HOW awkward must it have been for President Jacob Zuma and Finance Minister Pravin Gordhan at Group of 20 (G-20) summit in China? The organisation is one of the key forums for the development of global financial regulation. It brings together governments and central bankers for an annual talk shop aimed to strengthen the global system and support economic growth. SA has long been a core member. It is precisely because of the G-20 that SA has implemented the tough antimoney-laundering regulations that have seen the Guptas frozen out of the financial system.
But while Gordhan and Zuma were promising that SA would remain a model of excellent financial regulation, Zuma’s mining minister, Mosebenzi Zwane, was trying to unleash hellfire on the critical institutions of that system. He announced, in an outright lie, that the Cabinet had resolved to undertake a wide review of how the way the whole financial system in SA works.
This was because one family, the Guptas, has fallen foul of the banks’ application of the law. A man who has not spent one day of his life working in or regulating the financial system sent shock waves around the world by claiming Cabinet would review everything from money-laundering rules to the Reserve Bank’s responsibility to license banks, adding he had even considered legal action against the Bank and the Treasury.
The arrogance was staggering. I can only imagine the eye-rolling, tut-tutting, and head-shaking that must have been going on in Hangzhou. While the South African contingent are regularly looked upon to help develop regulations for the system, they must instead have had to explain that, in fact, the government was not about to undermine decades of exemplary financial oversight.
The delegation would have already been ready for some reputation repair work. The week before, ANC deputy secretary-general Jessie Duarte had repeated bizarre conspiracy theories on the Gupta-owned television station ANN7 about the Bank including the utterly misleading claim that it is privately owned.
It took former governor Tito Mboweni to step in on social media and point to the 100-year history of the Bank as a custodian of monetary policy and financial stability as directed by its constitutional mandate. The Bank also had to point out that the majority of directors are appointed by the president, and the private sector has no say in its policy mandate. This is not some institution cooked up during a fireside chat.
These moves undermine the ANC’s track record for having created the excellent financial framework SA has. Even before the end of apartheid, the ANC’s economic policy desk had engaged with global partners and tied in academics and policy advisers to plan out the future. The original custodians of the postdemocratic financial system were drawn from those ranks to fill the halls of the Bank and the then newly created Treasury.
A critical part of the vision that the party developed was the independence of the Bank, which was worked directly in to our constitution. Since then, the evolution of the financial system has been expertly guided by the policy team at the Treasury.
The system they oversee constantly wins praise as among the best regulated in the world, and survived the financial crisis remarkably unscathed.
Duarte and Zwane’s statements have done untold damage to the ANC’s global reputation as a trustworthy custodian of the financial system. Unless the party moves decisively to cut the cancer out of its ranks, the trust of the world will collapse.
Futuregrowth Asset Managers, the largest local bond fund manager, has said it will no longer buy bonds issued by state-owned enterprises. A Danish fund manager has said the same.
You can be sure many more are making the same decisions, less publicly. The government relies on foreign investors to play a large role in buying the R73bn in bonds state-owned enterprises are meant to sell in 2016, not to mention the R139bn of bonds the government itself will issue. With the ANC having lost the trust of the world, it will have to turn increasingly to local funders, sucking liquidity out of the economy that would otherwise be funding investment by the private sector. It is not just access to funding that is at risk — the South African economy benefits greatly from having a banking system that is fully integrated into the global system. Without trust in the regulation of our system, the rest of the world will be reluctant to allow our banks access to global financial infrastructure.
Who knows what Zuma said to the world’s leaders in China. Whatever it was, I can’t imagine anyone was convinced by it. Zwane is a Zuma man. He felt empowered to issue that reckless statement because Zuma made him feel that way. The only way Zuma will be able to look global leaders in the eye again is if he dismisses his mining minister.
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