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Here are some bits and pieces I highlighted for investors over the last few weeks. Thanks as always to BNP Paribas Cadiz Securities for allowing me to republish these snippets here … it is also a touch more information that most people require, but I post it here for the record, if nothing else.

I write these under considerable time pressure  – deadline 06h30 0n Monday mornings. They can sometimes be a bit scrappy, but mostly (although with exceptions) still relevant a few weeks later. Where I say ‘yesterday’ or ‘today’ (or whatever) I mean: relative to the date in the highlighted headline above each section. The newest is on the top – stretching all the way back to the ancient history of Nkosazana Dlamini-Zuma at the US-Africa summit in Washington.

 

01/09/2014

Lesotho, South Africa … and the Guptas

Lesotho Prime Minister, Thomas Thabane, was assisted by South African special forces soldiers to flee to South Africa in the face of a military backed ‘coup’ on early Saturday morning. The ‘coup’ (or ‘coup attempt’ – both terms are used extensively in the coverage) was allegedly orchestrated by Deputy Prime Minister Mothetjoa Metsing.

The key features of the event were the co-ordinated encircling of police barracks by the military, the disarming of the police and the seizing of the national broadcaster in the country’s capital Maseru on Saturday. (Sunday Times, Voice of America, City Press, Sunday Independent – 31/08/2014).

The Sunday Times story suggests the ‘coup’ was sparked by Friday’s firing of army chief Lieutenant-General Kennedy Kamoli by Lesotho’s King Letsie. The City Press reports that South African troops are on standby for further interventions.

Lesotho army spokesman Major Ntele Ntoi has denied there was a coup and says the army’s actions were purely to disarm police “who had been preparing to provide weapons to political parties” – Sunday Times.

Thabane, in a phone interview with Voice of America, said he was not going back until his safety was secured, that there was a situation of “total indiscipline” in the army and that soldiers were “running around the streets, threatening people” and “quite openly stating that they want my neck” – see here for VOA coverage.

So what?

This is almost too bizarre to type out, but here goes: a significant portion of the coverage of the event refers to the recent controversy surrounding the issuing by Thabane of diplomatic passports to the Gupta brothers (who we know better as key Zuma and ANC backers and funders, see Mail and Guardian coverage “The Grim Tales of the Brothers Gupta” for background).

At the time of the appointment Thobane said “(t)hese people (the Guptas) are good friends of the ANC and we have good relations with the ANC … I was introduced to them by ANC president [Jacob Zuma] and other ANC officials… I then appointed them to help scout for investment in my country. They have influence in a number of countries that can help Lesotho” – see here for that story.

In highly interpenetrated and interdependent systems of patronage and corruption, unsuccessful attempts to defend one part of the system can unravel the whole system and cause destabilisation throughout the linked networks.

 

Jacob Zuma’s Russian rest

Jacob Zuma visited Russia this week for six days. He had a light schedule and was, unusually, only accompanied by State Security Minister David Mahlabo and Deputy Minister of International Relations and Cooperation Nomaindia Mfeketo. There has been widespread but largely fruitless speculation about what the President was doing in Russia. (See City Press’s “Jacob Zuma’s mysterious mission to Russia” and former leader of the opposition DA Tony Leon in the Sunday Times in an opinion piece titled “How much more abuse can the constitution take from Zuma?” … unfortunately can’t find a link to that.)

So what?

The crisis faced by Russian President Putin is, by all accounts serious and urgent – and it might seem unlikely that he would have made time for a casual tête-à-tête with Jacob Zuma. Thus we can assume that Putin was in part motivated by wanting to demonstrate he still has friends in an increasingly chilly world. Also there is the sourcinig of agricultural products to fill the gaps left by European and US sanctions against Russia over Ukraine – a job South Africa could be well placed to do.

However Jacob Zuma appeared less to be representing South Africa and more on a personal visit – with several reports, including from government, that he would use the opportunity to rest.

It is difficult to escape the perception of two embattled leaders involved in a perhaps complicated exchange and attempting to secure their present and future:

  • there is the upcoming ZAR850bn nuclear build programme that probably depends on Jacob Zuma staying at the helm in South Africa – Russia reportedly hopes to be central to that programme.
  • Jacob Zuma’s key spy chiefs all reportedly resigned when he (Zuma) refused to allow them to investigate the Gupta brothers as a serious threat to national security (see back story on that here).
  • Jacob Zuma faces unprecedented blowback at home, including the possibility of a public discussion around the original fraud, corruption and racketeering charges against him (see here) now that the famous Spy Tapes are to be handed to the Democratic Alliance in the official opposition’s attempts to have the National Prosecuting Authority’s decision not to charge Zuma reviewed.
  • Also in yesterday’s Sunday Times was an important ‘leaked’ story that South Africa had sent a large group of intelligence officers to be trained in Russia and that “the Russians have recruited at least four of our people, which means we are sitting with double agents” – according to an unnamed source “with inside knowledge of the programme” – Sunday Times 31/08/2014.
Twinkle Toes (Pic from GCIS)

Jacob’s Ladder (geddit?) and check out the body languege (Pic from GCIS)

It is not inconceivable or unreasonable to consider the possibility that Jacob Zuma is asking for intelligence and security coverage and offering in return nuclear contracts and public expressions of support. It’s not a perfect theory, but some kind of explanation is required.

 

Ruling alliance divides itself neatly on defending or attacking the public protector – is Jacob Zuma becoming a cost the ANC cannot bear much longer?

Zwelinzima Vavi, Cosatu general secretary, broke ranks with the ANC on Saturday arguing that the Public Protector’s recommendations on resolving the Nkandla dispute (in which over ZAR200 million of public money was spent irregularly on Jacob Zuma’s private house) should be implemented immediately … “all of them, without exception.” Vavi went on to say that criticism of Madonsela were “absolutely disgusting, to say the least”– Vavi in the Sunday Times 31/08/2014.

So what?

While the main structures of the ANC and its government attempt to close ranks around Jacob Zuma as the multiple scandals unfold and the threats against him grow, the hegemony is crumbling and the edges.

The ANC still has a comfortable electoral majority although as I have pointed out on many occasions, at least part of the electoral declines the ruling party experienced in May, especially in the sophisticated metropolitan areas of the economic heartland of Gauteng, have to do with perception of corruption and mismanagement at the top. It is difficult not to concur with the implicit meaning of the headline of Barney Mthombothi’s column in the Sunday Times yesterday which reads: “ANC courts its own destruction”.

We must consider that the cost of defending Zuma’s multiple infractions is starting to tell on the ANC (as it is telling on the party’s alliance with Cosatu).

I would reason that the ANC’s brand value is being seriously impacted by Jacob Zuma’s presidency and that, almost as a natural law, such a threat to value will call into being an attempt to defend the value by those who have the most to lose (other leaders and members of the ANC)

It’s the future, so I am guessing, but I think it is an even chance that Jacob Zuma will be moved into retirement within the next two years and that the official reasons will be related to his health.

(This added as I post these comments here: the above several paragraphs might be wishful thinking. If you want to see a well reasoned opinion that takes the opposite view, see the interesting  Daily Maverick column by Ranjeni Munusami arguing that Zuma will see out his second term. I suspect that I just can’t live in a world where the thugs get away with it for ever (this paragraph was edited after posting – Ed)

 

Ebola spreads to Senegal – World Health Organisation warns of ‘rapid hike’ in infections

The Ebola (haemorrhagic fever) epidemic ‘sweeping’ West Africa has killed approximately 1500 people and the first cases have been confirmed in Senegal, having up until now being confined in Sierra Leone, Liberia, Guinea and Nigeria.

So what?

Ebola was first identified in the north of the Democratic Republic of the Congo in 1976 and outbreaks have been common in Central and Western Africa since that time. The disease is isolated and confined to countries with weak public health systems and high levels of poverty. In all the news coverage, the headlines tend to be more alarming than the content of the stories. There are various experimental drugs in trial (including one made jointly by GlaxoSmithKline and the US government which has achieved high levels of success) – Sunday Independent – 31/08/2014.

 

25/08/2014

Pay Back the Money … or we’ll huff and we’ll puff

Julius Malema and his cohorts in the National Assembly didn’t quite blow the House down on Thursday last week during President’s Question Time.

