The market received a wake-up call on Wednesday with news that Finance Minister Pravin Gordhan had been summoned by the Hawks to receive draft charges around the issue of the so-called rogue spy unit at the South African Revenue Service (Sars) when he was Commissioner, global research group Nomura economist Peter Attard Montalto said in a statement on Thursday.

He added that this was a rude awakening for a market with zero political risk premia.

“Before the local elections campaign got under way, there was a rough stalemate in the ‘war’ between Gordhan and President Jacob Zuma. It was then buried for the election campaign, as the focus shifted by both sides to maximising the ANC’s chances in the polls,” he said.

According to Montalto, the market wrongly priced out political risk premia from May to the start of August, to zero, especially after the elections. He believes the market does not understand the political dynamic within the ANC, especially relating to Zuma’s position and his power.

“This has left us with a situation where the market is in dire need of risk premia – the same amount we had in the first quarter even, but there is still a long way to get there.”
In statement published in the Rand Daily Mail on Thursday, 21 South African economists urged Zuma, Cabinet and the National Executive Committee to “assist in bringing this dangerous set of events to an end in the best way possible in the interests of our country and our economy.”

The statement said Gordhan had been subjected to an unrelenting attack from the Hawks which has been investigating his alleged role in the establishment of the spy unit when he was Sars Commissioner.

“With predictions of zero growth in 2016, stubbornly high unemployment, persistent poverty and inequality, and a volatile currency, this is not the time to be playing such dangerous games with the lives and well-being of all sectors of our economy and society, especially the poor and the vulnerable,” the statement noted.

Weighing in on the issue, North-West University School of Business and Governance Professor Raymond Parsons says that, unless the conflict between the Hawks and Gordhan is resolved soon, the collateral damage to the economy will be considerable.

“If the delicate situation that has developed between the Minister and the Hawks is not successfully managed from now on, the overall effects could well exceed the economic shock South Africa experienced when former Finance Minister Nhlanhla Nene was replaced in December 2015,” he says, adding that the confidence factor is paramount.

He points out that South Africa’s economy is particularly vulnerable and that the drastic fall in the rand now is an early warning signal of negative consequences that can follow.

“If a low rand persists, the subsequent rise in inflation will hit the poor particularly when they are already suffering the burden of high inflation, and it will also [lead to higher] unemployment. The focus must remain on what the country needs to do to avoid an investment downgrade and to acquire the means to, instead, continue to strive for a bigger, stronger and better economy,” he said.