South African state prosecutor drops fraud charges against Gordhan

By Joe Brock

PRETORIA (Reuters) – South Africa’s state prosecutor dropped fraud charges on Monday against Finance Minister Pravin Gordhan, executing a U-turn in a case that has rattled financial markets and drawn accusations of political meddling.

The rand currency raced to a near five-week high, rising 2.0 percent against the dollar, while bonds firmed as the head of the National Prosecuting Authority (NPA), Shaun Abrahams, announced his decision.

Investors have worried that Gordhan – who had brought some stability to South African markets since returning to the post during a currency crisis late last year – would be removed from his job if he was prosecuted.

They also feared his departure would undermine efforts to revive economic growth, increasing the risk that South Africa’s credit rating would be reduced to “junk” status.

Abrahams said that after reviewing the case, he had decided that Gordhan did not have the intention to act unlawfully. “I foresaw great difficulty in proving … knowledge and intention to act unlawfully,” he told a media conference in Pretoria.

Gordhan, who is widely respected in financial markets, made no immediate comment but has previously described the accusations as frivolous and politically-motivated.

However, he is not out of the legal woods yet, and Abrahams said a separate investigation was continuing into Gordhan relating to events going back a decade.

Supporters of Gordhan and sympathetic financial analysts say all the charges could be a ploy by President Jacob Zuma and his allies to discredit a finance minister who stood in the way of their securing access to lucrative government contracts.

The president has denied that he is in conflict with Gordhan.

Gordhan had been due to face charges in court on Wednesday that he fraudulently approved early retirement for deputy tax commissioner Ivan Pillay and re-hired him as a consultant, costing the revenue service 1.1 million rand ($80,000).

Abrahams launched a review of the decision to pursue the case following a request to do so from Pillay and another former tax service employee Oupa Magashula, who was also charged with fraud alongside Gordhan.

However, Gordhan declined to join them in seeking a review, saying he doubted the “ability or willingness” of the NPA to give him a fair hearing.

UNNECESSARY SPECULATIONS

The charges drew fire from opposition political parties, civil society groups, big business and some senior members of the Zuma’s African National Congress (ANC).

Abrahams denied any political interference in the inquiry and on Monday rejected calls for him to resign over his change of heart.

Senior ANC party figures, including Deputy President Cyril Ramaphosa, have said the fraud charges should not be allowed to undermine Gordhan’s efforts to revitalise the economy.

Following Abrahams’s decision, the ANC said the NPA’s plan to charge Gordhan “had a negative impact on the economy and created unnecessary speculations about the real motive”.

The main opposition party Democratic Alliance said dropping the charges showed “these charges were indeed manufactured for malicious political purposes”, while the ultra-leftist Economic Freedom Fighters (EFF) said Abrahams should be disbarred.

The EFF had planned to hold a rally in Pretoria on Wednesday to coincide with Gordhan’s court appearance.

Susan Booysen, a lecturer of politics at University of the Witwatersrand, said dropping the case against Gordhan “affirms that the charges were politically contrived”.

The Helen Suzman Foundation, which had filed a court application jointly with another civic group to have the charges set aside, said the case had damaged “our country, its financial standing and its international image”.

SURVEILLANCE UNIT

Abrahams confirmed that Gordhan is also still being investigated for his role in setting up a surveillance unit at the tax department a decade ago that is suspected of spying on politicians including Zuma.

Gordhan was first questioned about this in February by an elite police unit but in August ignored a police summons on the inquiry, saying he had done nothing wrong.

Previously finance minister from 2009 to 2014, Gordhan was recalled by Zuma to stem a selloff in South African assets in December. This followed Zuma’s replacement of finance minister Nhlanhla Nene with a little known politician, who lasted only a few days in the job.

Investors and credit rating agencies back Gordhan’s plans to rein in government spending in an economy that has been forecast by the central bank to grow only slightly this year.

A cut to “junk” status in ratings reviews due later this year could push up Pretoria’s borrowing costs, making it harder to plug the budget deficit.

Nicky Weimar, senior economist at Nedbank, said more needed to be done than simply dropping the charges. “It does takes us a little further away from a downgrade but the main concern remains that we are not implementing the structural reforms to achieve faster economic growth,” said Weimar.

(Additional reporting by Mfuneko Toyana in Johannesburg; Writing by James Macharia; editing by David Stamp)