JULIUS

They disrupted parliament by demanding that Jacob Zuma pay back a portion of the costs of upgrades to his Nkandla home, as specified by the Public Protector Thuli Madonsela. Their chanted refusal to accept the stock brushoff from Zuma and the poor management of the showdown by Baleka Mbete, Parliamentary Speaker (and ANC National Chairperson), is the leading edge of yet another storm that concerns Jacob Zuma’s integrity – and the ability of the constitutional mechanisms to hold him to account. (Here for a useful and interesting take on festivities.)

 

But political theatre becomes something more serious as the Public Protector and the ANC and its allies go head-to-head on the issue

Several Sunday papers reported yesterday ( 24/08/2014) that the Public Protector Thuli Madonsela has sent a letter to Jacob Zuma criticising several aspects of his response to her Secure in Comfort report and specifically arguing that he (Zuma)  did not have the constitutional right to set aside or review her findings or to allow Police Minister Thathi Nhleko to do so (in essence Zuma has asked Nhleko to determine what his – Zuma’s – financial obligations are with regard to the Nkandla security upgrades).

According to constitutional law expert Pierre de Vos Madonsela is well within her rights. “This is not legally controversial,” he says, quoted in today’s Business Day (25/08/2014). “The president is either receiving appallingly bad legal advice or he is wilfully abusing his power and thwarting the law to protect himself in order to unlawfully benefit financially from the state.”

Both the ANC and the SACP came out late yesterday afternoon strongly critical of Madonsela, arguing that she had overreached herself, especially as a parliamentary committee was currently dealing with the matter.

So what?

The clash in parliament on Thursday made a significant media impact and it seemed for a moment that the damage being done the ANC by the party endlessly having to defend its wayward leader could conceivably lead to some profound political realignment.

But that feeling was brief.

The EFF has 25 MPs in the National Assembly, to the ANC’s 249 and the DA’s 89.  The chances are, the ANC in parliament will work out a set of rules that essentially disciplines the EFF (already MPs may be suspended for not more than 30 days and have their salary docked for the same period).

Jacob Zuma is a master at diverting crises like this into long (perhaps endless) processes that have a degree (or at least a semblance) of legitimacy and constitutionality. And there is a parliamentary process dealing with Nkandla underway and whether this process is an attempt to ‘set aside or review’ the Public Protector’s findings could be the subject of years’ of constitutional debate, such that many of the players will be long gone by the time it is resolved.

There is considerable stability in a system so tightly bound within itself through links of patronage and shared loyalties – although I suspect that when such a system eventually unwinds, it unwinds quickly and perhaps catastrophically.

Jacob Zuma is off for a week in Russia – to work and to rest – and the game will go on. “The visit will further strengthen the excellent bilateral relations with a view to consolidating and opening new avenues towards job creation, skills development, exchange and transfer of technology and trade and investment,” said the Department of International Relations yesterday.

There may be some future moment when the ANC could face electoral losses because of public perceptions about corruption of its leaders, but that day is still far enough ahead to not impact (in any meaningful way) upon behaviour in the present.

(So … that isn’t a direct contradiction on what Nic thought on September 1, but it is more than a little close. I strongly suspect it might be a biorhythm, or hormonal thing – Ed)

 

Julius Malema … how did he ‘Pay Back the Money’?

Julius Malema appears in court today to face questions about where he got the money to pay his R18 million tax bill. According to Rapport newspaper (24/08/2014) the South African Revenue Service (Sars), would ask for a two-month extension of Malema’s provisional sequestration to determine where he got the money to repay his tax debt each month. The newspaper reports that “impeccable sources” allege that “cigarette smuggler Andriano Mazzotti was helping to pay his tax debt” – as re-reported at the Independent Online 25/08/2014 – see here. (I don’t know the Afrikaans language Rapport newspaper well – it is part of Naspers’s Media24 stable – treat the claim with maximum caution). (Not because of Naspers of Media24 – for so are they all, all honourable men … the caution is purely because the claim is faintly outrageous, which doesn’t mean it’s not true – Ed)

So what?

While Julius Malema’s insistence that Jacob Zuma account to parliament is welcome, we should be careful to not lose our sense of discernment. Julius Malema himself has faced a long list of accusations similar to those he is making against the ANC and Jacob Zuma.

 

Land and wage reform – unintended consequences

Two interesting articles in the Sunday papers hint at some of the negative unintended consequences of attempts to protect the interests of the marginalised and vulnerable workers on South African farms.

Firstly, the Sunday Times (24/08/2014) has a colour piece titled “Good intentions pave the road to rural hell” in which the 1997 Extension of Security of Tenure Act is assessed as having “led to as many as a million farmworkers being evicted countrywide”.

Secondly, the Sunday Independent (24/08/2014) records an interesting discussion about the impact of ‘minimum wage’ determinations on employment. The article shares different views on the matter, but concludes that in SA agriculture “the impact was devastating: Employment fell from 819 048 jobs in 2002, just before the law came into effect, to 623 750 jobs in 2003 and continued to decline to 555 549 jobs in 2007 – a net loss of almost a third in five years.”

So what?

The ANC has signalled an urgent desire to ‘get serious’ about land reform.  As we have mentioned previously ‘the land question’ seems to suggest to the ANC an answer to a host of social needs: employment, housing, food security, and black economic empowerment, to name only the most obvious. Racially unequal land ownership patterns (it is generally quoted that SA had 87% of land in white hands at the 1994 transition and that less than 8% has been redistributed since – see here) are also a driver of political dissatisfaction, perhaps helping feed the growth of the EFF and other ‘radical’ forces emerging in the society.

For now government is preparing a host of new legislation and regulation all the while signalling to commercial agriculture that it wants to be met half-way. There will probably be unintended consequences of government’s land reform and rural development programme (including negative impacts) but the lessons from the banking sector (for example with regard to the formulation of the National Credit Act) is that it is always a better idea for the private sector to go out and engage with government and attempt to shape legislation than it is to wait and deal with the future when it is a fait accompli.

 

21/08/2014

Mining, oil and gas sectors: legislative and regulatory drift and a scary audit

Mineral Resources Minister Ngoako Ramatlhodi didn’t calm nerves last week during his address to the third annual Mining Lekgotla. The minister is overseeing two significant regulatory processes causing anxiety in these sectors, namely a major audit of mining companies’ compliance with the 10 year targets of the Mining Charter and the signing into law of a bill amending the Mineral and Petroleum Development Act of 2002 (which the private sector thought it had essentially cautiously agreed to in exchange for it – the private sector – being consulted in detail about the regulations that would arise from the legislation).

With regard to the audit, Minister Ramathlodi said: “(w)hile the review process on the implementation of the Mining Charter is still under way, initial results suggest that whatever compliance we may have achieved, much more work still needs to be done” – Business Day -14/08/2014

With regard to the legislation the Minister said he had not been informed by the Presidency whether or when the bill would be signed into law. “There are legal teams that look at any legislation coming before the president and they advise him. When they do so we’ll act on that advice” – Business Day ibid.  Download Minister Ramatlhodi’s full address at the DMR website here.

So what?

Firstly, the audit obliges the mining companies to meet various ‘transformation’ obligations and targets by 2014 e.g., 26% of the company must be owned, through “full shareholder rights”,  by HDSA (Historically Disadvantaged South Africans) by the end of this year – as a precondition for the retention of the mining right. Go to www.dmr.gov.za to see the “Mining Charter” and the “Scorecard for the Broad-Based Socio-economic Empowerment Charter for the South African Mining Industry” to get a full view.

2014 is the year in which several definite obligations must be met by the mining companies and there is a degree of nervousness by investors and management as to how strict the audit will be, how much leeway the ministry will give and how severe the consequences of failure will be.

Purely the administrative aspects of the reporting process are enough to be a serious burden for smaller mining companies, according to Nic Dinham, Head of Resources at BNP Paribas Cadiz Securities

The apparent prevarication in signing the Mineral and Petroleum Resources Development Act Amendment Bill, after months of careful negotiations between the department and the mining companies, has caused the industry to worry that deals struck and compromises made might be up for renegotiation. There was a general expectation that the constitutionality of the amendments would need to be tested and examined (especially government’s 20% proposed free-carry interest in all new exploration and production rights in the oil and gas sector).  It appears to me that the delays are adding to a more generalised sense of uncertainty about the growing regulatory burden and costs associated with continuing to mine in South Africa.

 

Amcu set to go on the offensive at Num’s last toeholds in the Platinum sector – non-cyclical risk factors in the SA labour environment escalate

Nic Dinham (BNP Paribas Cadiz Securities Head of Resources referred to in a previous section) said yesterday that in the platinum operations where Amcu is not (yet) the major union (at several mines, but including those operations at Aquarius Platinum and Northam Platinum) there were significant indications that Amcu was close to recognition thresholds (specific to each company) and that it was reasonable to expect increased labour unrest at the particular operations and companies where Num was clinging to a majority.

