(Bloomberg) -- South African prosecutors withdrew fraud charges against Finance Minister Pravin Gordhan, marking a significant victory in his tug of war with President Jacob Zuma over control of the Treasury.
The announcement Monday by National Prosecuting Authority head Shaun Abrahams signaled a dramatic turnaround in the legal pursuit against Gordhan, who was under investigation over the early retirement of a former colleague at the national tax agency that resulted in 1.1 million rand ($80,149) of allegedly wasteful expenditure. Gordhan was scheduled to appear in court on Wednesday. He's still being probed for overseeing the establishment of an allegedly illegal investigative unit when was the head of the revenue service.
Pravin Gordhan
Gordhan and two former colleagues “did not have the requisite intention to act unlawfully,” Abrahams told reporters in Pretoria, the capital. “I have decided to overrule the intention to prosecute. I have directed the summonses to be withdrawn with immediate effect.”
Gordhan, 67, has been a key driver of a campaign to maintain South Africa's investment-grade credit rating, which is up for review over the next two months. He called the allegations a political stitch-up, and he's clashed with Zuma over the affordability of nuclear power plants the president wants to build, and the management of state companies and the national tax agency.
“It is certainly ratings-positive,” Rian le Roux, chief economist at Old Mutual Investment Group in Cape Town, said by phone. “I still think there is some chance we may get a reprieve. It is fairly evenly balanced as to whether we get a downgrade.”
The rand advanced as much as 2.3 percent against the dollar, to the strongest level since Oct. 4, leading gains among 31 major and emerging-market currencies tracked by Bloomberg. Against the euro, South Africa's currency rallied as much as 2.7 percent to the highest since Aug. 10.
“This is new chapter in the war between Zuma and Gordhan,” said Theo Venter, a political analyst at North West University in Potchefstroom, west of Johannesburg. “The obvious strategy to get Gordhan out of the cabinet failed. It is going to be very, very hard to remove Gordhan now.”
While Monday's decision appeared to strengthen Gordhan's position, Abrahams said prosecutors are still considering whether to charge him in connection with allegations that he oversaw the establishment of the investigative unit at the tax agency.
Way to Go
“In terms of politics, I still think there's a long way to go,” George Glynos, managing director and chief economist at ETM Analytics in Johannesburg, said by phone. “Zuma can still reshuffle cabinet. So much can still happen. You cannot rule out more volatility triggered by more political uncertainty.”
Zuma appointed Gordhan as finance minister in December under pressure from ruling party and business leaders, after his decision to give the post to little-known lawmaker David van Rooyen sparked a sell-off in the rand and nation's bonds.
“The charges were obviously bad, both in law and on any plausible reading of the facts,” civil-rights groups Freedom Under Law and the Helen Suzman Foundation, which had filed a lawsuit aimed at forcing prosecutors to drop the case against Gordhan, said in a statement. “No competent prosecutor, at any level of the prosecuting authority, would have brought them. At best, the charges were a colossal blunder. At worst, they were a ham-fisted attempt to loot the Treasury.”
The Banking Association of South Africa, which represents the country's biggest lenders, said the case had damaged the economy and sent out the message that there are political attempts to influence critical state institutions.
Political Persecution
“This was clearly a case of political persecution of the minister of finance,” the association said in a statement. “The minister is vindicated by the decision of the NPA today. Somebody has to be held accountable for this blot on our country's reputation and we expect heads to roll.”
Tebogo Malatji, Gordhan's lawyer, didn't answer calls to his mobile phone.
“I certainly do not owe anybody an apology,” Abrahams said. “I applied my mind to the law and to the facts.”
Business leaders, civil-society groups and veterans of the ruling African National Congress were planning to hold demonstrations at the court in Pretoria in support of Gordhan before the announcement that charges had been dropped.
“He comes out of it, not only at a personal level, far stronger,” said Iraj Abedian, chief executive officer at Pan-African Investments and Research Services in Johannesburg. “In the process he has galvanized the broader South Africa across political parties, labor, business, and rallied them around doing the right thing in pursuit of the national interest.”
--With assistance from Xola Potelwa To contact the reporters on this story: Sam Mkokeli in Johannesburg at mmkokeli@bloomberg.net, Mike Cohen in Cape Town at mcohen21@bloomberg.net. To contact the editors responsible for this story: Karl Maier at kmaier2@bloomberg.net, Gordon Bell
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