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Early on Monday mornings I send my clients a review of the previous week’s political news which might be of relevance to financial markets.
This morning I thought the issues were of more general interest.
It is difficult not to see the main items in this review as connected:
- The ANC yesterday disbanded its Youth League’s executive and the executive of its Limpopo provincial structure – both epicentres of the unsuccessful campaign against Zuma in the lead up to Mangaung;
- An investigation into Cosatu secretary general Zwelinzima Vavi’s affairs and political loyalties deepens and widens – although, just because it is a stitch-up doesn’t mean there is no fire within the smoke;
- Zuma’s approval rating among city dwellers drops to an all-time low and disapproval ratings rises to an all-time high.
Main body text:
ANC disbands its Youth League executive soon after axing its Limpopo Provincial Executive Committee
Yesterday, it was reported that at its 4 day legotla , the ANC National Executive Committee disbanded, as expected, the Provincial Executive Committee of the party in Limpopo. More surprisingly the NEC of the ANC then went on to axe the NEC of the ANC Youth League – which most observers had thought abased itself adequately to Jacob Zuma after failing to unseat him at the Mangaung national conference. (Note I am reliant on news reports for this … the ANC NEC is due to hold a press conference at 12h00 today where it will give a fuller report.)
The Limpopo ANC and the ANC Youth League were the launching pads of the challenge against Jacob Zuma that had been led by Julius Malema. Disguising itself behind the ‘nationalisation of mines’ call and funding itself through tender abuse in Limpopo the challenge peaked in mid-to-late 2011, just before Julius Malema was suspended. While the leaders of the ANC Youth League were clearly surprised by their axing yesterday, they can probably count themselves lucky that they are not being taken down the same path as their erstwhile leader Julius Malema, which might well end in prison for corruption charges.
While the Limpopo ANC, and to a lesser degree the ANC Youth League NEC, were riddled with corruption, it would be a very generous interpretation of what happened yesterday to see it as a “clean-up” of the ruling party. The more appropriate prism would be to understand this as an attempt to get rid of centres of resistance to the leadership of Jacob Zuma and the faction he represents. In a less jaundiced view, it is also an attempt to establish a basic degree of coherence in the party before the national elections which will be held midyear 2014.
Cosatu – 3 commissions to investigate Vavi
Zwelinzima Vavi is facing 3 simultaneous commissions into aspects of the criticism that members of Cosatu’s national executive committee made against him two weeks ago – including that he has been involved in corrupt activity and that he is disloyal to the ANC. This comes against the backdrop of ANC secretary general, Gwede Mantashe, attacking Cosatu for failing to defend the ANC against “a neoliberal agenda” and he has warned that anarchy is taking root in Cosatu: “my conclusion is that Cosatu is on a dangerous downward slope” – (Mail & Guardian March 15). (This added after publication – Carol Paton, in her excellent article in Business Day about this matter a few hours ago said: “One of the most distasteful dimensions of Cosatu’s internal fight has been the partial role played by several journalists, who have published information from parties to the conflict designed to smear Vavi. For example, allegations have appeared in the press to the effect that Vavi sold Cosatu’s former headquarters for R10m less than the market price. But such a direct allegation has not been made in a Cosatu meeting.
The answer is best provided by a quote from “a senior Cosatu leader” in the same article: “All this is a smoke screen. The main cause of divisions in Cosatu is ANC and SACP politics. The two organisations are trying hard to capture Cosatu, but Vavi is the obstacle. He is the only one prepared to defend the interest of workers. Dealing with him will ensure that they capture the federation.”
Not unlike the decision by the ANC NEC to close down internal opposition in Limpopo and in the Youth League, at least part of what is happening in Cosatu is an attempt to close down criticism of Zuma (especially after Vavi called for an investigation into the R230 million state spending on Zuma’s home in Nkandla) and criticism of the ANC more generally. This is the Nkandla faction crushing the last vestiges of the attempts to unseat Zuma at Mangaung – as well as an attempt to establish coherency in the ruling alliance in the lead-up to national elections next year.
(The allegations against Vavi – aside from ‘collusion with opposition’ parties – includes that he sold Cosatu’s old head-office for R10 million less than its market value and that he awarded a tender to a company at which his stepdaughter was employed. Just because there are other agendas at play, says nothing of the veracity or otherwise of these charges. Vavi himself has welcomed the commissions, stating that he believes they will clear him of all charges – although, interestingly, he attempted, unsuccessfully, to have ANC stalwart Pallo Jordan and Minister of Economic Development, Ebrahim Patel as commission leaders.)
(This added after publication: Carol Paton writing in Business Day argued a few hours ago as follows: “One of the most distasteful dimensions of Cosatu’s internal fight has been the partial role played by several journalists, who have published information from parties to the conflict designed to smear Vavi. For example, allegations have appeared in the press to the effect that Vavi sold Cosatu’s former headquarters for R10m less than the market price. But such a direct allegation has not been made in a Cosatu meeting.” I wish I had put that in earlier.)
Zuma approval rating among city dwellers drops to all time low
The Sunday Times reports that President Jacob Zuma’s approval rating among urban dwellers is lower than ever and his disapproval ratings are at their highest – and, in general, views are firming up on this matter.
Zuma’s approval ratings amongst city dwellers over time (TNS Research)
TNS conducted home interviews with “1290 blacks, 385 whites, 240 coloureds and 115 Indians and Asians.” 54% of black people were still happy with Zuma’s performance, but only 13% of whites. The president still has 64% of the vote from “younger Zulu-speaking adults, of whom 64% – down from 71% in August last year – were happy with his work” (Sunday Times).
An important indicator comes near the end of the story: “Zuma’s biggest drop in approval was recorded in Soweto, where the figure of 42% was the lowest since he assumed office. The Port Elizabeth figure of 22% was also an all-time low.”
National general elections must be held some time between April and July in 2014. For the first time “born frees” (young people born after 1994) will be eligible to vote. This first wave of born frees will consist of approximately 6 million people, “using the 76% turnout of the 2009 elections, these new voters could make up more than 20% of the vote by 2014 … for context, the Democratic Alliance won 17% of the vote in 2009. From 2014 onward, the born-frees will come in waves of just over 5-million each national election until they make up nearly half of the voting population by 2029” - (Osiame Molefe in the online news source Daily Maverick).
There is growing excitement that, perhaps, this category of voter, and urban African voters more generally, might be open to political choices unthinkable only a few years ago. Much of the growing expectation in the Democratic Alliance and the energy behind Agang comes from this source. Could younger and urban voters (especially Africans) vote for a party other than the ANC in 2014?
Jacob Zuma has established a rigid hold on the ANC, but the TNS and other market research could indicate that it is precisely this victory that makes the ANC a less appetising choice for younger and urban voters. If Jacob Zuma leads the ANC in an election in which the ruling party gets much less than 60 % of the vote, his hard but brittle hold on the party could shatter.
ANC strategists are seriously worried about both the Eastern Cape (especially, but by no means exclusively, the Nelson Mandela Bay metropolitan area) and the Northern Cape. The idea of whole of the Cape (Western Cape is already in Democratic Alliance hands) in opposition hands and a party the equivalent to the Movement for Democratic Change in Zimbabwe giving the ANC a run for its money in urban areas throughout the country is a nightmare scenario.
Analysts have consistently been surprised at how well the ANC has performed in national elections (62.65% in April 1994, 66.35% in June 1999, 69.69% in April 2004 and 65.90% in April 2009) so treat any wild predictions with a degree of scepticism. However, the TNS survey of Jacob Zuma’s ratings is an indicator that shifts are in progress .
Bits and pieces
- Business Times quotes a succinct put-down by Finance Minister Pravin Gordhan of the ratings agencies: “[You must] understand that we in South Africa did not create this crisis …when … the financial sector began to create … derivatives, based on sub-prime mortgages … [they] had an AAA rating given to them by the same agencies.” Last week S&P affirmed South Africa’s foreign currency sovereign credit rating at BBB and kept the outlook negative, arguing that external imbalances and underlying social problems remain.
- All the major weeklies expressed deep levels of concern about what they see as out-of-control police violence in the country – most obviously evinced in the killing of Mozambican taxi driver Emidio Macia in Daveyton, but also brought into public focus by police commissioner Riah Phiyega’s spoon-fed testimony to the Markikana commission on Thursday last week. Police minister Nathi Mthethwa is one of Zuma’s closest allies and his department is, truly, in a parlous and dangerous state.
 A word in South African English borrowed from Sesotho, usually meaning a consultation or community meeting with government and the community or within a political party
 Categories and language routinely used in South Africa where the racial categorisation of the past is correctly understood to have a significant influence in the present and is routinely used in the media and academic analysis.
I was looking for a shorthand way of summarising what I thought were the main political risks that are in the minds of investors in South African financial markets.
Note that the emphasis here (in what appears below) is what I think is an appropriate prism for investors in financial markets, and specifically those with an horizon of a maximum of 5-7 years.
If I was looking at broader security issues, particularly with regard to the stability of the state and ruling party, I would have had a significantly different emphasis – and have aspects that are both more negative and more positive than that which appears below. Hopefully, at some time in the future, I will post here a more general threat or risk analysis that would be of more specific relevance to South Africans who hope to live and work here.
Finally, before I get on with it, I do not explore the potential for an upside suprise here … but there does appear to me to be a slight accumulation of good news, albeit against a dark background.
SA Politics and financial markets – 3 risks
- Unpredictable and/or negative government economic policy interventions: Medium seriousness. Medium likelihood. Short- and medium-term duration (next few months to five years);
- Escalating social unrest – perhaps leading to “Arab Spring” type event: Very serious. Very unlikely. Medium- to-long duration (five to seven years);
- Ratings downgrades and tension between ambitious government plans and narrowing fiscal space: Serious risk. Medium likelihood. Short- and medium-term duration (one to three years).