“During the recent result presentations, several companies reported that operations previously dominated by Num are showing signs of losing ground to Amcu, especially in the Rustenburg areas”, said Dinham.

“This is the case at Aquarius Platinum as well as at Northam where Amcu membership has risen to 30% and 15% respectively, just short of both companies’ recognition levels. Clearly, this could be the harbinger of more labour storms to come. At the same time, only small numbers of workers in the existing Amcu fortresses switched to NUM after the end of the strike. So, despite all the rational arguments about the financial impact of the strike on labour, Amcu appear to have won the propaganda war with the mining industry” – Nic Dinham, 20/08/2014.

So what?

There are a number of important implications, not least of which is the confirmation (and deepening) of the implicit defection of mineworkers in the Platinum sector from a key ANC aligned union (Num) and the continued disintegration of previously powerful trade union federation and ANC ally, Cosatu.

In some ways this frees the ANC (and government) to decide on economic policy without having to kowtow to Cosatu, but it will also raise anxieties in the ruling party about the narrowing of its base – and a diminishment of its hegemony and moral authority.

None of that is necessarily a bad thing. It is my opinion that our legislative and regulatory environment has tended to suffer from a lack of clarity and focus as a result of the ANC attempting to keep a number of different legacy constituencies (and sectional interests) happy and on-board.

However, it is also worth noting that my general expectation of a deteriorating labour environment is strengthened by concerns about labour unrest driven by further contestation between Amcu and Num. This, together with a coming trial of strength in all (or most) Cosatu unions that will accompany the impending Numsa split out of Cosatu will be a strong, non-cyclical, driver of labour unrest for the next 18 months. Jeff Schultz (BNP Paribas Cadiz Economist) and I recently suggested that these strands driving labour unrest, along with what we expect will be a major confrontation that will accompany the lead-up to the expiry of the current 3-year public sector wage agreement in March 2015, will keep labour risks at elevated levels in the South African investment environment for at least another 18 months.

 

Cyril Ramaphosa – a hard week down at the Commission

Deputy President Cyril Ramaphosa last week faced an avalanche of criticism and heckling at the Farlam Commission (which is investigating the killing of 44 people at Marikana on and before August 16 2012 in the context of the protracted strike at Lonmin mines in the Rustenburg area at that time).

Cyril Ramaphosa was called to the commission to explain his actions in the lead-up to the Marikana killings. Ramaphosa was on the Lonmin board at the time and in an email to Lonmin managers he said: “(t)he terrible events that have unfolded cannot be described as a labour dispute. They are plainly dastardly criminal and must be characterised as such. In line with this characterisation there needs to be concomitant action to address this situation.” In another email he urged then police minister Nathi Mthethwa to “take appropriate steps”. In both these cases I have added the emphasis.

At the Farlam Commission hecklers shouted “Blood on your hands” (City Press 11/08/2014) during Ramaphosa’s cross-examination. Hecklers wore T-shirts with several different slogans criticising Ramaphosa’s wealth, for example one showed a buffalo in reference to the fact that Ramaphosa bid – unsuccessfully as it turned out – R19.5 million for a buffalo cow and her calf at a wildlife auction a month after the Marikana killings in 2012.

So what?

There is a high level of speculation as to whether Cyril Ramaphosa will succeed Jacob Zuma as president (when the current presidential term expires in 2019 or at some earlier date due to Jacob Zuma’s purported ill health.) There appears to me to be a widespread assumption in the financial markets that Cyril Ramaphosa, as an experienced businessman and an experienced negotiator and conciliator who was central to easing the transition at Codesa 1 and 2 in the early 90s, would be more sensitive to the needs of the private sector, more compliant with global capital markets and, generally, run a cleaner and more efficient ship.

Implicit in that list of attributes is the person who Ramaphosa would be cleaner than, more conciliatory than, more understanding of private sector needs than, is Jacob Zuma. It is impossible to know either that Ramaphosa really has such attributes relative to Zuma or that it is really or primarily those attributes that make Ramaphosa a more attractive choice than Zuma for the financial markets … or, in fact, whether the ‘financial markets’ really makes these kinds of distinctions.

It is my impression that Jacob Zuma’s rise to power and performance as president has been accompanied (and in several cases directly caused) increased political risks associated with investing in the country. Almost any successor would probably be welcomed by the markets. However we would be cautious about seeing Ramaphosa as the knight in shining armour. He is badly damaged by his link to the Marikana killings (unfair as that may be) and he has not yet established a significant constituency within the ANC. The fact that he is a rich man can play both ways; it gives him resources to build his case but it makes him vulnerable to accusations of conspicuous consumption and being out of touch with common people. It is also inescapably true that his wealth has been accumulated more as a result of ‘empowerment deals’, the accumulation of large slices of equity, rather than the involvement in any of the underlying activities (mining, banking, health care etc).

More than anything we must keep front of mind that much ANC policy and politics is determined in the forums of the party – long in advance of such policies and politics becoming law and regulation. The particular character of leaders makes a difference, but in the South African case, not as big a difference as it might elsewhere.

 

The noise around land reform is (partly) bluster designed to get commercial agriculture to act voluntarily

Urging Commercial farmers to take voluntary steps ‘advancing the transformation project in the agriculture sector’, ANC Secretary General Gwede Mantashe said “change that is imposed is more painful” – Business Day 14/08/2014.  Mantashe told attendees at a conference on land reform and food production that land reform was necessary if South Africa was to deal with the “ugly past of racial land dispossession of black people” and that farmers must never allow themselves “to be victims of change” – Business Day ibid.

So what?

We previously described in some detail some of the legislative initiatives around land reform and one of the points we made about assessing the risks associated with the land reform initiative is reinforced by Gwede Mantashe’s choice of words.

The ANC feels keenly its failure to successfully complete a significant process of land reform and redress – and is, in part, being punished for that failure by the (still slight) electoral traction achieved by the ostensibly more radical Economic Freedom Fighters on their debut in the general election on May 7 2014.

However, the ANC feels, at least as keenly, the threats to investment that would result if property rights were ever threatened by an unruly and uncertain ‘land reform’ process à la Zimbabwe.

Commercial farming does not have the handy (from the ANC’s point of view) equivalent to the mining sector’s mineral rights to attach to a number of ‘transformation’ objectives. The ANC would be extremely cautious about bluntly attaching a ‘licence to farm’ (or in fact a ‘licence to operate any business’) directly to ‘transformation objectives’. There is a line beyond which such rights and obligations could constitute a nationalisation in fact and might be both unconstitutional and, certainly, a serious barrier to future investment.

Thus the ANC, in the form of its secretary general, is snapping at the heels of domestic commercial agriculture, attempting to herd it towards the ‘transformation’ objective, putting the argument that this is the national good, but hinting that a bite on the ankle could be the laggard’s reward. It is an open question as to whether farmers would respond to such incentives with greater compliance or with resistance, both covert and overt. However, for now, we think the ANC’s (and therefore government’s) land reform bark is worse than its bite.

 

Bits and pieces

  • Jacob Zuma put out a report last week which he and his spokespeople claim is a satisfactory response to the Public Protector Thuli Madonsela’s, “Secure in Comfort” report into the upgrades to the President’s private Nkandla residence in which she finds several faults with the President’s actions and inactions. The delay, over many months, of a response from Jacob Zuma to Thuli Madonsela was ostensibly as a result of him (Zuma) awaiting a report from the Special Investigating Unit. However, on Friday a spokesperson for the Public Protector said Zuma’s report was not a response, adequate or otherwise, to Secure in Comfort. ““That means a document that comments on the public protector’s report or indicates action taken or to be taken to implement remedial action in compliance with section 3(5) of the Executive Members Ethics Act must still be submitted to Parliament by the president” – my emphasis added.
  • Jacob Zuma’s team is preparing to hang expense overruns and incorrect categorisation of some items as ‘security related’ on Jacob Zuma’s architect, Minenhle Makhanya. The Mail and Guardian reports that the “Special Investigating Unit has lodged a R155-million claim against Makhanya” – 15/08/2014.
  • And in other news Bruce Koloane, the former chief of state protocol who was shouldered with the blame for the landing of a large private wedding party at a secure military base by the close Zuma allies and business partners the Gupta brothers and family last year, was nominated by Jacob Zuma as Ambassador to The Hague. In August last year, Koloane pleaded guilty to all charges relating to his involvement in authorising the controversial landing of the jet.
  • It’s not (just) idle mischief putting these bullets together. If the President’s own actions around his accumulation of personal assets and special favours to his friends can impact on the formal judicial, disciplinary and constitutional oversight functions, if his party can go to extreme lengths to protect him from the consequences of his actions in accumulating personal wealth and influence, it is unlikely that private companies will be trustful of, or willingly and enthusiastically compliant with, the ‘transformation’ agenda emerging from the state, government and party he leads. Ultimately the private sector needs to believe that the value of its various social obligations ends up benefiting those who need the assistance the most. This is the price the private sector seems prepared to pay for stability and growth. Any sense that the public purse is hijacked or that equity transfers and affirmative action obligations have become a kind of asset that can be hoarded and dispensed as patronage by the politically powerful will cause the ‘transformation’ objective – and much else – to fail.

