Nene’s appointment as finance minister in 2014 was quickly welcomed by international markets. His technocratic flare and understanding of the country’s complex economic challenges endeared him to political parties across the spectrum. Before his appointment he had been chairperson of the portfolio committee on finance and then deputy finance minister.

During his tenure he reinforced the importance of macro-economic stability and prudential fiscal management. He announced a cap on government spending and made a commitment to rein in the budget deficit which had grown to 4% of the GDP.

He spoke openly about the need to cap above-inflation wage increases for public sector workers, even though he later conceded to their higher demands. He continued along the path set by his predecessor Pravin Gordhan, eliminating wasteful government spending. This included spelling out limits to expenditure on flights, hotels and entertainment.

Why Nene was fired

The crux of Nene’s fall is not easy to decipher. But two factors seem to have driven the final nail into his professional coffin.

The first has to do with his hard stance on the country’s state-owned airline, South African Airways. Nene challenged the board of the state-owned airline, led by Dudu Myeni, to reconsider its intended restructuring of a fleet arrangement with Airbus. The restructuring would have had fiscal implications with the government being forced to make good on its guarantees.

Second, it is apparent that Zuma found the National Treasury, and Nene in particular, a stumbling block to a nuclear deal the President is believed to have promised the Russians. It is estimated that the deal could cost as much as R1 trillion. Nene’s allocation of a mere R200m towards research for this programme must have been seen as an insult by Zuma’s cronies and insiders.

Zuma believes that this nuclear deal will be a magic bullet for South Africa’s urge to undertake industrialisation on a large scale, address energy deficits and create employment. He may turn out to be right on some of the outcomes, but the push to flout procurement rules and avoid accountability signifies a destruction of institutions.

The likely, and more menacing scenario, is deepening corruption. This is more so given Russia’s impoverished corporate governance culture. The nuclear deal, if implemented, could create a feeding trough on a gigantic scale for cadres and cronies while acting as a debt albatross for future generations.

At the heart of both the South African Airways saga and the nuclear deal is the failure by the country’s leadership to adhere to accountability and transparency mechanisms, especially the Public Finance Management Act, as well as to grasp the implications of irrational decision-making on the fiscus and the economy.

A bad omen for South Africa

The markets or economic actors are not familiar with Van Rooyen, Nene’s replacement at the helm of National Treasury. He clearly is someone Zuma considers malleable. The appointment itself was handled clumsily with no forewarning to the markets. This was a serious mistake given the strategic importance of National Treasury. The department stands at the nexus between the domestic economy and global markets.

What we can draw from these changes is that National Treasury has now lost its place of pride as a premier economic nerve centre for government. The cavalier manner in which Zuma has treated this crucial institution will have implications for the economy.

Investor confidence will be negatively affected, and trust in the ability of the ruling party to provide economic leadership severely eroded. Further, there will be a heightened sense of political risk, making it even harder to convince investors about South Africa’s profile as an investment destination.

The public debt, which is already hovering close to 50% of the GDP, will balloon, with implications for fiscal sustainability in the future. Delivery of quality public services, public sector wages, and ability to modernise infrastructure will suffer further.

To hope for faster economic growth and job creation under such a scenario is a pipe dream.

What will get South Africa out of the quagmire is a revolt within the ruling African National Congress to challenge Zuma to explain himself and to provide a credible plan to reform and manage the economy.

Second, the local government elections due to be held in early 2016 should be a platform to rebuke government for its shambolic management of the economy.

Mzukisi Qobo, Associate Professor at the Pan African Institute, University of Johannesburg

This article was originally published on The Conversation. Read the original article.

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