Unpredictable and/or negative government economic policy interventions
Medium seriousness. Medium likelihood. Short- and medium-term duration (next few months to five years)
What it’s about: Most obvious are new interventions in the mineral and exploration sectors (including new taxes, price setting, beneficiation requirements, export restrictions, uncertainty about licence conditions and significantly increased ministerial discretion via the Mineral and Petroleum Resources Amendment Bill), but there are comparable interventions across the economy, as indicated in the ANC’s Mangaung Resolution and in a range of proposed regulatory and legislative changes, including those relating to telecommunications, liquid fuels, the labour market, employment equity and Black Economic Empowerment (to name just a few).
My view: Since 1994, it has generally been the case that markets consistently overestimate the risk that the ANC and its government will take significantly populist policy measures. The best example of this was in July 2002, when exaggerated targets for black equity participation in the mining sector where leaked and R52b left the JSE resources sector in 72 hours – a buying opportunity of note. However, the traction Julius Malema was able to achieve with disaffected youth post-2009 and the implicit defection from the ANC and its allies in the platinum strikes last year have catapulted the ANC into something of a policy scrabble. While nationalisation is off the agenda, it has been replaced by a policy push that hopes to deploy private companies, through regulation and other forms of pressure, to achieve government (and party) targets of employment, revenue generation, service delivery to local communities and infrastructure build. Increases in the tax take look likely – it’s purely a question of ‘how much the market can bear’.
Government intervention, per se, is less the issue here but rather the confused, generalised and uncertain nature and intent of the interventions. If the interventions do not have the desired results (growth, employment and equality), the risk is that government does not reassess the wisdom of the intervention, but instead uses a heavier hand.
Financial markets: Policy uncertainty puts downward pressure on investment, employment and output in all sectors. In South Africa, these negative impacts will be felt most keenly by companies most exposed to government licencing and regulatory power, or most exposed to government’s political prioritisation. Resources, telecommunications and agriculture all fall into one, or both, of these categories.
Escalating social unrest – perhaps leading to “Arab Spring” type event
Very serious. Very unlikely. Medium-to-long duration (five to seven years).
What it’s about: Significant and consistent (apparently linear) growth in service delivery protests, combined with growing levels of industrial unrest (in 2012, anyway) seem to imply that such unrest could continue to escalate until it reaches a point of ‘phase state change’ (as in thermodynamics, referring to changing states of matter – to/from solid, liquid and gas). Thus, the risk is of a sudden systemic shift from unstable to revolutionary/insurrectionary.
My view: Increasing protest and industrial unrest are normal – and fairly consistent – features of South African political life and have been since at least the mid-1970s. Even before 1994 there was no real expectation that unrest would lead naturally to insurrection. A rapid phase state change, like an Arab-spring type event, requires (perhaps indirectly) contesting political formations and ideologies as well as the widespread failure – or absence – of social institutions (parliaments, courts) that direct, mediate and give expression to grievances and/or conflicting group interests. South Africa is rich in such institutions and there is no evidence that large groups of dissenting voices have permanently failed to find expression in society’s normal processes and institutions – even when some of those processes include robust forms of public dispute. However, South Africa does have some comparable features to countries that have had ‘Tunisia-moments’ – including high and growing youth unemployment, high levels of visible inequality and serious government corruption – so we would keep an eye on the escalating ‘service delivery protest’ trends, as evidenced in graphs from Municipal IQ below.
Industrial relations unrest is slightly different from – and more negative than – the question of social unrest as a whole. Trade unions are strong and growing in South Africa, and contestation between them is vigorous, even violent – as we saw in the platinum sector in 2012. Trade unions are businesses with an enticing annuity income flow – and this will drive their contestation. The collective bargaining system in South Africa is functioning sub-optimally for a number of reasons – including inappropriately high levels at which automatic recognition kicks in – and the disarray in the system also drives unrest. This conjunction of subjective and objective conditions means I am less sanguine about industrial relations stability (than about stability per se) and expect this to remain a negative investment feature for the next several years. I am specifically negative on public sector industrial relations stability for 2013.
Thus, I do not think unrest and social discord will lead to any radical policy or political discontinuities, but will remain a constant drain on confidence. I also think this phenomenon will tempt government into keeping spending (on the public sector wage bill and on social grants) at above-inflation levels – helping to feed uncertainty and unpredictability in state finances, inflation, the currency and the bond markets.
Additionally, I think labour unrest will remain a seriously destabilising factor of production – including via disruption of services in public sector strikes.
Resources, agriculture and construction are most exposed through their reliance on large, aggregated and often low-skilled/low-pay labour forces. The financial services and retail are less exposed to (but not immune to) the negative effects of industrial action.
Ratings downgrades and tension between ambitious government plans and narrowing fiscal space
Serious risk. Medium-likelihood. Short- and medium-term duration (one to three years).
What it’s about: The ruling party is facing something of its own ‘fiscal cliff’. The ANC feels itself in danger of losing some support because of failure to deliver employment growth or adequate reductions in poverty and inequality. Foreign investors agree this is a risk, but will not necessarily agree to fund the gap. This tension is among the reasons that all three major rating agencies (Moody’s, Fitch and S&P) downgraded SA’s sovereign rating in 2012 (Fitch in January this year) and both Moody’s and S&P put SA on watch list for future downgrades. The ANC secures political support, at least in part, through spending on the public sector wage bill and on social grants – which together now make up more than half of annual non-interest government spending. Additionally, the ANC has occasionally shown itself hostage to the views of its alliance partners or popular opinion in its spending and revenue plans (Gauteng toll-roads, youth wage subsidy). The ratings agencies don’t like the tension and I expect the bond markets won’t either.
My view: South Africa maintains respectable debt-to-GDP ratios, although these grew to 39% of GDP by end-2012, substantially higher than the 34% for emerging and developing economies as a whole. When Fitch downgraded SA earlier this year, it specifically mentioned concerns about SA’s rising debt-to-GDP ratio, given that the ratio is higher (and rising at a faster pace) than the country’s peers.
South Africa is uniquely (eg in relation to its BRICS peers) exposed to foreign investor sentiment through the deficit on the current account combined with liquid and deep fixed interest markets. SA’s widening deficit on the current account is a specific factor that concerns the rating agencies and is one of the metrics the agencies will use to assess SA’s sovereign risk in the near future. Further downgrades are the risk – potentially driven by foreign investor sentiment about political risks. Non-investment grade (junk bond status) is not an inconceivable future rating.
Financial markets: A significant sell-off in the rand, coupled with persistent currency volatility and reduced foreign capital inflows. Traditionally this scenario would mean investors look for rand hedges and attempt to get exposure to export-orientated sectors, including manufacturing – and to stay out of the bond market. Offshore borrowing costs will be raised for domestic companies – as well as for the country as a whole. This risk has an internal feedback loop (downgrades make debt more difficult to pay, leading to further downgrades) and naturally feeds other political risks, including in relation to taxation, clumsy government intervention, social stability and property rights.
Sunday’s newspapers were more interesting from a political risk and investment point of views than normal.
This is what I thought mattered, as far as financial markets were concerned, in last week’s Mail & Guardian, the Sunday Times, Sunday Independent and City Press:
Construction industry – possible prosecution and fines for fraud and racketeering
Government and the national prosecuting authority are reported to be facing a dilemma: managers in at least 20 major constructions firms might be guilty of serious criminal practices relating to may years of in-industry collusion, but a successful prosecution of the guilty parties would rip the whole management level out of up to 20 top companies and thereby sink government’s infrastructure plans – Mail and Guardian.
The stories are covered in the Mail & Guardian and the City Press – both drawing their details from a series of leaked 2011 affidavits apparently produced by individual managers at Sefanutti Stocks when they (Stafanutti) realised that despite co-operating with a Competition Commission investigation, individual managers were likely to be liable for criminal prosecution (by the Hawks and the NPA) and that the punishment could include imprisonment.
Paul Ramaloko, Hawks spokesperson said “This case is bigger than people think. We are going to take our time and do a thorough investigation” (Mail & Guardian), but in City Press he says the investigation was in its “early stages” and that he would only comment once it had “matured”.
So What? Sounds like a political dilemma. The NPA and the Hawks are not (entirely) governed by the political priorities of government (despite apparently decisive co-ordination between the Hawks, SARS and the Public Protector in the Julius Malema fraud, money laundering and tax evasion investigation). However, government is likely to do what it can to make sure the companies survive intact – albeit compliantly chastened and grateful for leniency. Of course, the NPA and the Hawks might, alternatively, feel these managers would make good examples of how ‘old-order’ and ‘untransformed’ individuals and companies are as important sources of corruption as the ANC, its leaders, supports and structures.
Either way, the reputation and coherency of the companies concerned could be seriously impacted. However it is not clear from the news reports that there is any differentiation between, “winners and losers” … no-one appears more or less guilty than anyone else – which rather suggests the sector as a whole is risky, with no safe havens.
Key Jacob Zuma allies Atul and Rajesh Gupta (using family vehicle Oakbay Investments) are reported to be on the verge of adding a 24-hour continent-wide news channel to their media portfolio (which includes New Age newspaper) in partnership with Essel Media and an unnamed black empowerment firm. Multichoice will likely be providing the platform but purely on a commercial basis and is not expected to be partner in the venture (Mail & Guardian).