 

11/08/2014

‘Cabinet leaning to break-up Eskom’ – Business Day 05/08/2014 … I would be extremely surprised

Business Day reported that the idea of breaking up Eskom and privatising some of its power stations “is starting to gain traction in government circles, as a team of cabinet ministers and government officials seeks ways to alleviate the company’s financial crisis and restructure its business” – Business Day 05/08/2014.

The governing ANC’s alliance partner, the Congress of South African Trade Unions (Cosatu) vowed the next day to fight any such privatisation “to the bitter end” arguing that electricity price inflation, driven by the ‘commercialisation’ of the utility in the first place, was “one of the key constraints” on economic growth and an important reason South Africa “is not creating decent jobs the country so desperately needs” (catch the full August 6 Cosatu statement here.)

On the same day Lynne Brown, the Minister of Public Enterprises, said “I want to indicate that there is a portfolio of options for the interministerial task team to consider. To my knowledge Cabinet has not discussed the matter of privatisation and there is no need to unnecessarily raise temperatures around this matter” – City Press Online, 06/08/2014. The ‘task team’ to which she refers was described (in the same story) as “representing energy, public enterprises and the treasury” and further, that the findings of the team had not yet been made public.

So what?

This is, supposedly, a defining issue for the ruling faction of the ANC and its allies in Cosatu and the SACP. Much of the motivation for backing Jacob Zuma (and ousting Thabo Mbeki) was – apparently – that Mbeki’s policies were a species of Thatcherism (especially the plan to privatise the major state utilities). The alliance backing Jacob Zuma defined its historical mission as the combating of this “1996 class project”, a catch-all phrase for neoliberalism, fiscal rectitude and the ‘Washington Consensus’.

It might well be true that the breaking up and privatisation of Eskom is an urgent necessity – or even a precondition for recovery from our dire economic state – but it is a political nonstarter, requiring the complete breakup of the alliance of groups that hold power, and is therefore vanishingly unlikely to happen, even symbolically.

 

National Prosecuting Authority in free fall and intelligence services are extensively deployed on behalf of senior politicians and criminals – and the storm is beginning to batter against the South African Revenue Service – this is as serious and urgent as it is confusing and complicated

There is an on-going meltdown at the heart of the criminal justice system which is increasing risks in doing business with, or in, the areas administered by the South African state.

Here are only a few of the most recent visible features of the (complex and confusing) disintegration:

  • Jacob Zuma has asked the National Director of Public Prosecutions Mxolisi Nxasana to give reasons why he should not be suspended. The apparent motivation is that Nxasana has problems associated with his security clearance (owing to his brushes with the law, including a murder charge, when he was a younger man). However, almost all the coverage and analysis suggests that the ‘real reason’ is Nxasana has pursued investigations of key Zuma allies in the NPA and Crime Intelligence Division of the South African Police Service and his (Nxasana’s) actions threaten to lead, eventually, to fraud and corruption charges being reinstated against Jacob Zuma.
  • Award winning journalist Mzilikazi wa Africa published his memoir last week which includes a detailed account of how Jacob Zuma and his allies vigorously undermined the credibility of the first National Director of Public Persecutions Bulelani Ngcuka by spreading the false information that he (Ngcuka) was an apartheid spy.(See an interesting examination of this thread from Business Day 07/08/2014 here.) In here is the source code of much of the chaos in the prosecuting authority and intelligence service: Bulelani Ngcuka led the original investigation into the allegations of fraud, corruption, money laundering and racketeering against the then Deputy President Zuma, concluding that there was “prima facie” evidence that Zuma was guilty, but not enough to win in court – a statement to which Zuma, not unreasonably, strongly objected.
  •  “Sex, SARS and rogue spies” announced the front page headline in City Press yesterday (10/08/2014). The accompanying stories allege that senior SARS official, Johan van Loggenberg, has been the subject of a ‘honey trap’ operation by the State Security Agency “Special Operations Unit”. The story is Byzantine, but the important bit is the detailed allegation that the secret spy unit operating against van Loggenberg has also been used to discredit and smear a ‘anti-Zuma’ camp in the NPA and in Crime Intelligence. Bizarrely, the Special Operations Unit supposedly includes drug dealer Glen Agliotti.  (Read some of this story here and here … if you have the time or the patience.)

So what?

This level of political and criminal infiltration into key state institutions and functions, especially of the security services, the prosecuting authority and the South African Revenue Service raises real questions about judicial, regulatory and legislative certainty in the operating and investment environment. Uncertainty about the application of law, the integrity of the criminal justice system and the functioning of the revenue service must all be considered by anyone wanting to invest in South Africa or in assets regulated by South African institutions of state and law. Frankly, given the deep connections between the instability in these key sectors of the South Africa state and the rise to power of Jacob Zuma I am pessimistic that we have the capacity to fix this problem while the current administration is still in power.

The National Prosecuting Authority has appointed highly respected retired Constitutional Court judge Zak Yacoob to head an inquiry, or ‘fact finding mission’ into its dysfunctional state. Unfortunately Yacoob almost immediately (on Thursday last week while speaking at a workshop at the University of the Witwatersrand) happened to mention that he would have “set aside” the judgement that found Jacob Zuma not guilty of rape in 2006, because he would have put less emphasis on the alleged victim’s sexual history – see here. An outraged African National Congress said it learned of Yacoob’s comments “with shock and dismay” saying they “opened old wounds” and were “an attack on  principles of our jurisprudence and the judiciary.” Yacoob attempted to clarify his comments here but either way he is no longer likely to be the instrument that cleans up the National Prosecuting Authority.

 

 

Cyril Ramaphosa at the Marikana Commission today as succession debate begins

Deputy President Cyril Ramaphosa will have to explain today at the Marikana Commission what he meant when emailed other senior Lonmin managers just before the August 12 2012 killing of 34 striking mineworkers at Marikana and said: “(t)he terrible events that have unfolded cannot be described as a labour dispute. They are plainly dastardly criminal and must be characterised as such. In line with this characterisation there needs to be concomitant action to address this situation.” In another email he urged then police minister Nathi Mthethwa to “take appropriate steps”.

So what?

It is unlikely that the Commission will find anything untoward in Rampahosa’s messages. He was, after all, doing nothing other than responding to the growing violence of the strikers and Lonmin’s increasing anxiety about the strike. We are of the view that there is some political harm done Ramaphosa by his identification with mine management and government – and the police killing of the 34 mineworkers. There is a considerable degree of unease within the broad structures of the ANC and the electorate about the Marikana killings. The ANC is obliged to stand with its Deputy President on this matter, but it can’t be comfortable. This will play against Ramaphosa (although perhaps not decisively) in the coming succession contest in the ANC.

 

Nkosazana Dlamini-Zuma

Chairwoman of the African Union, fresh from pride of place at the US-Africa summit in Washington announced yesterday that she was undecided as to whether to stand for a second term in the AU (her current term expires in 2014 2016) This is inevitably raising questions about whether she will compete with Ramaphosa to succeed Jacob Zuma as president of the country.

So what?

She is in the running – and is clean and capable. She is perhaps more of an insider in the ANC’s power elite than Cyril Ramaphosa and her winning this race might mean (unwelcome) continuities with the current administration. It’s too early to call it one way or another, but the ANC Women’s League has indicated that it could back Dlamini-Zuma (or Baleka Mbete) while the Gauteng ANC has indicated it could back Ramaphosa.  Officially succession would only take place after elections in 2019, but there are constant rumours that Jacob Zuma might want to retire early (or be forced to do so due to failing health). An early retirement of Jacob Zuma would probably be a significant positive for perceptions about South African political risk, but the specific circumstances of such a move would determine whether it would, in fact, be positive, negative or natural.

