were aimed at preventing a sovereign-credit downgrade, stimulating small-business development, expand­ing govern­ment and private sector co-investment in infrastructure, re­forming SOEs and eliminating regulatory hurdles that were stymieing investment.

The exhibition of greater trust and coordination between the business sector and government paid huge dividends when South Africa passed the mid-2016 reviews of the three main rating agencies – Moody’s, Fitch and S&P – without suffering a single notch downgrade.

For the first time, the government was able to give the rating agencies exposure to a much wider range of credible voices on the economy. The likes of Nedbank CEO Mike Brown, JSE CEO Nicky Newton-King and Barclays Africa chair Wendy Lucas-Bull stood alongside Gordhan, presenting a united front against a potential downgrade.

At a key briefing, Brown invited S&P executives to look out of a vast picture window in the JSE building across a bustling Sandton. There were at least a dozen cranes on the horizon. ‘It really didn’t look like a sub-investment grade country,’ he said.22

But good PR can take a country only so far. Many local commentators were far from convinced that the Team South Africa approach would result in real change.

‘Team South Africa is a little bit like Tutu’s Rainbow Nation. It makes you feel warm and fuzzy but it only plasters over the wound that festers beneath,’ said Pan-African Investment & Research Services CEO, Iraj Abedian. ‘I’m not saying we shouldn’t do it, but we shouldn’t be naive and think that just because Pravin Gordhan and some CEOs have got together that it will resolve the lifestyle issues of the patient in the ICU. The minute the patient starts breathing they’ll start fighting again.’23

Business Day opined that while the vision of Team South Africa was ‘heart-warming’ and constituted a welcome change from almost a decade of frosty relations between business and government, it was also ‘a kind of pantomime in which all players know their part, which they are duty-bound to play’.24

The problem was that the initiative lacked any genuine political backing. Though no one doubted the effort business and the Treasury were putting in, very little was changing in the way the rest of government continued to operate.

‘There is considerable energy and commitment behind this new proactive partnership approach,’ said Spicer. ‘Yet these groups are ad hoc interventions that run in parallel with ever more egregious evidence of state capture by private business interests and the political corruption of key agencies and SOEs by these interests, often using the security apparatus and seemingly acting on behalf of the president.’25

Something smells in the SOE stable

At SAA Gordhan’s reformist zeal ran head-first into the brick wall of Zuma’s intransigence. Technically bankrupt, and kept afloat only on the basis of government guarantees, SAA was running through cash faster than a Gupta wedding party through customs.

Gordhan insisted that the board chairperson, Dudu Myeni, and her board needed to be replaced before the Treasury would provide any further bail-outs to SAA. Myeni is widely acknowledged to be a close friend of Zuma’s. She is also head of the Jacob Zuma Foundation. Former SAA board member and JSE CEO Russell Loubser once said of her: ‘If she has any business acumen, it’s very well hidden.’26

At the height of the SAA stand-off, Zuma conducted a public visit to the national carrier, committed his government’s assistance ‘at its highest level’ to help the airline overcome its challenges, and insisted that it would never be sold.

Le Roux points out that what Zuma should have said to SAA staff – had he been singing off the same hymn sheet as Gordhan – was that, one day, they would be working for a private owner, and that this would be a good thing.

The stalemate between Gordhan and Zuma over SAA was the very antithesis of what the investment community needed to see. Nevertheless, the rating agencies gave South Africa the benefit of the doubt at their mid-year reviews, presumably believing that even if he didn’t win every battle, Gordhan would succeed in pushing through enough structural reform to begin to turn the ship around.

But no sooner was the ink dry on the rating agencies’ affirmations than South Africa was embroiled in two further scandals, both of which demonstrated the inability of Gordhan and his business working groups to prevent the continued manipulation and deterioration of South Africa’s public enterprises.

At Auckland Park, the SABC’s brazen chief operating officer, Hlaudi Motsoeneng, defied an order by the broadcasting regulator to reverse his decision to stop showing violent protests on TV. Several SABC staff members were suspended and later fired for refusing to bow to this edict and for balking at his subsequent refusal to allow them to cover protests outside the broadcaster’s own gates over acts of censorship. Though the journalists were later reinstated, several made claims of death threats and continued harassment.

Motsoeneng derived his unassailable authority from the SABC board and the communi­cations minister, Faith Muthambi. When challenged over the COO’s reign of terror, the minister reportedly said: ‘But Baba [President Zuma] loves him [Hlaudi], he loves him so much. We must support him.’ 27

All this flew in the face of the Public Protector’s February 2014 ruling that action should be taken against Motsoeneng, who lacks a matric certificate, for lying about his qualifications and for hiking his salary from R1,5 million to R2,4 million within a year.