Well, one of the Guptas’ current empowerment partners is President Zuma’s son Duduzane and the Guptas themselves have become key ANC funders and power players in South African politics. The Mail & Guardian has a picture of Atul and Rajesh Gupta (who came to the country from India in the early 90’s) ensconced at the ANC’s elective conference in Mangaung in December. Obviously, the more the merrier on the news diversity front – and who says government and the ANC shouldn’t spend more money in the space? South Africa has a free and open media culture – to the point of government and ANC leadership spending a considerable amount of their time denying allegations and defending government policy against feisty attacks. It is unlikely to be harmful if government and the ANC strengthen their ability to put their point of view. Influence trading is always a feature of politics and is no worse or better in South Africa than it is in many countries across the world.
Telecommunications – new political upheavals on the cards
All the weeklies report that Communications Minister Dina Pule is about to be removed from her post in a cabinet reshuffle. At least part of the reason is because she is accused of “routing large sums of money to her alleged lover” – Sunday Independent. So many individuals are touted as possible replacements, but the one person who comes up time and against is Lindiwe Zulu. This is what the Mail and Guardian has to say about this close Zuma confidant: “Zulu has just been appointed head of the ANC’s communications and her star has been rising under Zuma. A government source said Zuma trusted her opinions. She is his adviser on international relations. ‘He likes her bravery. The way she’s handling the Zimbabwe issue in a fearless manner has impressed him.’ She is one of Zuma’s three envoys on that country.”
So what? Pule will be the third minister to exit this portfolio in four years and instability in the department has raised fears that SA will continue to wander in the policy wilderness as far as migration to digital TV, Telkom’s business plan chaos, spectrum allocation and unbundling of the local loop (to name but a few pressing policy mattings) are concerned.
Mining Indaba – policy confusion as rife as ever
The Business Times has a depressing few pages about the Mining Indaba that implied that if anything the industry is more concerned than ever about policy uncertainty. On the proposed Mineral and Petroleum Resources Development Amendment Bill: “The move has again flooded the country’s struggling mining sector with uncertainty” – Loni Prinsloo.
“On the exploration side” said Magnus Ericsson, Chairman of Raw Material Group, in the lead story, “I think it’s a general hesitation … if you find something in South Africa, what will be the BEE requirements? What are the other requirements? For some foreign investors they are seen as difficult”.
The same series of articles argues that the pressure to “quarantine” SA assets is becoming fierce. “A valuation by AngloGold Ashanti’s biggest shareholder, Paulson & Co, indicated that South Africa’s biggest gold miner could boost its share price by as much as 68% if it split out it local assets.” Elsewhere on the front page of the Business Times, the paper argues: “The true investor sentiment will be measured tomorrow (now yesterday– ed) when Sibanye (Gold Fields’ local assets – ed) lists separately.”
So what? To my mind regulatory uncertainty, especially in the minerals sector, remains the key politically driven investment risk in South Africa. The risk is being driven by pressures (felt by the ANC and government) to improve delivery and redistribution. These pressures will increase going forward and the increased regulatory burdens government is placing on private mining companies is unlikely to achieve any of government’s objectives … in fact, the reverse is more likely to be true. This is an unhappy environment for those searching for policy certainty.
Bits and pieces
- The brutal rape, torture and murder of Anene Booysen in Bredasdorp filled many column inches in all four weeklies – hoping to stimulate the kind of outrage against rape that swept India recently. Many of the stories point out that South Africa has the highest incidence of rape in the world.
- Ramphele – will she or wont she? The press is full of speculation about whether Mamphela Ramphele (former anti-apartheid activists and close friend of Steve Biko, a doctor, academic, successful businesswoman, a former director at the World Bank and former Vice-Chancellor at the University of Cape Town) will set up a political party and that that party will capture a significant percentage of urban black support. I think she might, but I doubt whether the party will make a dent on South Africa’s politics. The most likely scenario, to my mind, is Ramphele ends up in the Democratic Alliance.
- There was much speculation about what President Zuma might say in his State of the Nation address this Thursday – with a generally excited consensus emerging that Zuma is less beholden to special interest groups (post his decisive victory at Mangaung) than he was previously. I am not convinced this will lead to bold new steps. I am watching for tension between this speech and the National Budget on the 27th of February. I expect the political plans in Zuma’s State of the Nation to be at odds with Pravin Gordhan’s plans to balance the books … but I expect that tension to be hidden.
- The Mail & Guardian gave a list of who it thought is in Zuma’s inner circle: (Lakela Kaunda, Lindiwe Zulu, Mac Maharaj, Collins Shabane, Gwede Mantashe, Nathi Mthethwa and Batandwa Siswana), but then spoiled any special insight that might have given us by adding :
“Those privy to Zuma’s kitchen Cabinets say the president also has a high regard for Economic Development Minister Ebrahim Patel, National Planning Commission Minister Trevor Manuel and Justice and Constitutional Development Minister Jeff Radebe. Other key confidants include Rural Development Minister Gugile Nkwinti, Intelligence Minister Siyabonga Cwele, Cosatu president S’dumo Dlamini, Public Enterprises Minister Malusi Gigaba, KwaZulu-Natal Premier Zweli Mkhize, Finance Minister Pravin Gordhan and, to some extent, Higher Education Minister Blade Nzimande. People outside government who are in the president’s good books include businessperson Sandile Zungu, film producer Duma ka Ndlovu and businessperson Deebo Mzobe, widely considered the man behind the building of “Zumaville”, the town surrounding the president’s homestead.”
… hmmm, must have a pretty big kitchen.
I am sometimes tempted to think of myself as a company analyst, with South Africa as my company, government as management and the currency and bonds as the share price
Company analysts make sell, hold or buy recommendations. Obviously a buy means the analyst believes the shares are cheap – in some difficult to determine absolute terms, but more likely in relation to appropriate peer or category comparisons.
If I was a company analyst, then what I might have been doing over the last while would have been writing a report changing my recommendation on South Africa from a hold to a sell.
Here is a bare-bones summary and ordering of that argument:
- There are two major cycles driving negative sentiment which are coinciding now (which they do every five years): the “strike season” and the lead up to the ANC’s National Conference ;
- Both these cycles are deeper and more traumatic that usual;
- The reasons the strikes are worse than usual is excellently addressed by Gavin Hartford of Esop Shop - here for a link to his paper at polity.org;
- Mangaung is “deeper” and more traumatic than Polokwane because there is more at stake (some ANC members realise that another seven years of Zuma could hurt the ANC and the country; and Zuma and his backers cannot afford to lose office, because their dealing is not yet wrapped up and because their man remains legally vulnerable to the original corruption allegations against him);
But the main reason these cycles are deeper than previously is they are meeting a structural or secular trend, which consists of (and this is very stripped down):
- Uncertain political stewardship from the top;
- Institutional weaknesses in political (and labour) organisation characterised by systemic cronyism, corruption and nepotism (which leads to violent competition for control), managerial incoherence, narrowing support base and falsely inflated membership figures;
- A significantly negative economic policy environment which might lower investment levels – e.g. fiscal uncertainty (because there is no way the ANC cannot keep increasing social grants and the public sector wage bill, which together are already more than half annual non-interest government spending) and a highly interventionist industrial policy (best exemplified in the SIMS document) which is one step away from ‘nationalisation by stealth” i.e. the effective deployment of private assets for public – or more narrowly governmental or even party – ends.
- Incompetent infrastructure build, disruptive labour relations and failed educations systems are constant, apparently irresolvable and narrowing bottlenecks in the economy;
- Institutional and administrative failures of government (in specific geographies and at specific levels of government) – with similar features to the second bullet referring to parties and labour unions;
- Failures of the collective bargaining system – and other institutions designed to manage and mediate conflicting interests in society;
- Growing social stresses around levels of inequality, unemployment, indebtedness and poverty – and unresolved racial overlays of the same.
Just listing that is faintly distressing … and you can imagine writing about it for weeks is not very uplifting.
But, I have, mid-stream, decided that I am not at all certain it is appropriate to take this relentlessly negative view.
Let’s go back to the political analyst/company analyst metaphor. Company analysts often suggest investors sell a share in a top quality, well managed and highly profitable company if it is too expensive.
They might also recommend a buy on a company in all kinds of trouble – but one that is cheap and has upside that the herd of sellers hasn’t spotted.
I cannot remember an SA political shock or flood of negative sentiment that did not represent a buying opportunity in our financial markets. Remember the sell-off of R54bn of SA resources companies after the leaking of a draft mining charter in 2002? It proposed forcing mining companies to immediately sell half their equity to black South Africans and spooked the market. The next few months was the chance of a life-time to buy excellent value company shares on the cheap.
Whether financial analysis adds real value to the investment process (or is just another bleed-off) is a matter of endless dispute. But here is why I would hesitate to call a sell on SA:
- I cannot honestly say we have more political risk than Russia and Turkey, for example;
- Where are the safe havens for investors, given the complex risks and problems in the global economy?
- I cannot be sure that the negative news flow is not already in the price – it would be a very financial-market-analyst-type error to rush around shouting sell, sell, sell just after the last savvy investor had finished selling and begun buying;
- My ‘negative secular trend’ is described as if it is inevitable – whereas there is much that can be decided and turned around by citizens, government and the ANC (despite my bleak outlook as to the likelihood of that happening, it must be in the mix as a possibility);
- The country has a number of inherent advantages: its natural resources, its growing domestic market, its proximity to the last great frontier market (Africa), its sophisticated financial system and complex infrastructure, its constitutional framework, judicial independence and stable democracy – to name just a few.
Now obviously that does not counter the negative “secular” or structural trend I describe above. But there is something of a “baking a cake” strategy about how I have motivated for the big underlying negative trend. What I mean by that is I have marshaled all (or as many as I can come up with) of the negative arguments in one place to bolster a particular conclusion: sell!
To make a cake one follows certain steps – mix ingredients, add energy and voilà: a nasty, stodgy, too sweet lump.
And that is a relatively simple object, with only a few requisite variables for its construction.