I intend, in the near future, to dust off my Marxist theory.*

I am going to need a framework through which to express my growing conviction that much of our politics can be understood as a function of the collapse of the alliance of classes that underlay the national democratic revolution – and the African National Congress.

The big driver is the strongly emergent black middle class – or perhaps competing versions of that class. In the background is a sort of bad kung fu movie fight scene involving the industrial working class, various parasitic elites within the state and party, a comprador bourgeoisie and a whole mess of tribalists, proto-fascists, landless peasants and  lumpen proletarians of various stripe.

(The camera occasionally flicks across the deeper shadow behind, where we almost catch a glimpse of Moeletsi Mbeki’s lurking oligarchs, watching us.)

It’s my job to have some kind of understanding of what is going on … and I will need all the help I can get theory-wise.

In the last week the ANC has given strong hints that the Labour Relations Act amendments are being held up because government wants balloting prior to strikes and a ‘forced mediation’ strike-breaking mechanism. (See here.)

Also we have the astonishing re-emergence of the (excellent) idea that we should break up Eskom and sell off some of  the bits and get the private sector to build other bits. (See here  … and btw I can’t help but notice how much interesting news is written by Carol Paton of Business Day.)

What’s going on?

Well, one things is government is facing further downgrades because it can’t pay its bills.

The biggest bill of all is public sector wages, which will be renegotiated before  the current wage agreement expires in March 2015.

That bill will represent above 35% of non-interest government spending and the wage level the employer and the employee eventually agree upon and the degree of disruption that accompanies the bargaining is extraordinarily important for South Africa and therefore for the stability of the governing party.

Also government is burning due to its apparent inability to get the endlessly promised infrastructure built. At least part of the reason is the constant labour stoppages, for example at Kusile and Medupi.

Having lost much revenue (and political support) during the recent strikes led by Amcu and Numsa, the ANC government is forced to find a way to rewrite the terms of engagement between employer and employee.

Also Eskom is bleeding … or potentially bleeding … government dry.

The case for privatisation is threefold: you get money from the asset sale to pay your debts, you don’t have to keep bailing out the loss-making enterprise and you get the ‘efficiencies’ (the removal of structural impediments to growth) that supposedly come from the private sector running the enterprise.

(As an aside: privatisation seldom works quite like that. This government, and the people of South Africa, have barely recovered from the the drubbing we received from the ‘private sector’ following the partial privatisation of Telkom in the 90’s.  But desperate times, desperate measures … and all of that.)

The groups that traditionally oppose these policies are in disarray. Cosatu has essentially collapsed in a heap – and the most energetic sections of organised labour are actively hostile to government/ANC anyway and no longer require wooing … or rather, following Marikana and various statements of outright hostility by the ANC and government leaders, are no longer susceptible to those old sweet lies.

The forces that shaped our labour market are profoundly changed.

A growing mystery to me is where the SACP is in all of this?

So its all: hello 1996-class project, we who threw you out with the bathwater at Polokwane in December 2007 would like to apologise and welcome you back. Don’t worry, the communist are in China learning how to deal with corruption and with the labour force … you can chat to them if they ever come home.

So meanwhile here is a sort of ancestor to my questioning the ‘class character’ of the moment; a column I wrote for the Compliance Institute of South Africa in November last year:

Is this Jacob Zuma’s Maggie Thatcher moment?

I admit that on the face of it the comparison seems something of a stretch.

For example I can’t think of an ‘Nkandla’ equivalent in Baroness Thatcher’s world – although her son seemed to benefit from parental political power in much the same way as Jacob Zuma’s myriad offspring seem to be enjoying.

Maggie1

The point, though, is Thatcher came to power with the reforming mission to roll-back back the influence of organised labour and to make labour markets more flexible– all as part of her attempt to stop an on-going recession, bring summer to the ‘Winter of discontent’ (paralysing wage strikes by public sector unions in Britain in 1978-1979) and increase employment and economic growth.

(‘Thatcherism’ as a political-economic ideology is also considered to include attempts to keep inflation low, shrink the state – by privatising state owned enterprises – and keep a tight rein on money supply … (and is not famously concerned about employment – Ed) … but let’s leave those details aside and stick with the matter of organised labour.)

Much to my surprise there is growing evidence Jacob Zuma is forcing a showdown within the Congress of South African Trade Unions (Cosatu) – and between the members of the ruling alliance (the ANC, the SACP and Cosatu).

Since 1994 it has been a good bet that tensions in the ruling alliance would flare up and then subside – but that the constituent ideological factions and organisations would always back off from a real split.

The ruling alliance has always seemed to me like a vaguely unhappy marriage that none of the parties have the resources or discipline to leave.

I have been covering South African politics and financial markets since 1997 and in 1999 I commissioned this cartoon :

Maggie2

 

The original caption read: ‘She means nothing to me’, he pleaded unconvincingly. ‘You’re the one I will always love’.

The report that accompanied the cartoon – which I originally published for the then stockbroker Simpson Mckie James Capel – made it clear that the man in the middle represented the ANC and his entreaties were addressed to Cosatu and the SACP … while his real passion (and the furtive fumbling behind his back) was for business, global and domestic. (Cathy Quickfall drew the cartoon and did a better job than I could have hoped for: the Cosatu/SACP figure’s naive and hurt innocence, still wanting to trust Mr ANC; business in a sharp suit, her disdainful look into the distance with just the busy hand behind her back revealing her urgent and furtive intent.)

It has looked for many years as if the dysfunctional relationship would continue for ever – that the parties involved (both the institutions of the ANC, the SACP and Cosatu but also the myriad ideological factions that exist across those organisations) have more to gain from being inside and more to lose from being outside.

But, surprisingly, it appears that the ruling faction within the ANC (the incumbent leadership, represented by Jacob Zuma) appears to have finally drawn some kind of line in the sand with the ‘left’ unions within Cosatu, most obviously the National Union of Metalworkers of South Africa.

The first signs that this was happening appeared when evidence surfaced that Jacob Zuma’s allies within Cosatu were moving against Zwelinzima Vavi, the now suspended secretary general and strident ‘left’ critic of corruption in the ANC and critic of the slightly more business-friendly economic policy (particularly the National Development Plan) of the Zuma government … (remembering that this was written late last year and Vavi has now been reinistated … sort of – Ed).

At first it appeared that Vavi would be got rid of by being accused of corruption or some form of financial mismanagement related to the sale of Cosatu House for a price less than it was worth. While that investigation was still on-going, Vavi handed his enemies a perfect excuse to suspend him by having sex with a junior employee in the Cosatu head-office earlier this year (last year – Ed).

Since the suspension of Vavi his allies in Cosatu, especially the biggest affiliate (the 350 000 member Numsa) has been on a collision course with both Cosatu itself and with the ANC.

The conflict is likely to come to a head at the Numsa special congress to be held on December 13 – 16.

Why do I see this as, partly, Zuma’s Maggie Thatcher moment?

Well, Vavi’s suspension is only the proximate cause of the impending collision. The ‘real’ or ‘underlying’ causes are what are important.

Vavi, Numsa secretary general Irwin Jim, his deputy Karl Cloete – and probably a majority of Numsa leaders and shop stewards … and several other groups and leaders within Cosatu) appear increasingly of the opinion:

  • that Cosatu has been bullied by the Zuma leadership into accepting policy positions with which it (generally) disagrees
  • that the ANC under Zuma has attempted to turn Cosatu into a ‘labour desk’ of the ANC and the alliance summits have become nothing but a ‘toy telephone’ rather than a real joint decision making forum for the ANC/Cosatu/SACP alliance
  • the policy positions with which this group disagrees are, particularly, the National Development Plan, but also e-tolling, the Youth Wage Subsidy and the ANC government’s failure to ban labour brokers. (The reasons why this ‘left’ group opposes these policy measure are crucial: they oppose the NDP because it is seen as ‘neo-liberal’ and anti-socialist; e-tolling because it is seen as covert privatisation of public infrastructure; the youth wage subsidy because it segments the labour market, threatening Cosatu’s monopoly and potentially exposing ‘protected’ Cosatu members to competition from ‘unprotected’ youth workers; and the failure to ban labour brokers because those institutions are also anathema to Cosatu’s monopoly.)
  • that the ANC under Zuma has been captured by a crony-capitalist regionally based (possibly ethnic) elite bent on looting the state
  • that the gamble to back Zuma against Mbeki has badly misfired

 

There is widespread press and analyst speculation that the tensions within Cosatu could lead to the federation splitting – and in some way or another the more specifically ‘socialist’ pro-Vavi, Numsa-based group leading Cosatu – or a piece of Cosatu – out of the ruling alliance.

