Zuma says backs finance minister but can't stop investigation

August 25, 2016 4:05 AM EDT

South African Finance Minister Pravin Gordhan reacts during a media briefing in Sandton near Johannesburg, South Africa, March 14, 2016. REUTERS/Siphiwe Sibeko/File Photo


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By Mfuneko Toyana

PRETORIA (Reuters) - South African President Jacob Zuma said on Thursday he backed Finance Minister Pravin Gordhan but was powerless to stop a police investigation into him, signaling a prolonged tussle that could rock markets further.

Gordhan is facing an investigation over a suspected surveillance unit set up years ago when he was in charge of the tax service. The rand has tumbled 5 percent since Tuesday when news of the investigation broke, with analysts saying Zuma had offered only qualified support to Gordhan.

The finance minister said on Wednesday he had done nothing wrong and had no legal obligation to obey a police summons linked to the probe into whether he used the unit at the tax service to spy on politicians including Zuma.

News of Gordhan's summons this week compounded investors' worries about a power struggle between Zuma and Gordhan as Africa's most industrialized economy teeters near recession and credit rating agencies consider downgrading it to "junk".

The main opposition party called for a parliamentary debate into what it called a "witch-hunt" against Gordhan.

Investors and rating agencies back Gordhan's plans to rein in government spending in an economy that has been forecast by the central bank to register no growth this year.

"President Jacob Zuma wishes to express his full support and confidence in the Minister of Finance and emphasizes the fact that the minister has not been found guilty of any wrong doing," the presidency said in a statement.

"The Presidency wishes to also emphasize that President Zuma does not have powers to stop any investigations into any individual/s," it said, adding that Zuma could not bring a halt to the probe even if it was negatively affecting the economy.

Deputy President Cyril Ramaphosa said state agencies should not battle each other as it could destabilize the economy.

"The minister of finance is today almost facing what could be arrest. It's something that should concern us," Ramaphosa said at a funeral service of a former cabinet minister in the Eastern Cape province where Gordhan was in attendance.

TENSIONS WITH TREASURY

A Zuma-backed plan to build a series of nuclear power plants, at a cost of as much as $60 billion, has caused tension with the Treasury for months and is likely adding to pressure on Gordhan's position, analysts say. The presidency said in May that Zuma was not warring with Gordhan.

On Thursday, the presidency defended plans to give Zuma supervision over state-owned firms after Gordhan's allies said this would limit the finance minister's control.

Zuma's team and the Treasury under Gordhan have disagreed about government spending, including at loss-making state companies like South African Airways, analysts say.

Analysts also questioned the extent of Zuma's stated support for his finance minister.

"It was an ambiguous vote of confidence in Pravin Gordhan which would suggest that the agencies supposedly investigating Pravin Gordhan will be given relatively free rein to continue these investigations," said Daniel Silke, a director at Political Futures Consultancy.

NKC African Economics analyst Gary van Staden said: "Anybody who watches English football can tell you when the owner says he has confidence in the manager, the manager is out of there in a week."

Political activists protested in the capital Pretoria outside the offices of the Hawks, the elite police unit that is investigating Gordhan. Two former officials of the tax service presented themselves to the police. It was not clear what line of questioning they faced.

Hawks spokesman Hangwani Mulaudzi declined to comment.

A former finance minister, Trevor Manuel, said on Wednesday the economy would be "destroyed" if Zuma fired Gordhan, after he changed finance ministers twice in one week in December.

(Additional reporting by James Macharia, Joe Brock and Tanisha Heiberg in Johannesburg; Writing by James Macharia; Editing by Robin Pomeroy)



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