When we think about the future – especially when we write about it and propose to people how they should position themselves – the very first thing we should be is extremely tentative.
So I can’t, in good conscience, say sell South Africa.
I am unmistakably bleak about our politics and governance, but don’t take that as a signal to sell. I am quite likely being tossed on the waves of sentiment – following financial market indicators, rather than leading them.
My very negativity could as easily be the indicator to start buying; that all the bad news is already in the price.
It is no easy matter to explain how a paragraph from Michael Ondaatje’s poem “The Cinnamon Peeler” speaks to me about the ANC’s economic policy process.
The poem is a sensual delight – quite unlike the ANC’s policy discussion.
Anyway … here is the relevant paragraph:
what good is it to be the lime burner's daughter left with no trace as if not spoken to in the act of love as if wounded without the pleasure of a scar.
(Catch the whole poem here – you will be glad you did)
Who could have believed anything other than that the ANC’s recent policy conference was a momentous event, a sharp delineation between one stage and another?
The promise was in the ‘economic freedom in our lifetime’ campaign, the calls for nationalisation of land and mines, the National Development Plan and the ANC’s policy discussion documents themselves.
The sense that some big change was imminent built towards the conference and then the news flow from the event spoke of deep geological shifts; shudders that shook the body politic.
And then … nothing.
Or rather the shifts were so subtle that it all felt like a new version of Kremlin watching (that popular art – masquerading as science – peddled by professional Western political analysts and historians circa 1955-1988 of predicting the future of global politics from who stood where on Soviet platforms).
Carol Paton, writer at large at Business Day, covered the recent ANC policy conference in a piece that should be required reading for anyone who wants to understand the subtleties – and intrinsic weaknesses – of the process.
She argues that little has actually changed in ANC economic policy since the first conference after the unbanning in 1992 – and what has changed is slight and nuanced.
Paton’s more general point is that the discussion is inherently flawed:
Economic debate in the ANC occurs in a strange, abstract and ahistoric vacuum without reference to what really happens in an economy. For most of those involved in the discussion — who are delegates from branches but also often public representatives — the sole reference point for how change might be effected in society is through the exercise of political power.
Paton argues that almost none of the ANC members and leaders involved in policy discussion “have had the experience of running or managing an operational business or even of operating in the economy in any way other than as a public representative or government official.”
The article is well worth a read – catch it here.
For me the important bit is the disjuncture between the promise/threat of radical change and the actual outcomes.
As we head towards Mangaung it is likely that noise arising from the ANC internal politics will once again begin to imply that we might be heading towards some radical discontinuity in economic policy.
Obviously our markets will be weaker than they otherwise would have been because of this sense of uncertainty.
I am fairly certain that come the morning after Mangaung we will comb our body for a trace of the change we thought must be a consequence of that event that presents itself as so profound … but we will find that we have been wounded without the pleasure of a scar.
But unlike kid’s telescopes – which, like kid’s microscopes, were blurry and disappointing and stupid – the kaleidoscope was a device of astonishing power and beauty.
The simple expedient of twisting one end caused visions of astonishing, luminous, grandeur to pour out the other.
I can still feel that tingling as if I was balanced on a precipice, reaching out to shape a whole universe; causing tectonic shifts in the intrinsic structure of reality … okay, maybe not that last bit … but you get the point.
Such power … and I had absolutely no idea how it worked.
My “device of power and beauty” was a semi-rigid cardboard tube with loose coloured beads or pebbles in the end and two mirrors running lengthways up the inside, duplicating images of the transparent junk that tumbled as it was twisted.
My first kaleidoscope wilted in my sweaty, meglomeniacal hands a few hours after I had torn it from its pretty wrapping – and I cut myself on a broken piece of mirror as I desperately pounded it to make it continue producing those wonderous images.
Which brings me to my worries about ANC policy making.
I am slightly more worried today that I was when I wrote the piece below (from July 2) just after the conference.
That is partly because I have thought further about some of the issues and partly because the consensus points within the ANC seems to be slippery – and therefore uncertainty is rising.
In short my worry is that the ANC is approaching more vigorous economic intervention with the enthusiasm and growing expectations of my six-year-old self after he first looked through his pretty new cardboard tube.
I think the likelihood of this all ending in tears in increasing exponentially – and the reasons are not very different from those that caused the ruin of my first kaleidoscope and my cut finger.
I will pursue this theme (the threats involved with increasingly desperate state interventions – especially those that worsen the problems they promise to fix) in future posts, but first my initial take on the conference; written just after having read the particularly awful English language Sunday newspapers of July 1:
Much ado – and confusion – about the ANC policy conference
The teams of journalists from the political desks at the Mail & Guardian, the City Press, the Sunday Times and the Sunday Independent could have been covering different conferences given the divergence of their understanding of what went down at Gallagher Estates in the Midrand from Tuesday to Friday last week.
This is my first attempt at a distillation of the main points – partly of the coverage, partly of what was supposedly being covered:
- Debates about policy and the struggle over who will be elected to the top positions in the ANC at the National Conference in December became blurred, to the detriment of both.
- The “Second Transition” concept became associated with Jacob Zuma (even though it was penned by his factional enemy, Tony Yengeni) and its rejection by most commissions at the conference was interpreted as a set-back to Zuma’s re-election campaign.
- The power struggle obscured the fact that there was general consensus that transformation is “stuck” and radical and urgent action to hurry the process along needs to be taken if the ANC is to keep the trust and support of its majority poor and black constituency.
- The report-back to plenary of the key breakaway commission on mining became the most blurred moment, when Enoch Godongwana presented a summary of the views on the state’s proposed involvement in the mining sector – with pro-Zuma provinces KwaZulu-Natal, Mpumalanga and Free State tending to go with the SIMS compromise and the other six provinces tending to support the ANC Youth League in a strengthened nationalisation position.
- When consensus is finally reached, it is likely to include an even stronger role for the state-owned mining company – perhaps giving it the right to take significant stakes in all future mining licenses issued. Absolute taxation levels might be an area of compromise between the state and the mining sector in negotiations about this matter in the final lead-up to Mangaung where policy will be formally decided.
- There was broad consensus that the state could and should force the sale of farmland for redistribution purposes and that an ombudsman be appointed to determine ‘a fair price’ – to prevent the process being frozen by white farmers holding out for better terms. It is not clear whether this would require a constitutional amendment.
- There was general consensus that the Media Appeals Tribunal is no longer necessary, that the number of provinces needs to be reduced, that the proposed Traditional Courts Bill is reactionary and against the constitutionally guaranteed rights of women and children in rural areas, and that the youth wage subsidy (as a tax break to employers) had to be sweetened, or replaced, with a grant directly to young job seekers.
- The push for “organisational renewal” will require a number of changes: a probation period of 6 months for new members, a 10 year membership requirement before such members can be elected to the NEC, a reduction of the size of the NEC from 80 to 60 members and a downgrading of the status of the Leagues (women, veterans and youth) so they more directly serve the interests of the mother body.
So if this was a soccer tournament, what is the score?
The City Press led with “Tide Turns Against Zuma”, but frankly I think this is more about that newspaper’s preferences than anything else. The ideological disputes in the ANC are complicated but broadly follow an Africanist/nationalist group versus a SACP/Cosatu/anti-nationalist group. Neither Jacob Zuma nor Kgalema Motlanthe are clearly in either camp (but Zuma tends towards the former and Motlanthe towards the latter). Only one potential challenger, Tokyo Sexwale, is firmly in one group (the nationalists, which is the ideological home of the ANC Youth League) and he has more chance of passing through the eye of a needle than winning this competition.
Only Motlanthe could seriously challenge Zuma in a succession race and despite all the rumours and leaks it is by no means clear whether he has any intention of running – or, if he did, whether he would have a significantly different policy agenda than that being pursued by Zuma and his backers.
Occasionally I publish slides from a current presentation series and here are a few from something I am busy with called: “The Second Transition – SA politics and policy somewhere twixt hither and yon”.
The general idea is the ANC government is determined to move beyond the ‘transitional’ arrangements that it agreed to in 1994 and strike out boldly towards some undefined, but more profoundly transformed future.
Then, taking some liberties, I summarise what the ANC is “really” (in my humble opinion) saying in motivating the documents:
I then set out on the difficult task of attempting to assess whether the ANC documents actually propose anything as thoroughgoing as the initial motivation implies.
Frankly, the answer is “no”; although the proposals are both worrying in tone and in how contradictory and “bitty” they are.
The best formulated document is the “Maximizing the Developmental Impact of the People’s Mineral Asset: State Intervention in the Minerals Sector (SIMS) – document (get a link to that here). It contains a thoroughgoing set of proposals that change the tax system for mining and propose a complicated set of upstream, downstream and sideways linkages for the industry that will create a new set of burdens and obligations (not all bad) for the mine owners. (My own feeling about mineral resources is that these are “non-renewables” and government is obliged to get the maximum developmental benefit out of them before they are lost forever – but that is just by the way.)
Almost every other document – and there are 12 in all – meanders between
- being meaningless wish-lists,
- statist and authoritarian blueprints to bully and control and
- well researched and argued guides to fixing key aspects of what is wrong with our society
Almost all the good stuff is lifted body and soul from the meticulously researched National Development Plan with its focus on the 9 challenges of
- widespread unemployment
- ailing infrastructure
- low standards of education
- exclusion of the poor from mainstream development
- a resource dependent economy
- a failing public health system with a large disease burden
- inept public service provision
- widespread corruption and
- societal divisions.
My presentation itself does not make strong predictions on how far the ANC will get with its deliberations … although what is clear is that policy discussion this whole year will be drowned out by the Mangaung election noise. It is is going to be difficult to ascertain any real direction through the clamour of the struggle to re-elect Jacob Zuma.