In what way is this ‘Zuma doing a Maggie’?

Well, because the disgruntlements of the Vavi/Numsa group (described above) are real and represent significant shifts against organised labour by the Zuma government.

If we add to the youth wage subsidy, the NDP, the failure to ban labour brokers, e-tolling in Gauteng to the very tight budgeting for public sector wage increases mentioned in my October column I think we have a strong circumstantial case that Zuma’s ANC has moved decisively to roll-back the power of organised labour.

Maggie3

 

Why Jacob Zuma and his allies might have done this is revealed clearly in the anaemic Q3 GDP growth figures of 0.7 per cent compared to the previous quarter, or 1.8 per cent on a year-on-year basis . Almost across the board analysts and economists have ascribed most of the weakness to labour unrest, particularly in the motor vehicle sector – where the recent strikes were organised by Numsa! (Again, remember that this was written in November last year … just imagine how many exclamation marks he would have used if he had written that sentence today? -Ed)

Numsa has also helped plague Eskom’s flagship Medupi project – and has undoubtedly contributed to government’s infrastructure plans looking shaky.

The ANC’s motivation is not purely an attempt to fix economic growth – and bring to an end our own ‘Winter of Discontent’. Vavi and his allies in Numsa have harried and harassed the ANC leadership over corruption – and particularly the upgrade to Nkandla – and this has clearly helped force the hand of the Zuma ANC to drawn a line in the sand with the left-wing of Cosatu – especially as the ANC enters an election and struggles to cope with this level of internal dissent and criticism.

The resignation earlier this week of Numsa president Cedric Gina (who, unlike the majority of his Numsa colleagues, is close to the current ANC leadership: his wife is an ANC MP and he probably has similar ambitions himself) is probably an indication that the Zuma/ANC allies intend contesting Numsa’s direction in the lead-up to the Numsa special congress in December. The ANC leadership has probably decided to fight it out in Numsa – and Cosatu more generally – making sure that if/when a split occurs the faction that sticks with the ANC/Zuma/SACP is as large as possible and the faction that defects is as small as possible.

The big risk for investors and financial markets associated with a possible split in Cosatu is that Vavi/Jim group is likely to contest with unions within Cosatu that currently support the ANC and Zuma’s leadership – most obviously and most unsettlingly –  with the National Union of Mineworkers which has complained repeatedly that Numsa is poaching its membership. This potential for a widespread contestation of each workplace and each economic sector between a new ‘Cosatu’ and an old ‘Cosatu’ is probably the most important threat represented by the unfolding crisis.

Politically the Vavi/Jim group will likely be campaigning against the NDP, the youth wage subsidy, e-tolling and Nkandla-style corruption just as the ANC’s election campaign peaks early next year. I do not think a split in Cosatu will translate automatically into specific electoral declines for the ANC – it is possible and even likely that Numsa members who support a split could still vote for the ANC.

However, one of the big unanswered questions is whether the defecting faction has any possibility of linking up politically with the EFF. Up until now the defecting faction linked to Vavi and Jim have unequivocally rejected the EFF on the grounds that its (the EFF’s) leadership are ‘tenderpreneurs’ (much like the Nkandla faction of the ANC) who just happen to be out in the cold.

However, the EFF’s support for nationalisation of mines and expropriation of white owned farms with or without compensation does dovetail with aspects of the Vavi/Jim faction’s essentially socialist ideology.

My own view is that in the event of a split it is possible that the Vavi/Jim faction forms a ‘labour party’ which could only feasibly contest elections in 2019.

The motivation for Thatcher moving against the unions was as much about weakening the Labour Party as it was about repairing the economy – so we shouldn’t dismiss the Zuma/Thatcher comparison purely because his motivations are mixed.

If Zuma and the ANC succeed in reducing the militancy and power of organised labour it is possible that they will have contributed in a small way to laying the grounds for an improvement in public education, for a period of recovery and even extended economic growth.

It’s a risky – and complicated – business, but it was for Baroness Thatcher as well.

 

* It was, in our eyes,  a fine hat and we cocked it jauntily. And thus attired, and to our very great satisfaction, we successfully answered all the important epistemological questions of the day. We let the  cowards flinch and traitors sneer as they boastfully proclaimed the end of history. We were history … or at least, through the complex functioning of the intelligentsia in Marxist Leninist theory … we were history’s engine made flesh. And the race wasn’t over … we were merely getting our breath back.

For the record – and on the off chance that  someone may one-day want some background on the (at time of writing) unresolved metalworkers strike – here are the bits and pieces I have published over the last two weeks; ordered from most recent at the top.

The piece from the eve of the strike was written jointly with my colleague (economist at BNP Paribas Cadiz Securities) and friend Jeff Schultz … and just while I am on that, well done Jeff on your accurate 25 basis point hike call  from the SARB’s MPC.

(btw, I am publishing in something of a rush … I will attempt to clean up the formatting and editing over the next day or so.)

 

Numsa and SIEFSA – so near yet so far – 13th July 2014

The engineering strike has reached an impasse that is less insignificant than it first appears. Numsa, representing the majority of the 220 000 workers on strike, has gradually reduced its demand from 15% to 10%. SIEFSA is prepared to meet the 10% for the coming 1 year period but only if this is part of a 3 year agreement with 9.5% in 2015 and 9% in 2016. Numsa has rejected this offer (which SIEFSA subsequently withdrew) saying it will only agree to a 3 year agreement at 10% for each of the years

So what

The strike is entering its 16th day and the knock-on effects into the rest of the economy are severe; threatening our already anaemic GDP growth estimates.

Numsa has adequately jumped the hurdles to ‘prove’ that it is not opportunistically pursuing the industrial action purely as a way of building momentum towards launching a political party. By moving towards the employer organisation at each bargaining round (from 15% to 12% for 3 year agreements and then to 10% for a single year) but staying just out of reach of SIEFSA’s mandate, Numsa can now dig in its heals without losing the backing of those of its members who feel unwilling to be used in the Numsa leadership’s broader political game.

Numsa now promises to produce “a detailed Programme of Action (PoA) to intensify the (indefinite) strike action” – Numsa press release 14/07/2014. Numsa is hinting that this means getting other sectors in which it organises (especially the automobile manufacturing industry which is already negatively affected due to parts shortages) to strike in sympathy.

At issue here is that if our assumption that Numsa has ‘hidden’ motivations is correct, then predicting how and when the strike will end is that much more difficult.

Numsa’s trade union movement to the left of Cosatu and political party to the left of the ANC are an historical inevitability – and likely to garner significant support

A useful background article by Eddie Webster and Mark Orkin concerning the historical origins of, and potential support for, a ‘workers party’ appeared in Monday’s Business Day (15/07/2014). The article is based on “a large nationally representative sample of adults of all races” conducted in February and March this year and concludes that the party (which Numsa is pushing to form) could win as much as 33% of the national vote in an election. While we think these estimates are a bit rich, the article is a ‘must read’ for anyone wanting to understand the ideological origins and potential size of the initiative emerging from Numsa and other dissident Cosatu sectors and leaders.

To restate our oft restated view on this matter:

  • the initiative will cause heightened industrial unrest in the medium term (over 2 years) as the breakaway unions compete with established Cosatu unions;
  • the resulting ‘political initiative’ could push the ANC to a marginal hold on its absolute majority in future elections (potentially leading to more schizophrenic policies … but potentially having more positive impacts).

 

The National Union of Metalworkers is ready to fight – 30th June 2014

A strike in the engineering sector is on – and Numsa will attempt to extend the action to Eskom.

“The national executive committee has agreed to the decision from our members to embark on an indefinite strike action, beginning on July 1,” said Irvin Jim, general secretary of Numsa yesterday at a media briefing (SABC News).

Numsa claims membership of 341,150 (making it easily the largest union in the country) and it organises 10,000 companies across the motor, auto, engineering, tyre and rubber sectors – although it is officially only the engineering sector that is targeted by the strike (see here for the strike certificate and the full lists of all unions and employers involved in the dispute).