The board and minister even went so far as to petition for leave to appeal the subsequent ruling of High Court judge Dennis Davis, which set aside Motsoeneng’s permanent appointment as COO. The situation went from tragedy to farce when, despite having lost in the courts, the board arranged for Motsoeneng to be rehired in a different but still very senior executive capacity. This move was, in turn, struck down by the courts and by the end of 2016, the entire SABC board had resigned following a belated intervention by Parliament. In early 2017, the media reported that the broadcaster had run out of cash and was operating off its dwindling reserves.28

Meanwhile, at SAA the situation was also lurching from crisis to crisis. In early July 2016 it emerged that the board had contracted little-known boutique financial advisory firm BnP Capital to help it restructure its R15 billion debt, and to help re-raise that amount, for a staggering R256 million fee. This reportedly went against the advice of SAA’s own treasurer, who had balked at the price tag, as well as the requirements of the Public Finance Management Act that provide for the National Treasury to be alerted. It subsequently emerged that BnP Capital’s licence to operate had been suspended by the Financial Services Board at the time due to its failure to comply with ‘fit and proper requirements’.29

In the light of these flagrant breaches of SOE corporate governance, the real question in South Africa had now become not how much structural reform Gordhan’s Team South Africa would be able to push through to get growth going, but how little structural reform South Africa could get away with under Zuma and still avoid being downgraded to junk status.

‘The structural reforms listed by Gordhan, and urged by rating agencies, the IMF and business, all require political muscle,’ observed Business Day’s Carol Paton in an editorial.30 ‘Even in the heyday of the treasury’s power under Trevor Manuel and Maria Ramos, who had presidential support in Thabo Mbeki, no headway was made. Now, with the ANC split and a president who exercises power capriciously, the treasury has become an observer as things slide further into disrepair.’

In an interview with the author, Manuel marvelled over the government’s apparent belief that it could get away with anything. ‘Take the issue of Hlaudi and the SABC, or the most recent example of corporate anti-governance to emerge from SAA in relation to the capital-raising contract given to BnP,’ he said. ‘How are we too thick not to notice? Will our whinging have no consequences?’31

The 2016 local election: A watershed moment

As it turned out, it did have consequences – as the ANC found out to its cost in the August 2016 local-government elections.

The ANC’s national majority declined from 64,8% in 2006 to 62% in 2011 and fell even further to 54% in 2016 – something unthinkable only a few years before. Unthinkable certainly to Zuma, who had once famously asserted that the ANC would rule ‘until Jesus comes’.

As a result of the ANC’s disastrous election performance, it lost power in three key metros – Nelson Mandela Bay, Johannesburg and Tshwane. Like Cape Town had earlier, these cities fell into the hands of Democratic Alliance (DA) mayors, giving the opposition control over a budget of more than R130 billion.

Commenting on the results, the DA Premier Helen Zille said, ‘Despite the polarisation, all the race-baiting, all the intolerance that has been shown in our country over the past year, the people spoke and said they want a united, non-racial, shared future, and that is enormously powerful.’

The political outlook had changed from ‘catastrophic to mildly optimistic’, agreed political scientist Professor Gerrit Olivier of the University of Pretoria. ‘It turns out that demo­cracy is alive and well, and that civil society remains a formida­ble countervailing force against government fiat and mis­manage­ment.’32

Cheered by this interpretation, the markets rewarded South Africa. The rand strengthened to R13,30/$ during the week of the election, taking it back to where it was well before Nenegate. It also broke through the key psychological levels of R17 to the euro and R21 to the pound, buoyed partly by a surge of risk appetite that favoured emerging markets as a whole.

‘The ANC deserved to lose, not only for its own sake but so that sanity and decency may be restored in our public life,’ wrote Sunday Times columnist Barney Mthombothi. ‘Parties should know there are consequences if they misbehave, and voters should not be shy to punish those who step out of line.’33

Scorn was heaped, though, on the ANC when it failed to acknowledge Zuma’s role in the party’s election drubbing, with all the main opposition parties firmly rejecting its attempts to form coalitions to govern the three lost metros.

‘The party deserves the animus it’s getting,’ added Mthom­bothi, ‘Its arrogance has become unbearable and is, in fact, at the core of the incompetence and corruption that have reduced the government to a laughing stock.’

And yet, despite the fact that the election outcome was a significant step towards the consolidation of democracy in South Africa, the response from the ANC suggested that it would do very little to advance economic reform and progress.

Instead of moving swiftly to remove Zuma and call an early electoral congress to elect a new leadership and chart a new course for the ANC ahead of the 2019 elections, the ANC’s National Executive Committee (NEC) resolved after a ‘vigorous, honest, open and thorough assessment of the local government election outcomes’ to shield Zuma from culpability. It went on to call (without any apparent sense of irony) for a fresh approach that would deal with the ‘cancer of corruption, without fear or favour’.