Leaving aside all the slides that deal with the actual documents, I do, however conclude by asking some questions of our key players … and I include those slides here for your interest:
As the months go by, I will hopefully have time to flesh out some of those question.
But for now I am in the final days of the road show trying to make sense of the mess of proposals and hints in the documents, which span issues as diverse as fracking the Karoo, IDZ’s to SEZ’s, the Treasury versus EDD versus DTI, local procurement fantasies, some excellent fixes of BEE from Rob Davies, the lonely excellence of the Gordhan and Marcus and infrastructure looking more and more like the ANC’s one-trick-pony.
There are not many medals of honour, accolades, gold stars and trophies in the political analysis business (and quite right too), but I achieved an acknowledgement last week of which I am particularly proud.
Once a year the Financial Mail commissions a poll of the top 30 or so South African asset managers (life assurers, retirement and pension funds, private client investment managers and hedge funds).
This year the polled group had a total of about R3.7 trillion assets under management, a significant portion of which is the savings and pensions of ordinary South Africans.
How this business (from which I derive a significant portion of my income) works is JSE member firms (basically stock brokers) employ or contract specialists to produce research that somehow aids the fund manager in making the best investment decisions. If the research added value to the fund manager’s decision the broker would be paid either directly or in the form of a commission of some kind.
For the past year I have been lucky enough to have had a contract with Religare Noah Capital Markets to provide analysis of political trends and industrial relations to that firm’s fund manager clients. My name was thus in the pot when the fund managers voted and this is how it turned out:
I am particularly pleased to receive this award – and not only because it comes with a nicely framed scroll that, if I ever again get an office, will look quite handsome on the wall.
The main reason for my appreciation is that the ranking is based on a vote by investment professionals, who in one way or another, have to pay for the analysis.
I am about to move my main contract to a new firm, BNP Paribas Cadiz Securities which combines the strengths of powerful French investment bank BNP Paribas and Cadiz Securities, a South African-based specialist equity derivatives broking and research company.
So I thought I would use this moment and forum to thank Religare Noah Capital Markets for the work they have given me over the last year – I appreciate the support and opportunity and wish you all well in the future.
(Note: There are several names below mine on the scoreboard up there of excellent economists, strategists and other species of financial analyst who would not see themselves primarily as “political analysts” – so the fact that I have outscored them is no reflection of the value they add to the fund managers … and, in fact, several of them were highly ranked in other categories.)
I think the e-tolling saga is important precisely because my headline bastardising the denouement of John Donne’s famous poem is, in truth, wrong.
Gauteng’s road upgrade does not come for free.
The R20bn was borrowed by Sanral and lent by people and institutions (which) who assessed the risk attached to repayment on the basis that e-tolling was part of the deal.
This is a précis of what I told my clients about some of the political implications:
The North Gauteng High Court granted an urgent interdict on Saturday that will postpone the implementation of e-tolling until as late next year – and perhaps contribute to stopping it completely.
At this stage the court has ordered a full review of the process that will probably take at least two months to complete. If the court rules that e-tolling can go ahead the appeals process, all the way to the Constitutional Court, can take up to two years.
There are a number of significant risks associated with this decision .
The National Treasury itself, during the course of legal arguments, predicted dire consequences for South Africa’s sovereign risk rating and for public finances more generally.
I think they exaggerated but one could hardly blame them. The Treasury is the custodian of the public purse and its officials and political head carry the responsibility if R20bn that will no longer be raised from tolling has to be dug out from somewhere.
But the ruling is important for a deeper reason. South Africa, according to President Zuma’s State of the Nation address (and confirmed by a number of government and ANC statements in the last few months) is engaged in an infrastructure programme that is expected to cost just short of R1 trillion over the next 8 years.
This is the biggest bet for anyone hoping to invest in the country for the next ten years. Will it happen or will it – again – fizzle?
At least part of the funding model for this infrastructure programme is the ’user pays’ system established in the planning of the Gauteng highway upgrade project. In general, I think a user pays system is a more efficient – and fairer – system of allocating capital than unwieldy central plans that draw on the central tax pile.
Further, private sector lenders funded the project on the basis of the collection of user fees – this is how they did their calculations and assessed their risk. The ruling effects government’s credibility as a borrower.
Chris Hart (economist at Investment Solutions) is reported to have dismissed this saying the delay is no big deal – less than 0.2% of planned government expenditure this year. Goolam Ballim (chief economist at Standard Bank) said if there was a contractual infringement impacting on Sanral’s ability to pay, it did not imply sovereign default risk and “will not compromise South Africa’s international credit standing in any way”.
Now those two economists are no slouches – and know more about our public finances and the basis that the rating agencies changes the investment grades of our government bonds than I ever will – but surely it is obvious that there is a degree of damage to government (and Sanral’s) credibility as a borrower? Perhaps not as much as the Treasury argued during the urgent application. But we are coming up for strike season, the Treasury has promised to hold the line on public sector wage increases, the budget is under immense pressure and R20bn is not a meaninglessly small amount.
The whole of the South African government looks weak – with the Treasury and the Department of Transport being the most obviously and immediately affected. Both are “studying the ruling” before making public statements. These issues might not swing Standard & Poor, Fitch or Moody’s against SA bonds, but there is no question that this ruling will be part of their assessment.
The risks are clearer when we look at the political back-story. There is a changed political configuration in the Ruling Alliance. The rise of Jacob Zuma was characterised by an already growing influence of Cosatu on policy making. A Thabo Mbeki led ANC would have taken a much stronger line against Cosatu’s campaign against e-tolling and would have stood much more firmly behind the Treasury’s arguments in favour. I am not necessarily cheering for that side, but I do think the Zuma administration is beholden to Cosatu in a manner that limits its options in public finance – and that limitation is being set by a very narrow interest group.
Cosatu has – as is its wont at the moment – been tactically brilliant in this campaign. It has built a classic broad front, multi-class alliance against the e-tolls and has strengthened the group made up of Zwelinzima Vavi, Irvin Jim and Numsa on the one hand and weakened the group made up of Sdumo Dlamini (Cosatu President) Frans Baleni and Num on the other. See here for more discussion on the relevant factional splits within Cosatu.
The gravitational centre of the Alliance is only weakly occupied by Zuma and “the left” in Cosatu has been able to shift the whole edifice towards itself. This is a trend that we will have to keep a close eye on during the lead-up to Mangaung, when the Zuma administration is likely to be at its most docile and weak.
And it is in this environment that Cosatu has taken on e-tolling as ‘privatisation by stealth’ and an infrastructure funding method that taps its constituency too directly. Cosatu is a sectional interest group … and is completely entitled to pursue the sectional interests of its employed worker members (employed, by definition, in ‘union jobs - and all strength and luck to them for that advantage’.)
The most important signifier issue will be how government deals with public sector wage demands over the next few months. It’s strike season, and I mentioned elsewhere, Gordhan’s budget only balanced because of the hard line he took against public sector wage increases.
To give you a sense of why that is important, this is what I said about the budget and public sector wages on February the 23rd:
Public sector wages: This is the area, to our (I wrote this with economist Sandra Gordon) mind, of least credibility with the most consequence:
Total Compensation % of total budget % yoy 2009/10 248558.0 31.8 17.7 2010/11 281619.2 33.6 13.3 2011/12 314907.2 33.9 11.8 2012/13 336959.4 33.5 7.0 2013/14 357168.2 32.7 6.0 2014/15 378148.7 32.1 5.9
Adjusted for inflation those figures in bold are heading towards zero – and remember we are talking about over 30% of the total. The public sector wage bill was R8,1bn more than budgeted for in 2011/12 and it is not an exaggeration to suggest that the whole edifice of the budget could crumble on this point.
So what? … Public sector unions set the tone for industrial bargaining throughout the economy. Our main scenario, in which 2012/13 becomes an industrial relations blood-bath, is looking ever more likely – although we await, with interest, Cosatu’s formal response to Budget 2012. This proposed spending shift – if Zuma’s ANC can hold the line – is also supportive of our construction and investment relative to consumer equity theme – with the consumer sector keeping a “look-in” by social grants increases from R105bn in 2012/2013 to R122bn 2014/15 and the promise to reassess if inflation rises further.
So the e-tolling is an ongoing threat to public finances and it is an indicator issue of how beholden … and therefore weak … Zuma’s leadership is.
But there is an upside to this story. The ANC and Cosatu did agree to postpone e-tolling after their meeting last week – and announced that they had instructed government to do this (revealingly issuing a hastily retracted statement saying they would, in fact “request government to postpone”).
But the real upside is that it wasn’t, ultimately, political weakness or fiscal slippage that led to the cancelling of e-tolling. It was judicial sensitivity to popular opposition and an assertion of the principle of the rule of law.
You will be able to tell by reading between the lines that I think e-tolling was actually the right approach, but it is clear that an unaccountable system, that never bothered to consult the public properly and that, in addition, has badly damaged its own credibility in as far as corruption and maladministration is concerned, was defeated by a judge determined to uphold legal accountability and respect for popular discontent.
It might make the Treasury’s job more difficult and it might create uncertainties about funding infrastructure development, but it has got to be positive for the South African democracy as a whole.
I have got to find a way of continuing to populate this website. The reasons posts are becoming infrequent and irregular is that almost every day I produce bespoke and paid for research. I have less time every week to write specifically for nicborain.wordpress.com … except the occasional philosophical musings, which probably have a … very specific? … readership.
I am going to continue the philosophical and theoretical musings. I am finishing the last few chapters of Jared Diamond’s extraordinary “Collapse – How Societies Choose to Fail or Survive” - Penguin 2005. As background reading to my professional work trying to make sense of politics and economics in the sub-continent (or anywhere in the world for that matter) it is seminal … I cannot recommend it highly enough.