(Note that the strike is not directly in the automakers’ sector. Numsa took 30,000 workers out on strike here in 2013 – in an action that ostensibly led to BMW shelving plans for a big South African investment. However the strike will affect the auto parts sector and hence could impact directly on the automakers’ sector.)

Irvin Jim, Numsa Secretary said members would also picket the headquarters of state power utility Eskom on July 2 as part of a push for a wage increase of 12% – in a linked, but separate action. Eskom is defined as an “essential service”, making strikes illegal.

(Note that while the Eskom action is separate but parallel to the strike against SIEFSA, Numsa says that Eskom will feel the impacts of the main action because of the mechanical and engineering contractors on the Medupi and Kusile building sites.)

SIEFSA (the Steel and Engineering Industries Federation of South Africa) is the counterparty in the negotiation with Numsa (and five other unions). SIEFSA represents 27 independent employer bodies and 2,200 companies which employ over 220,000 hourly-paid workers – although 62% of those companies employ fewer than 50 workers (see the SIEFSA website here).

So what?

We (Jeff Schultz BNP Paribas Cadiz Securities economist and I) covered on Friday evening – quite extensively – the political and economic issues around the strike(see below).

The key points worth reiterating here are:

  • the potential impacts on the broader economy are profound – a characteristic that Numsa hopes to leverage off, helping to bring pressure on the employers represented in SIEFSA;
  • Numsa’s motivations include its political ambitions to set up a mass-based workers party – which makes the length of the strike and the tractability or otherwise of the union negotiators difficult to predict.

How government deals with Numsa’s apparent attempt to break the ‘essential services’ clause in the industrial relations regulatory framework is going to be interesting. Numsa is threatening to call 9,000 workers at the power utility out on strike after mobilising them through a protest action on Tuesday. “The intention is to move toward a full strike,” said Steve Nhlapo, Numsa’s sector coordinator for energy and non-precious metals. SIEFSA has offered a 5.6% wage increase and Numsa, coordinating its action across sectors, is demanding 12% (City Press 29/06/2014).

 

Numsa’s Industrial (political) action – June 27, 2014

Industrial relations

The possibility that 2014 would be another tumultuous year for South African labour relations looked good in January, and is coming true with a vengeance.

The cycle meets a secular trend

The five-month platinum sector strike – perhaps the most costly mining strike in the country’s history – and the metals and engineering workers’ strike from 1 July (based on confirmed reports in the media) might have happened as part of the normal cycle or normal part of the negotiation cycle – but we think the main drivers are secular.

NUMSA’s political ambitions coming to the fore

NUMSA has been moving towards a political divorce from the ANC and from the Ruling Alliance for several  years – and in the last nine months has begun to talk explicitly about forming a ‘left’ or socialist party that will compete against the ANC. We do think NUMSA wants (and plans) to strike next week and we think its leadership hopes to turn this momentum towards building a political party (although we lay out several qualifiers in the main text.)

The risks to the real economy remain large

It is too soon to even estimate the numbers but a metals and engineering sector strike on the scale NUMSA plans could spell disaster for SA’s growth and investment outlook – at least in 2H 2014. We reiterate the large downside risks to our current 1.9% GDP growth estimate for 2014.

(The above  is the summary, below is the body – Ed)

SA industrial relations: The cycle meets the secular trend

Our long-held view that the National Union of Metal Workers of South Africa (NUMSA) are looking to vigorously compete for membership with other COSATU affiliated unions in different sectors of the economy is at the forefront of our concerns here. We believe this week’s press release by NUMSA sums this up quite succinctly:In our 2014 Outlook document released in early January we highlighted our expectation for another tumultuous year for South African labour relations and our concerns therein. With the more than five-month-long strike in the platinum sector likely to be one of the most costly in the country’s history and confirmed reports this week that the metals and engineering industries are now about to embark on a strike from 1 July, our concerns seem to have been warranted.

“Our NEC wishes to send a congratulatory message to the courageous mineworkers for securing a decisive and historic settlement in the platinum belt. This settlement is not only a victory for mineworkers, but for workers in South Africa as a whole. The settlement secured after bitter battles between workers and the mining ruling oligarchy has called on workers to not simply unite beyond the logos or t-shirt colours of their unions. It has renewed workers battle assertion of “an injury to one; is an injury to all”.

“Furthermore, it has called on the progressive trade union movement to go back to basics, and not to be used by politicians to garner electoral support and parliamentary seats, while worker grievances and challenges remain unresolved. Doing so will continue to lead to the implosion of those trade unions that possess a rich heritage in our struggle.”
NUMSA and the numerous elements/questions to considerIt seems to us that the ‘normal’ cyclical nature of industrial action in South Africa’s winter months is now also meeting a trend specific to this political-economic moment. We believe NUMSA (and AMCU’s motivations) are playing a role here, as is the orientation of government and the ANC towards these unions.

The questions on our minds concerning Numsa since at least January this year have included: ‘will NUMSA engage in industrial action primarily to build momentum for its soon to be launched political party or movement?’; and: ‘will NUMSA ride the anti-ANC momentum implicit in the platinum strike – and implicitly and explicitly build a relationship with AMCU?’ and finally: ‘how will this mobilisation relate to the Economic Freedom Fighters?’NUMSA has been moving towards a political divorce from the ANC and from the Ruling Alliance for several  years – and in the last nine months has begun to talk explicitly about forming a ‘left’ or socialist party that will compete with the ANC.

The EFF question is more difficult. NUMSA has been extremely cautious not to be seen to be sidling up to the EFF. NUMSA has widespread credibility and respect – and was a leading critic of Julius Malema’s ‘tenderpreneurial’ habits and the ‘proto-fascist’ nature of Malema’s mobilisation around mine nationalisation and expropriation of White-owned farm seizures. However, the actual policies of NUMSA and the EFF are extremely close, and, in our opinion, the EFF has successfully occupied a political niche very similar to the one the leadership of NUMSA would like to occupy. It would be in the interests of both the EFF and NUMSA to cooperate rather than compete directly – especially when they are both up against the ANC. This might end up resembling the careful courtship of porcupines – but we think it will be courtship nonetheless.We do think NUMSA wants (and plans) to strike and we think its leadership hopes to turn this momentum towards building a political party. And we do think that NUMSA is flirting, politely, with AMCU. On both these issues, however, we have many provisos, disclaimers and cautionary notes – which we deal with in the bullet points below.

Cautionary notes

  • A union, especially one as well organised and sophisticated as Numsa, understands that is does not have a free hand to pursue obviously political objectives around a wage strike. Strikes are costly to workers who are often indebted and whose lives and families can be seriously disrupted by a strike.
  • NUMSA’s grand ambitionsIn the NUMSA central executive committee statement this week, NUMSA presented its demands by stating “We have now made a significant compromise to decrease our wage demand to 12%”. This is NUMSA making sure it can say it has done what it can to avoid a strike while refusing to budge even one cent from 12%.
  • Remember too that in the communities where NUMSA’s membership lives, the African National Congress is electorally overwhelmingly dominant. Numsa must be cautious and limited in how it attempts to turn strike mobilisation into political mobilisation.

From the early 1990s, NUMSA has been the ‘left’ edge of COSATU and has long criticised the ANC – especially the fiscally conservative Growth, Employment and Redistribution macro-economic policy adopted in 1996. However, throughout the presidencies of Nelson Mandela and Thabo Mbeki, NUMSA made the assessment that there was more to be had by being within the Ruling Alliance than without it – an assessment that is probably true, given the pro-union regulatory and legislative labour regime that was developed during that time.

NUMSA conceives itself as occupying or potentially occupying the centre of the economy. The trade union aspect to its political ambitions is that it hopes to ‘vertically integrate’ along the supply chains of energy (including construction of generation capacity – Medupi, Kusile), mining (including smelting and associated industries) and metalwork/engineering/manufacturing.However, NUMSA has always harboured an ideology way to the left of the ANC, i.e., explicitly socialist. It preached caution in dealing with the ‘African nationalist political formation’ (i.e., the ANC) which would try to co-opt socialist unions into the struggles of an aspirant black bourgeoisie. NUMSA preached a kind of ‘partyism’ (the belief that unions should only support a worker’s party) and ‘workerism’ (a belief that unions should stay away from politics to avoid co-option by political parties). In many ways, where things are heading is rooted in NUMSA’s long held ideology.