‘I actually burst out laughing when I saw this,’ revealed an international credit-ratings analyst in an unguarded moment with the author.

For how on earth did the ANC think it would confront the deep-seated problems of corruption, cadre deployment and state capture as long as Zuma remained in the Union Buildings as the epitome of these problems?

The Hawks escalate their campaign against Gordhan

Indeed, no sooner had the dust settled on the elections than the Hawks shocked the nation by ramping up their campaign against Gordhan. They ordered the minister, as well as two former SARS officials, to report to their offices for warning statements – usually a prelude to being formally charged.

The market reaction was swift‚ with banking stocks and the rand both down 4% within 24 hours of the announcement as investors reacted defensively to what was clearly a major intensification of the ‘SARS wars’, as the row over the SARS rogue unit had become known.

As rumours swirled that Gordhan would be arrested within a week, a fightback campaign began to coalesce rapidly with civil-society organisations, academic economists, business, opposition parties and ANC stalwarts all expressing outrage that Gordhan and the National Treasury were once again under attack.

Over the ensuing months, the dial on the national psyche would swing from despair to euphoria and back again as the two camps – those allied to Zuma and those opposed to his continued grip on power – continued to trade blows. Ultimately, though, the economy would pay the price. Over the course of 2015 and 2016, the country’s self-destructive politics, combined with cyclical shocks (including the worst drought in 50 years), exerted a severe drag on growth. By the end of 2016, economic activity had slowed to a crawl, with fixed investment mired in recession and business confidence deeply depressed.

Making headlines during the final fraught months of 2016 was the decision by Futuregrowth, South Africa’s largest local bond fund manager, to pull the plug on funding proposals worth nearly R2 billion to two SOEs due to governance concerns and to stop lending to six others (see Chapter 3 for more). The Zuma-aligned camp also became more outspoken during this period.

On 1 September, mineral resources minister and Gupta apologist Mosebenzi Zwane called for a judicial inquiry into the banking sector, the Reserve Bank and the National Treasury’s conduct towards Gupta-owned companies. It would include a review of the process whereby new banking licences were issued.

Zwane had coordinated a cabinet inter-ministerial committee investigation into whether certain financial institutions had acted improperly when they closed bank accounts or terminated contractual relationships with the Gupta’s company, Oakbay Invest­ments.

His committee concluded that ‘all of the actions taken by the banks and financial institutions were as a result of innuendo and potentially reckless media statements’ – leaving Oakbay with little recourse to the law. And by failing to protect Oakbay, the Treasury was part of the problem, it implied.

The Economic Freedom Fighters (EFF) were incredulous. ‘If there is a family that should be investigated and subjected to a judicial commission of inquiry‚ it is the parasitic and corrupt Gupta family‚ which continues to callously loot South African government resources‚’ the party said in a statement.

Gordhan countered Zwane’s play with a more explosive one of his own. He instituted a court application seeking an order affirming his view that no finance minister could be compelled to intervene in the professional relationship between South Africa’s banks and their private clients. As part of his submission, Gordhan revealed that the Finance Intelligence Centre had flagged 72 suspicious transactions worth R6,8 billion by Gupta companies, giving the lie to Zwane’s conclusion that the banks’ behaviour had been unfair and unwarranted. Oakbay Investments CEO Nazeem Howa resigned days later, citing health reasons.

But even before Gordhan’s counter-move, Zuma had hit the retreat button, issuing a remarkable statement saying the Presidency ‘deeply regretted’ the ‘unfortunate contents’ of Zwane’s cabinet statement. Zuma denied that Zwane’s statement reflected the views of the cabinet, the Presidency or the government. In fact, he said, it didn’t even reflect the views of Zwane’s own task team, of which Gordhan was a most reluctant member.

‘The Presidency wishes to assure the public, the banking sector as well as domestic and international investors of government’s unwavering commitment to the letter and spirit of the country’s Constitution as well as in the sound fiscal and economic funda­mentals that underpin our economy,’ Zuma’s statement concluded.

With South Africa’s credibility already in shreds, however, and the future clouded with uncertainty, it would take more than a hasty retraction from the Presidency to restore investor and business confidence.

‘It’s like choosing between black and red on a roulette table,’ sighed Rand Merchant Bank chief economist Ettienne le Roux at the time. ‘We could have a complete collapse in confidence or, if things turn around, complete euphoria – that’s how finely balanced this is. And what will corporates do in this environment? They won’t do anything – and that’s a problem.’34

The defensive behaviour of corporates was evident in their failure to invest in the economy despite many sitting on healthy cash surpluses. Private fixed investment contracted steadily during 2015 and 2016. This was the first time South Africa had experienced such a contraction (on a four-quarter rolling basis), outside of a global financial crisis, since 1994. Economists blamed the government’s policy incoherence and the increasingly uncertain political environment for this tortoise-like behaviour.