So I will review it here. And I will keep raising issues associated with the epistemology of what I do – and other obscure matters of concern to me.
However, I will also start posting summaries of my recent views, interviews and perspectives … the first set of these below:
Iran, MTN and US secret power
The big issue of the week – in a lot of universes, but particularly the financial market’s – was the $4.2-billion lawsuit launched against MTN last week by Turkcell in the United States District Court of Columbia in Washington DC. The Mail & Guardian had way the best coverage – see here for a good backgrounder.
MTN investors took a serious bath on the news. The basic allegation of Turkcell is that MTN’s ‘Project Snooker’, driven by then CEO Phuthuma Nhleko (with some help) was a successful attempt to ‘buy’ (with cash, arms and South African diplomatic support) a preferential operating licence in Iran.
For me the link between this issue, the fact that the South African government had appeared to fold to US sanctions demands on oil imports from Iran (or at least to flip-flop confusingly) and the leaked documentation from close to Kgalema Motlanthe seeming to prove attempts to get government support for Bell Helicopter deliveries to Iran – potentially hurting his (Motlanthe’s) presidential ambitions – was a series of stories that raised the spectre of US secret power working it’s powerful and implacable will.
It looks like the Bell Helicopter with SA government support stuff was established:
Through access to recordings and confidential documents – understood to have also been obtained and analysed by US intelligence agencies
according to the Sunday Times, but the documents that informed the Turkcell case appear to have been leaked by a disgruntled former MTN manager and South Africa’s flip-flop on oil could be based purely on the extreme nature of proposed US punishment for those who break sanctions against Iran.
So the sexy story of US spies fiddling in our politics doesn’t have a good evidential basis (although I have no doubt that US secret power is exercised every day throughout the world … perhaps not always with German-like efficiency and certainly with lots of unintended consequences.)
The MTN story … and South African oil imports … still has a way to run, so watch this space.
Malema summarily suspeded, Top Six unity press conference, Cyril for president and the interminable Mangaung contest.
I don’t know about you, but I am royally gatvol of press reports about ANC internecine struggles … during the course of the week this is what I had to say about various strands of this interminable story:
First I looked at City Press going out on a limb with contending ANC factional lists for Mangaung… most interestingly putting Cyril Ramaphosa on both the pro-Zuma and the pro-Motlanthe lists … to become president of South Africa in 2014!
“You read right. Not ANC president, and not in 2012 … the Mangaung conference looks sewn up in favour of President Zuma, but even his supporters are starting to point to Ramaphosa as president, saying the billionaire businessman will do a better job of running the country” (from City Press).
I can’t assess the probability of a Ramaphosa presidency … but we can only hope.
I also had to comment to journalists over last weekend about a potential run by Mathews Phosa, essentially as a stalking horse and test marketing campaign for Kgalema Motlanthe. He (Phosa) has no prospects of slipping in himself, but both he and Motlanthe have been seen to be standing firm with their ANC Youth League allies over the last week and it is not inconceivable that they will have worked out a tag-team strategy between them.
Later in the week came the summary suspension of Julius Malema about which I said:
Julius Malema was yesterday suspended with immediate effect from the ANC and from participating in any way in the organisation’s activities or the activities of the Youth League. While this particular suspension is temporary, several different strands of disciplinary action against Malema make the implementation of a full suspension (lasting at least 3 years) inevitable.In preparation for the Malema suspension the ‘Top Six’ of the ANC held a joint press conference to present a united front to condemn “bickering and negative lobbying” in the ruling party. Of particular concern was the recent incident in which Deputy President Kgalema Motlanthe was invited to address and ANCYL rally where he found himself “in compromising situations of being implicated in statements where ANC leadership is denigrated and insulted” (that all comes from official ANC press statements.)Behind the show of unity are two broad camps, with President Jacob Zuma, Secretary General Gwede Mantashe and National Chairperson Baleka Mbete broadly backing Zuma’s re-election at Mangaumg in December; and Treasurer General Mathews Phosa, Deputy Secretary General Thandi Modise and Deputy President Kgalema Motlanthe having consistently been much closer to Julius Malema and long assumed to back a leadership slate that would be headed by Kgalema Motlanthe and might include Tokyo Sexwale.I do not expect the noise generated by the internecine struggle to die down until Mangaung itself. At this stage the Zuma camp is in an extremely strong position and this is the light in which the suspension of Malema needs to be seen.
I did a whole lot more radio interviews and bits and pieces about all of this … but I am becoming unspeakably bored with the whole issue. I think the ANC Top Six press conference was an attempt to get the focus onto the policy discussion documents and away from the draining and fracturing internecine squabbles. Can’t help but feel that might be a good idea.
Zimbabwe and Eddie Cross
The most interesting story of my week came about as a result of the consulting work I do for Religare Noah Capital Markets (Pty) Ltd, which is a member of the JSE and an authorised Financial Services Provider. Religare Noah brings Eddie Cross (Zimbabwe member of parliament for Bulawayo South, economist and Movement for Democratic Change Policy Coordinator General) to speak to, especially, mining and metals investors about once a year and I had a chance to listen in on his input.
Basically Eddie Cross reckons that by October this year Zimbabwe will have undergone a fundamental transformation and that our northern neighbour will be well on the path to recovery – politically and economically – by then.
It is a huge story, but obviously the details are bespoke to Noah Religare and its clients. From my perspective I have known Eddie Cross to err on the side of being too positive and upbeat about Zimbabwe (as I have been … consistently calling the bottom for almost ten years … embarrassing, I know) but I was convinced that a combination of SADC unanimity and strong G8 backing … and the fact that Zanu-PF is out of options and fatally riven with factions, means that change is more likely than it has been in years. An endless stalemate is still a possiblity and more catastrophic scenarios, with the continued assasination of central players (like that of General Solomon Majuru) are options … but there are grounds for cautioius optimism.
I hope you have a restful long weekend … and a really good Friday …
It’s tempting to focus on the ANC as if its history and prospects are a proxy for the history and prospects of the country as a whole.
The party’s centenary celebrations this week will strengthen the sense that this is indeed the case.
The last hundred years of South African history has been about the formal subjugation of the black inhabitants of the country by European colonial powers and settler groups; the fight for national liberation and self-determination; the victory and then seventeen years of the complex process of democratic rule.
Running like a spine through that body of history is the African National Congress - which not without some legitimacy claims to be the organised expression of black people’s struggle to be free of colonial and then apartheid oppression and exclusion.
Then in the same way that the back bone’s connected to the … neck bone it follows naturally that post-1994, given the ANC’s overwhelming dominance at the polls, the party can legitimately be seen as the ongoing expression of black South African’s attempts to govern themselves and use the state to redress the inequalities and distortions caused by that apartheid and colonial past.
So this week the ANC celebrates its 100th anniversary, kicking off with a centenary golf day (for only the luckiest of revellers) and including gala dinners, interdenominational church services and culminating in a public rally in Bloemfontein (Mangaung) on Sunday January 8.
The sense that the ANC is a proxy for the country itself is strengthened by the fact that this year will culminate in and ANC national conference electing a leadership that will, almost automatically, become the leadership of government after the general elections in 2014 – again, given the ANC’s electoral dominance.
Additionally an ANC policy conference in July will pronounce upon a range of matters concerning the role of the state in the economy and it promises to make policy on (amongst other matters) the nationalisation of mines and the expropriation of white owned farm land – with or without compensation.
But hang on a moment …
One of the key tasks of political parties in their struggle to become or remain the party of government is to present their agenda as identical to the national agenda, their leadership as automatically the national leadership and their interests identical to the national interest.
The ANC can legitimately point to how central it is to South Africa’s political and cultural life, but as we wilter this week under the the searing overstatement of that message it is useful to bring a few proviso’s to the front of mind.
We are a country with a small, open economy nestled in the most depressed region of a world overwhelmingly interconnected and subject to monumental forces that grind their way irresistibly through the Ozymandian vanities of governments significantly more powerful than ours.
The more we learn about the world and the history of human societies the more apparent it is that we have been hopelessly overoptimistic about our ability to understand let alone predict how the complex systems of our economies, national entities, ecological systems and cities function, evolve, collapse and change.
I am sure that this week newspapers will be full of huffy assertions that the ANC does not represent “the nation” and therefore treating its centenary as if it was a sacred ritual akin to Fourth of July in the United States (which celebrates independence from Great Britain in 1776) is a travesty.
Quite right too. The ANC has diverted significant national resources to traditional US style pork belly politics but has also made itself guilty of more overt Angolan style looting. All that combines to makes its claim to represent the “national interest” an insulting insinuation about “the nation”.
Also new political forces are emerging and growing – most obviously Cosatu and the Democratic Alliance – that will further erode such ANC claims in future – as will the shifting ethnic bases of parties and groups that contest in the political arena of South Africa.
However, these were not the points I wanted to make – and I am sure they are going to be done to death in the next few days.
My point is that sovereignty itself – and certainly who the ANC elects as leaders and what the party decides vis-a-vis nationalisation of mines and expropriation of land without compensation – will have much less force and effect in determining South Africa’s political and economic future that we might imagine.
Economic policy, laws governing ownership and general “good behaviour” around fiscal and monetary policy are rigidly constrained both by the discipline of global capital markets and by a myriad bilateral and multilateral agreements between countries and blocks of countries.
As I said to clients earlier this week (concerning the ANC centenary):
“Obviously we must continue to watch the ANC as carefully as always in 2012 – but this small open country and economy will continue to be tossed on the currents of the global economy and the various geopolitical, technological, cultural and environmental forces that shape the world. We might miss a trick or two if we lull ourselves into believing the myth that the ANC is a kind of metaphor for the country as a whole.
