Ramaphosa in a Fix Over South African Finance Chief's Deceit

(Bloomberg) -- Revelations that South African Finance Minister Nhlanhla Nene lied about his meetings with three businessmen who’ve been implicated in plundering state funds presents President Cyril Ramaphosa with a thorny dilemma.

If Ramaphosa fires Nene or he quits, the president would lose a close political ally, and a new finance chief -- the nation’s fifth in less than three years -- would have just weeks to deliver a mid-term budget that reassures investors and ratings companies. While a shakeup risks further eroding confidence, failure by Ramaphosa to act decisively may undermine his fight to end the graft and mismanagement that marred his predecessor Jacob Zuma’s rule.

“It is a very sticky situation,” Susan Booysen, a political science professor at the University of the Witwatersrand’s School of Governance, said by phone. “Nene is a key element of the Ramaphosa camp, but now it seems Nene has some skeletons of his own.”

Ramaphosa in a Fix Over South African Finance Chief's Deceit

Nene last week admitted to meeting members of the Gupta family at their home six times, contradicting comments he made in a 2016 television interview that he’d only seen them briefly on social occasions. The volte face has sullied his reputation as a competent technocrat who’d faced down Zuma as the former president sought to push through plans to build nuclear power plants the country couldn’t afford.

Graft Investigation

The Guptas, who were friends with Zuma and in business with his son, were implicated by the nation’s graft ombudsman in wielding undue influence over government appointments and the awarding of state contracts -- allegations they and Zuma deny. Zuma ruled for almost nine years before the governing African National Congress forced him to quit in February and replaced him with his 65-year-old deputy, Ramaphosa.

While Nene has apologized for his conduct, he denies having granted anyone preferential treatment or favors.

“He has been found wanting in respect of how many times he said he met the Gupta family,” Mike Brown, the chief executive officer of Nedbank Group Ltd., the country’s fourth-largest lender, said in an interview in Johannesburg. “What we don’t yet know, which is extremely important, is exactly what happened in those meetings and as a consequence of those meetings was there any wrongdoing. I’m sure that will emerge.”

ANC Factions

Nene asked Ramaphosa to relieve him of his duties this weekend, the Johannesburg-based Business Day newspaper reported Monday, without saying how it got the information. The presidency and Nene’s office declined to comment.

ANC factions have been discussing potential replacements to suggest to Ramaphosa, three senior party officials said, asking not to be identified because the information hasn’t been made public. Former Deputy Finance Minister Mcebisi Jonas, Reserve Bank Governor Lesetja Kganyago and Barbara Creecy, head of the finance portfolio in the central Gauteng province, have been touted as candidates, they said.

Uncertainty over Nene’s future has weighed on the rand. The currency slumped as much as 1.5 percent against the dollar on Monday and was 0.7 percent weaker at 14.8642 by 4:39 p.m. in Johannesburg.

Market Impact

“Markets have trusted Nene and regarded him as a prudent manager of the economy and government finances,” said Per Hammarlund, chief emerging-markets strategist at SEB SA in Stockholm. “However, the names that are in the running to replace Nene are also trusted by the markets. If Ramaphosa announces a new minister of the same ilk as the three front-runners at the same time as he accepts Nene’s resignation, the market effect will be minimal.”

Nene’s transgressions appear be relatively minor and his departure could help bolster Ramaphosa’s clean-up campaign without heralding any major policy shift, according to Mpumelelo Mkhabela, a political analyst at the Pretoria-based University of South Africa’s Department of Political Sciences.

“His resignation would lower the moral requirements for a minister to fall and therefore open room for more corrupt ministers to be forced out,” Mkhabela said. “On the other hand, there are too many people who have met the Guptas and done worse things and some of them are supporters of Ramaphosa. It would be politically impossible to do a 100 percent clean-up.”

Cabinet Instability

While the furor may create some instability in the cabinet before the mid-term budget, it could have potentially positive spinoffs, said Mike Davies, the founder of political-advisory company Kigoda Consulting.

“If Nene does resign or is removed by Ramaphosa, this could support accountability and strengthen governance in the medium term,” Davies said. “Clearly, the prerequisite is that a credible replacement is made.”

The controversy could cost South Africa its sole remaining investment-grade credit rating from Moody’s Investors Service, said Robert Besseling, executive director of political risk advisory firm EXX Africa. It could also be politically dangerous for him as he seeks to unify warring factions within the ANC, he said.

“If Ramaphosa does dismiss Nene, then this would be another serious hit,” Besseling said. “It would further weaken the president’s already fragile political support base.”

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