Rumors South Africa’s finance minister is about to be arrested are scaring investors

What rumors? All eyes are on South Africa’s finance minister.
What rumors? All eyes are on South Africa’s finance minister.
Image: Reuters/Siphiwe Sibeko
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Rumors of the arrest of South Africa’s finance minister have weakened the country’s already struggling currency. On Monday (May 16) the rand lost 1.6% of its value against the dollar, recovering slightly to 15.56 rand to $1. South Africa’s rand was the worst performer among 31 major currencies, and its volatility the widest among emerging-market currencies, according to Bloomberg.

Investors were responding to front-page newspaper reports over the weekend of finance minister Pravin Gordhan’s imminent arrest over allegations of espionage while he was head of the South African Revenue Service. Gordhan has consistently denied wrongdoing. Political analysts believe the allegations are the result of strained relations between Gordhan and president Jacob Zuma.

Zuma’s office denied the arrest rumors, calling them “the work of dangerous information peddlers who wish to cause confusion and mayhem in the country.” But his statement did little to settle markets, which were already rattled by a series of political decisions that have damaged the economy, such as shuffling finance ministers and letting friends pick cabinet ministers. Just last week, South Africa lost its spot as Africa’s second-largest economy to Egypt, after failing to curb currency depreciation and a slumping rand.

“Even if the rumors of Gordhan’s imminent arrest are untrue, the damage has been done,” Nicholas Spiro, a partner at London-based Lauressa Advisory, told Bloomberg. “It reinforces the perception that Gordhan lacks political support to undertake much-needed reforms—a problem that’s all too apparent in several other major emerging markets, including Turkey and Brazil.”

South Africa’s National Prosecuting Authority denied the reports, but added that it was guiding investigations. Prosecutors and the Directorate for Priority Crime Investigation say they are probing an alleged “rogue unit” within the South African Revenue Service that illegally gathered intelligence and spied on taxpayers. In a statement earlier this year, Gordhan said the unit was an aboveboard National Research Group.

The timing of these rumors is also questionable, as ratings agencies Standard & Poor’s and Fitch are in the country to review South Africa’s economic stability outlook. In February, investigators demanded that Gordhan answer questions just days before he was to deliver a crucial budget speech.