In case anyone was wondering if I had disappeared into the ether: I have been seriously busy and have had no time to post on the blog.
If you were paying extra attention, you may have noticed that a post reviewing the nationalisation of mines debate appeared and disappeared a few weeks ago.
My mistake – it was bespoke for a month, and I jumped the gun. I am now able to publish it and you will find it below.
Meanwhile I am into my second reading of An Inconvenient Youth – Julius Malema and the ‘New” ANC by Fiona Forde. It is exceptionally good and I strongly recommend you go out and buy yourself a copy. I have begun a review which I will publish here during the course of the week.
But meanwhile, here is the month-old nationalisation update/review. My views haven’t changed much since I wrote it … and it is good to get it on the record … even if it is a little turgid and written in an overly formal tone.
The nationalisation of mines debate in South Africa is, as predicted, reaching new heights of sound and fury. Yesterday it appeared that Cosatu was officially supporting the Youth League call. This is a situation fraught with danger although I do not change my assessment that the ANC is unlikely to decide on mine nationalisation along anything like the lines proposed by its youth wing.
- Yesterday Cosatu economist Christopher Malikane argued that the ANC has accepted as fact that the mines would be nationalised and that it was only a question of “how” not “if”.
- This does not imply significant new risk although the markets are likely to interpret it as such.
- In reality Cosatu is significantly divided on the call and current shifts in Cosatu policy have more to do with (important) internal conflicts.
- Cosatu does not have the final or even main say over ANC economic policy and its current flirtation with the Youth League is actually about frustration with not achieving its policy aims with the ANC.
- The ANC and its left wing allies have been consistent and steadfast in their criticism of the call and I outline the history both of the Youth League call and of the critique of the call in this report.
- The nationalisation call has consistently been deployed in political battles for power within the ANC and in government which both gives the call unrealistic political energy and makes the threat difficult to interpret or assess.
- The ANC has set its Economic Transformation Committee the task of assessing the call and making proposals. I expect clarity to emerge in November this year but a final decision will only be made at the centenary national conference in December next year.
- Cost, international agreement, the Bill of Rights and the constitution make it inconceivable that the ANC attempt to nationalise the mines.
- However I think the party and government will use the threat as a stick to get a better deal out of the mining houses.
- Between now and the final decision the “sound and fury” will keep the issue alive and the threat present.
Cosatu shifts towards the ANC Youth League
Yesterday Congress of South African trade Unions economist Professor Christopher Malikane was reported to have said at a South African Chamber of Commerce and Industry forum that the group charged with discussing the nationalisation of mines in the ANC had moved beyond the issue of whether the mines should be nationalised and is now purely considering modalities to achieve this aim. “Investors are looking for certainty around the issue of nationalisation, well this is the certainty they need,” he said.
The ANC Youth League managed to place formally on the agenda of the ruling African National Congress (at the party’s National General Council in September 2010) the proposal that government consider nationalising a majority share of the mining industry – for report back and a decision at the party’s Mangaung elective centenary conference in December 2012.
The general noise gets louder
With the ANC and government leadership mired in controversy relating to poor service delivery, poor government performance and accusation of corruption – and the Zuma presidency as weak as it has ever been – the ANC Youth League and its supporters in government appear to have seized the initiative and are making all the running at a public level. Investors and other observers would be forgiven for thinking that the slogan “Economic Freedom in our lifetime!” and the calls to nationalise the mines, banks and the land (that last explicitly without compensation) were not government policy. I am of the view that owners of mining equity and other property in South Africa are starting to feel the heat.
My view has been that the ANC is highly unlikely to decide to nationalise the mines – although uncertainty in this regard will persist right up until December 2012 (although some clarity is expected to emerge after the ANC committee examining this issue reports back some time in November this year).
I think that the party and government will attempt to use the populist surge to discipline the mining companies to fulfil their social and Black Economic Empowerment obligations under the Mining Charter (which arises out of the 2002 Mineral and Petroleum Resources Development Act).
Additionally government and the party are likely to use the opportunity to change the tax and royalty regime to extract more revenue from the sector – particularly with the imposition of a tax on windfall profits.
Finally I think it likely that new obligations will be placed on the mining companies – especially with regard to some form of obligatory contribution to the building and maintenance of transport and power infrastructure near where the mining operations are located.
Brief History of the nationalisation call
The ANC Youth League on nationalisation of mines
Soon after the current leadership of the ANC came to power at the landmark Polokwane conference in December 2007 the ANC Youth League elected Julius Malema as its president (in April 2008).
By the end of that year Julius Malema and the Youth League began proposing that the mining industry be nationalised. This was the essential elements of that proposal:
* an immediate suspension of the issuing of mineral rights and permits;
* the establishment of a state owned mining company;
* the nationalisation – with or without compensation – of fifty percent of all mining operations;
* that licenses only be issued in future on the basis of a 60 percent equity stake being held by the state owned company.
The Youth League drew authority from the historic Freedom Charter document. The document, drawn up in a national consultative process led by the African National Congress in 1955 and adopted at the Congress of the People in Kliptown says of the economy:
“The national wealth of our country, the heritage of South Africans, shall be restored to the people; the mineral wealth beneath the soil, the Banks and monopoly industry shall be transferred to the ownership of the people as a whole”.
Criticism from the Left of the ANC Youth League call
The major critique of the ANC Youth League call was formulated by Jeremy Cronin, Deputy Minister of Transport and Deputy Secretary General of the South African Communist Party (and major ANC intellectual and ideologue).
It is my guess that Jeremy Cronin was deployed by the incumbent leadership of the ANC in the belief that a criticism of the nationalisation call articulated by leading communists would defuse the Youth Leagues claim of militancy and radicalism – and I therefore cover these arguments in detail here.
Cronin argued that the Freedom Charter passage supports the idea that “the people” get the full benefit of the economic resources “not that there be a narrow bureaucratic take-over by the state apparatus and the ruling party’s deployees” (all Cronin quotes in italics in this section from SACP’s Umsebenzi Online Volume 8, No. 20, 18 November 2009).
The state owning important aspects of the economy says nothing, for Cronin, about whose interests are being served:
“Hitler’s Nazi Germany, Mussolini’s fascist Italy, and Verwoerd’s apartheid South Africa all had extensive state ownership of key sectors of the economy.”
So for Cronin the 2002 Mineral and Petroleum Resources Development Act had already gone some way to fulfilling the Freedom Charter’s objectives by explicitly stating:
“… that South Africa’s mineral and petroleum resources belong to the nation and that the State is the custodian thereof …. In other words, it is the “nation” (with the state as custodian) and not the mining companies that have legal ownership of the mineral resources beneath our soil”.
Cronin argues that the Youth Leagues proposal of nationalising
“mining houses in the current global and national recession might have the unintended consequence of simply bailing out indebted private capital, especially BEE mining interests”.
And further that:
“Many of our gold mines in particular are increasingly depleted and unviable. Some reach costly depths of four kilometres below the surface. Recently the global gold price has bounced back, but it is telling that, unlike in the past, our gold output actually dropped by some 9% in the same period. Our gold mines are simply no longer able to respond dynamically to gold price rises.”
Cronin (while making it clear he thinks “the people owe the mining houses absolutely nothing”) points out that South Africa’s Bill of Rights sanctions expropriation but requires compensation at a price agreed by both parties or determined by the courts.
The bottom-line for Cronin is that nationalisation would do nothing to further the “national democratic struggle”. Rather it;
“would land the state with the burden of managing down many mining sectors in decline … burden the state with the responsibility for dealing with the massive (and historically ignored) cost of “externalities” – the grievous destruction that a century of robber-baron mining has inflicted on our environment. In the current conjuncture, nationalising the mining sector at this point would also probably unintentionally bail-out private capital, in a sector that is facing many challenges of sustainability. The problems of liquidity and indebtedness for BEE mining share-holders are particularly acute.”
Opposition to and support of Youth League call
President Jacob Zuma, ANC Secretary General Gwede Mantashe (who is also SACP Chairman), and Minister of Mineral Resources Susan Shabangu have all explicitly rejected the ANC Youth League’s call – with Shabangu having famously said that the mines would only be nationalised “over my dead body”.
However despite this being the overwhelming position of the ANC and government, the Youth League scored a significant victory by having its proposal placed formally on the ANC’s policy agenda – achieved at the National General Council meeting in September last year.
At that conference Tokyo Sexwale (Mvelapanda Resources and Human Settlements minister) and Bridget Radebe (Mmakau Mining, wife of minister of Justice and Constitutional Development Jeff Radebe and sister of Patrice Motsepe) both came out in support of the ANC Youth League’s call – giving some weight to the now widespread allegation that the Youth League is operating with a hidden and funded agenda to have failing Black Economic Empowerment deals bailed out by government.
Arguing against the call were leading ANC intellectuals Joel Netshitenzhe, Jeremy Cronin and Trevor Manuel. However the ANC incumbent leadership failed to block the Youth League proposal and it is now formal policy of the ANC to investigate the matter and report back for a decision to be made at the centenary National Conference of the ANC which will be held at Mangaung (Bloem) in December 2012.
The ANC’s Economic Transformation Committee
The committee tasked with formulating the ANC’s position on the nationalisation of mines is the Economic Transformation Committee – which has the general brief of investigating the role of the state in economic development and is the natural forum in the ANC to develop a position on nationalisation.
There is not much in the public domain about the proceedings of the committee, but it is my information that Gwede Mantashe is overseeing the work of the committee which is formally headed by Enoch Godongwana (deputy minister of Economic Development and ANC NEC member).