Even infrastructure investment by public corporations stalled during 2016. This hit manufacturing. The sector fell into a recession in the final six months of the year, exerting a further drag on the country’s overall growth rate, which slowed to just 0,3% for the year as a whole – South Africa’s worst performance since the 2009 recession.

The Bureau for Economic Research’s (BER) political constraint indicator35 showed that manufacturers’ perception of political risk during the latter part of 2016 was higher than at any time since 1993, with close to 80% of respondents citing the political climate as being a constraint on their business.

Business confidence was also deeply depressed. The RMB/BER business confidence index had been broadly tracking lower since hitting a peak of 55 index points in 2010. From then until the end of 2016, it remained in net negative terrain most of the time.

The dire state of the economy was completely eclipsed, however, by the country’s focus on two remarkable political events that occurred in the final quarter of 2016, three weeks apart.

Prosecutorial bungling as Gordhan is charged with fraud

The first, on 11 October, was NPA head Shaun Abrahams’s astonishing decision to charge Gordhan with two counts of fraud over the patently non-criminal act of approving an early-retirement package for former SARS commissioner Ivan Pillay. The move fuelled a national civic movement – the Save South Africa campaign – which rallied around everything Gordhan had come to represent: the strength of one man standing up to the playground bullies in defence of what was right.

Just under three weeks later, on 31 October, this extraordinary period culminated in Abrahams’s about-face when he buckled under public scrutiny and withdrew all the charges, conceding in a painfully convoluted press conference that the NPA had no pros­pect of achieving a successful prosecution. This was almost more bizarre than the NPA’s decision to charge Gordhan in the first place.

(The pompous bravado with which Abrahams had conducted himself made him a hot contender for the Sunday Times’s honorific, ‘Mampara of the year’, but he was narrowly beaten by the SABC’s Motsoeneng, who had the greater distinction of having run the public broadcaster into the ground.)

On 2 November, the day of Gordhan’s erstwhile court appear­ance on the NPA’s trumped-up fraud charges, protest marches against state capture as well as a church rally by the Save South Africa campaign went ahead in central Pretoria to press home society’s victory.

The second major event happened on the same day. Zuma withdrew his interdict against the release of the Public Protector’s State of Capture report. It hit the airwaves at 5 pm, skewering the president and his mandarins, the Guptas, as well as Eskom CEO, Brian Molefe, and reinforcing the sense that the good guys had won, if not the entire war, then certainly the most significant battle up to that point.

Had a national popularity vote been held on that day, Gordhan would have walked it. Admiration for the finance minister peaked a few weeks later on 2 December, when S&P maintained South Africa’s investment-grade sovereign credit rating, sparing the country a much-feared downgrade to junk status.

Gordhan emerged having survived several months of blatant political harassment and intense ratings pressure with his stature immeasurably enhanced. He had always been seen as an excellent administrator but it wasn’t until he was thrown into the ring with the Guptas that South Africans discovered the steel he was made of.36

Gordhan had succeeded in the most challenging of all cabinet positions without any of the usual support structures on which the position relies. Not only did he lack support from the very top, and the full cooperation of the tax authorities, he also had to fight a rearguard action against some cabinet colleagues while simultaneously battling arrest on dodgy fraud charges.

In this onslaught, Gordhan was helped by the outpouring of support he received from all corners of South African society. It meant that he was anything but a lonely figure. Even though he revealed the emotional toll his battle with the Hawks was taking, Gordhan was never the hapless victim. His dry sense of humour, professional rigour and ability to remain cool under pressure saw him receive standing ovations wherever he went – from book fairs to the National Assembly.

The main reason that South Africa managed to hang on to its investment-grade credit rating during 2016 was because the National Treasury had remained an impressive institution under a credible finance minister. Despite the political drama, it had ensured that the fiscal slippage caused by slowing growth remained manageable and that confidence in South Africa’s fiscal management remained intact.

But Gordhan did more than this. ‘He shone a spotlight into dark places in the public sector and parastatals,’ said Nomura strategist Peter Attard Montalto, ‘highlighting patronage and rent extraction.’37

Nor was he afraid to up the ante when required, like when he lashed Eskom for lying about cooperating with the Treasury’s investigation into its coal contracts with Gupta-owned Tegeta Resources, or when he deftly used his own court application to reveal billions of rands in suspicious banking transactions by Gupta companies. In all these ways, Gordhan won South Africa’s admiration.

So, when South Africans cheered the end of 2016 at midnight on 31 December it was as much to say goodbye to a horrible year as it was a chance to celebrate that Gordhan had survived it with his job intact. This victory raised hopes that the balance of power had shifted enough to make removing him politically impossible. Combined with signs of a cyclical improvement in the business environment, it also gave South Africa a glimmer of hope that the country and the economy had bottomed out, and that 2017 would be a slightly better year.