The contributors thus far include those from the ANC Youth League, Joel Netshitenzhe, MZ Ngungunyane, Cosatu, Floyd Shivambu, Paul Jordaan and the National Union of Mineworkers. The full text of the initial contributions can be found in the last five issues of ANC’s internal discussion publication “Umrabulo” (find those on the ANC website at http://www.anc.org.za/list.php?t=Umrabulo).
It is my understanding that those opposed to the nationalisation call – for the reasons that have already been summarised in this report – are attempting to craft a compromise that will allow everyone to save face while allowing government to wrestle a better deal out of the mining companies – as stated in the “My view” section at the start of this report.
It is my understanding that the committee will report back in November this year and I expect the markets to get an indication of how the debate will pan out then. However, it should be borne in mind that the formal conclusion of this debate will only be reached at Mangaung in December 2012 and the noise is likely to continue right up until the last minute.
Cosatu’s shifting sands
The major change of external inputs into my assessment has been a struggle within the Congress of South African Trade Unions that has resulted in a shift away from the federation’s original position which was closely aligned with the view of the SACP and the incumbent leadership of the ANC – as articulated by Jeremy Cronin above.
The last unambiguous statement from Cosatu on this general issue came in the form of a joint communiqué with the SACP on the 24th of June 2011- I quote it here in full:
“… periods of capitalist crisis are also typically characterized by various forms of right-wing demagogic populist mobilization acting on behalf of various capitalist strata in crisis, but often masked behind a pseudo-left rhetoric. We believe that the same phenomenon is apparent in SA, finding a potential mass base amongst tens of thousands of unemployed and alienated youth in particular. However, behind this populism are often well-resourced business-people and politicians seeking to plunder public resources. We resolved as the SACP and COSATU to close ranks and to expose the true agenda of these tendencies and their connections to corruption and predatory behaviour in the state.”
However, at the Cosatu National Executive Committee meeting a week later a split appeared in Cosatu that has impacted on this debate.
The conflict is complicated but in a nutshell, it is between a faction led by powerful Cosatu Secretary General Zwelenzima Vavi and Irvin Jim of the National Union of Metal Workers (Numsa) of South Africa and a faction headed by leaders grouped around the National Union of Mineworkers (NUM) under Frans Baleni. Broadly the NUM/Baleni faction is supportive of the SACP and the Zuma leadership of the ANC while the Vavi/Jim/Numsa axis has become frustrated with broken promises (concerning both corruption and economic policy) of the Zuma/ANC leadership and would generally seek a more radical socialist or workerist political solution than is being offered by the ANC.
The Vavi/Jim/Numsa faction has over the last month begun courting the ANC Youth League, and attempting to harness the energy coming from this sector for its own ends. This is highly opportunistic as Vavi and Numsa have consistently characterized the Youth League leadership as “right-wing demagogic populist” and the League’s nationalisation call as fronting a corrupt BEE agenda looking to take a double bite out of resources available for transformation.
Rank opportunism or not, the crack in the Cosatu position is adding a new element to nationalisation debate. It is my understanding that the National Union of Mineworkers remains opposed to the ANC Youth League call, but the new element will undoubtedly add some confusion.
The point to remember about Cosatu – a point reiterated by the ANC and government leadership time and again – is that the federation represents a sectional interest. There are obvious reasons why some elements in Cosatu would want the mines nationalised – who wouldn’t want a guaranteed job for life as a Greek style (up until recently) government employee?
It is to NUM’s credit that its president Senzani Zokwana said in November last year that the Youth League was being reckless with the industry and that the League’s call was inspired by rich Black Economic Empowerment recipients looking to get failing deals bailed out by the state and Frans Baleni a month ago reiterated: “It is not only the private sector that has invested (in mines), but the workers with their pension and provident funds have also invested. We should have maturity and the debate should not have political undertones.”
It’s the law!
A key motivator of my view has been that South Africa is bound both formally and informally to agreements – including in the Constitution – that make it impossible to nationalise the mines without full compensation. Nationalising 50 percent of the mines would cost in the region of $130bn. There is no conceivable advantage – and an almost endless downside – for the government to nationalise the mines. Therefore it is not going to happen – although the end result might look like a compromise and might entail the establishment of a state owned mining company, although one with a much smaller asset base and agenda than conceived in the Youth League’s call.
Nothing material has changed that would allow me to change the view – although my confident smile has assumed a slightly brittle quality. Cosatu was never going to be the determining factor in this debate but the weakness of the ANC leadership – in particular the weakness of Jacob Zuma’s presidency – means that I am no longer certain that the centre of the Ruling Alliance can hold.
From the start the nationalisation of mines call has, in part, been a stalking horse for leadership challenges within the ANC and government. I have argued elsewhere that the call has been central to Tokyo Sexwale’s political ambitions and that he has covertly supported the Youth League in this regard for some time.
Now we have an element of Cosatu attempting to forge some form of alliance with the Youth League around the call clearly as part of a strategy to shift the leadership balance within the ANC.
The Youth League itself is using the call for its popular mobilization potential to help push its own candidates (particularly Fikile Mbalula – currently minister of sport) for higher office.
In this environment it would be foolhardy to be overconfident about the call. However it is my opinion that predicting the success of the Youth League call would be the same as predicting the imminent failure of the South African democratic project and state – a view I believe is too extreme and alarmist.
In many ways what is happening now is very much as predicted: the situation will be full of sound and fury right up until a decision is made at the end of 2012.
I am back from my travels where I spent much time discussing the ANC Youth League’s “nationalisation of mines” call with investors.
The long and the short of my views are that I don’t think the ANC will decide to nationalise the mines at its December 2012 elective conference in Mangaung. I do, however, think the ANC will attempt to use the populist surge to beat a better deal out of the miners (in terms of the companies’ social obligations, obligations to contribute to infrastructure development as well as the likely imposition as a special tax on windfall profits.)
However I also think that markets will remain anxious about nationalisation and will tend to counter-track the rise and fall of Malema’s personal fortunes.
With this in mind I think the Youth League and its President are in a degree of trouble.
Monday morning one time radio show host, sometime actor and columnist Eric Miyeni was published in the Sowetan saying of Ferial Haffejee, editor of City Press:
Who the devil is she anyway if not a black snake in the grass, deployed by white capital to sow discord among blacks? In the 80s she’d probably have had a burning tyre around her neck.
That evening ANC Youth League spokesman Floyd Shivambu sent out a statement that read:
The ANC Youth League agrees with Eric Miyeni’s column … He should continue to be an honest, fearless activist who speaks his mind and not fall into the trap of those who blindly support interests of apartheid beneficiaries.
On Sunday Julius Malema accused President Ian Khama of Botswana of being “a foot stool of imperialism, a security threat to Africa and always under constant puppetry of the United States” and further that the “ANC Youth League will also establish a Botswana command team, which will work towards uniting all oppositional forces in Botswana to oppose the puppet regime”.
On Tuesday Jackson Mthembu, ANC spokesman, said:
The ANC would like to totally reject and publicly rebuke the ANCYL on its extremely thoughtless and embarrassing pronouncements on ‘regime change’ in Botswana … This insult and disrespect to the President (Honourable Ian Khama), the government and the people of Botswana and a threat to destabilize and effect regime change in Botswana is a clear demonstration that the ANCYL’s ill discipline has clearly crossed the political line.
Surely we are into injury time by now – even the jellyfish Zuma leadership must have reached the end of its tolerance?
Two weeks ago previous key backer Tokyo Sexwale described Malema as a “loud-mouth young man”. Even Malema’s long term defender Mathews Phosa appeared to agree that the nationalisation debate had been handled badly and that the ANC had “dropped the ball” with regard to reconciliation and nation building.
Does this not leave Julius defended by only his organisation and a few wannabe intellectuals of the Miyeni stripe ?
Malema does not head an army of disenfranchised, unemployed and angry black youth. He has courted this crucial fraction of our society – usually as a deployed voice of the ANC itself – but in reality he lives a life of the überflash, so far removed from the unemployed and disenfranchised that his claims to the contrary smack of the worst and most dangerous forms of manipulative populism.
Markets should interpret what is happening as serious headwinds for the “Malema agenda” and that means much of the sound and fury will be removed from the nationalisation debate … a good thing for our politics and our economy.
Arrived late last night in New York from London (and Edinburgh and Frankfurt) and the lag means I am only going to want to fall asleep at exactly the time it will be most unsuitable to do so.
I have been travelling (for Indian owned Religare Capital Markets, where I have a new berth) with the excellent Michael Kavanagh who is a mining and metals specialists. We have a story which interestingly balances the South African political risk (especially associated with nationalisation) and the long-term bullish outlook for platinum. We are half way through a global tour talking to fund managers who specialise in investing either in mining stocks or emerging markets … or both.
South Africans at the point of weeping and pulling their hair out because of the latest ANC Youth League posture, or the newest tender scandal or Jacob Zuma’s increasingly hopeless grasp on the complexities need to spend a little time with people whose job it is to compare South Africa as an investment destination with its peers.
Oh yes, they worry faintly about Julius Malema’s antics but their universe of comparison is huge and diverse … and if the worst comes to the worst the money they manage can shift very easily and early.
(Our parochialism causes us to believe) we have no-one with whom to compare our populists, gangsters, thugs and incompetents.
Trust me (or rather trust the fund managers with whom I have been speaking), ours are no worse than the equivalents in Russia, Brazil, India, China … and a host of similar investment destinations between which the money flicks and flitters.
One of my slides that might not charm a domestic audience causes nothing more than a wry smile here. This is par for the course for investors who concentrate on global emerging markets; some light relief before going back to worrying about whether Israel is going to bomb the Iranian nuclear fuels development programme or not.
We might as well smile – both because we are not as bad as we could be, but also because when you look further than the grotesque, our earnestness is almost sweet and crazy … to my mind, anyway.