The real economy 

So what does all of this mean for the SA real economy and where do the risks lie?For almost 10 years, the National Union of Mineworkers (NUM) has been complaining that NUMSA constantly trespasses on its turf – poaching its members. NUM has also warned for many years that NUMSA has political ambitions driving its contestation for members with NUM and other COSATU unions. The seldom explicitly stated strategy (or fantasy) of the NUMSA leadership is that they can build a union or alliance of unions that can occupy the whole centre of the South African economy and spin or leverage that into powerful political influence – leading naturally to the formation of a mass socialist workers political party that contests with the ANC. We think this week’s actions by NUMSA are the next phase of these ambitions.

While we concede that it is a little premature to ascertain or quantify the 2H 2014 economic implications of the impending strike in the metals and engineering sector, we nevertheless find it necessary to highlight the risks and our concerns here.

The SARB calculate in its most recent quarterly bulletin that the impact of the loss of production in the PGM sector in 1Q thanks to strikes equates with a decrease of 0.3% in real GDP (or 1.3% at an annualized rate). The indirect effects of the strike (i.e., onto household consumption and the manufacturing sector, etc.) reveals that annualized GDP growth would have been around 2.2ppt higher at +1.6% q-q saar versus the headline 0.6% contraction (i.e., 1.3% due to direct effects and 0.9% due to indirect effects – (i.e., a ratio of 60/40). The current account deficit, the SARB estimates, would have been around 0.3ppt smaller than the 4.5% of GDP it registered in 1Q.

The Steel and Engineering Industries Federation of South Africa (SEIFSA) represents 23 affiliated employer associations, representing 2,072 companies and employing around 200,000 workers. Comparing the damage done to the local mining sector from the recent PGM strike which had only around 70,000 members down tools over three companies’ operations, the negative impact of this strike could prove to be much more damaging.

A breakdown of SA’s gross value add by sector indicates a risk to around 40% of the production-side of the economy (mainly direct). Add to this the massive risks to the country’s export base (being conservative, we roughly estimate such a strike has the ability to hinder at least a quarter of SA’s total export receipts), and the strong linkages between the manufacturing and mining sectors (from an intermediate inputs standpoint), and the outlook for the real economy in the second half of the year has the potential to be very damaging. We continue to highlight the large downside risks to our current 1.9% 2014 GDP projection as a result.Furthermore, next week’s purported strike action in the metals and engineering sector in gross value add terms accounts for a much more sizable chunk of the local economy’s GDP composition than just the platinum industry.

Numsa 1 Numsa 2 Numsa 3 Numsa 4

 

… which I entirely doubt will be made glorious summer by this sun of KZN when he gives his 5th nth State of the Nation Address this evening.

I am not, as my children might have said, very amped for this.

The only ray of light so far (I am watching on eNCA) was a brief interview with Floyd Shivambu who suggested it should be a ‘state of the resignation address’ … that if the President couldn’t make it to the Cabinet Lekgotla ‘then it would be best for him to just come here to explain that he is just too old and tired and to say goodbye’ – or words to that effect.

I thought I would use the time to publish some bits and pieces that I have sent to my clients over the last week.

The winter of our discontent – as the labour relations cycle meets a secular trend

Every year at this time South Africa is engulfed in strikes as annual wage agreements are traditionally renegotiated in several sectors of the economy. Every year analysts and journalists pontificate widely about the dire labour relations conditions – and the gloom deepens because this all takes place in winter.

Three factors this year are probably going to make the outlook more negative and threatening.

Firstly, the post national election winter has, since 1994, been characterised by spikes in service delivery protests. The causes of this phenomenon are not fully understood, but it is likely that:

  • voters confronting a hostile winter and declining services levels – so soon after being promised the earth by politicians – are likely to be unsettled;
  • local politicians who failed to make party lists begin mobilising factional support, perhaps to stand as candidates in 2016 local government elections, perhaps to discredit those whose positions they covet.

Secondly, the platinum strike is being driven by a number of ‘political’ factors – as discussed previously.

Thirdly Numsa is showing clear signs that its political aspirations are, as we predicted, going to drive deeper and more robust strikes and labour unrest. One sign is the growing violence as Numsa attempts to widen its action at the Ngqura container terminal in the Coega Industrial Development Zone in Port Elizabeth.  The South African Transport and Allied Workers Union (a Cosatu union) is opposing the Numsa strike and is calling for its members to stay at work at the Transnet facility. However, both Transnet and Satawu were quoted on radio (SAFM 20h00 news broadcast 08/06/2014) as decrying the burning of houses and cars of the workers who were at work. The SATAWU spokesperson warned that the situation had similar dynamics to those that were present in the platinum sector in 2012 – that this ‘is just like what happened with Amcu (same broadcast).

Additionally, Numsa is preparing to lead 220,000 workers out on strike from the metals and engineering sector next month. “The bargaining negotiations have spectacularly failed to produce the desired outcomes as expected by the thousands of our members in the sector,” spokesman Castro Ngobese said in a statement quoted in The Herald (5/06/2014). Numsa’s core demands includes a 15% pay rise and a one-year bargaining agreement, the Steel and Engineering Industries Federation of SA (Seifsa, which represents 23 employer associations) has offered an inflation-linked increase of 6.1 percent.

So what?

This is the cycle meeting the secular trend, with each driving the other deeper than either would have been driven ordinarily. Numsa is in the  process of breaking away from Cosatu and is beginning to vigorously compete with other Cosatu unions in overlapping sectors (container terminals, the big electricity generation projects and down and upstream mining and metallurgy operations).  This is, at least partly, about Numsa preparing to set up a ‘left’ party to compete for votes in the future. Comparable (but not identical) dynamics are driving the platinum strike. A winter with ‘normally’ increased social and industrial unrest will probably become unusually bleak and unwelcoming in the months ahead. The impact on GDP growth and on the possibility of ratings downgrades are both important considerations.

 

X Rated

Both Fitch and Standard & Poor made references on Friday (13/06/2014) to increased political risk when they changed their views on the South African government’s willingness and ability to pay the sovereign debt.

Fitch revised the outlook for South Africa to negative from stable and affirmed the country’s long-term foreign and local currency issuer default ratings at BBB and BBB+ respectively. S&P downgraded both the country’s local and foreign currency ratings by one notch from A- to BBB+ and BBB to BBB-  respectively, but moved its outlook negative to stable. None of this is a catastrophe  but of interest to us here is the central role of ‘politics’ in the given reasons for both Fitch’s and S&P’s changes.

Fitch says it most baldly in the press release announcing the change in outlook (my emphasis added):

“Following its election victory in May with 62% of the vote, the African National Congress government faces a challenging task to raise the country’s growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption. This will require an acceleration of structural reforms, such as those set out in the comprehensive National Development Plan (NDP). In Fitch’s view, the track record of some key ministerial appointments and shortcomings in administrative capacity mean this is subject to downside risks.”

Fitch gives amongst the key drivers of its more negative outlook: “Increased strike activity, high wage demands and electricity constraints represent negative supply side shock.”

Standard and Poor’s downgrade was similarly motivated but adds some additional concerns:

“While we think that President Jacob Zuma’s newly elected administration will continue the policies of his first administration, which controlled fiscal expenditure and fostered broadly stable prices, we do not believe it will manage to undertake major labor or other economic reforms that will significantly boost GDP growth”.

My initial take on the new Cabinet is supportive of these motivations.

In addition both agencies made extensive reference to the negative industrial relations environment – and the negative impacts on GDP growth and government revenues. There is a significant political dimension driving industrial unrest – as I have argued above.

So what?

The validity of the actual ratings and ratings outlook of these agencies is much disputed[1] but the issues they use to motivate their views are interesting because they (the agencies) are cautious; clinging to a sort of ‘average view’ of investors. So if political criticism makes its way into the text (as is the case in both these instances) we are obliged to consider that these may represent, or may come to represent, a general view in markets.

South Africa has a small open economy and liquid financial markets and the difference that policy makers can make to economic outcomes is limited. But even within those limitations too many political choices (certain cabinet appointments, corruption controls, delivery performance and the honest brokering of labour contestation) are either not helping or are actively negative.

[1]No-one could have failed to notice the excoriating criticism of the credit rating agencies (CRAs) after their generalised failure to accurately assess the risks associated with the collateralised debt obligations allegedly because they were mostly issued by the CRAs biggest paying clients! However, it is the opposite with sovereigns: “It has also been suggested that the credit agencies are conflicted in assigning sovereign credit ratings since they have a political incentive to show they do not need stricter regulation by being overly critical in their assessment of governments they regulate.” http://en.wikipedia.org/wiki/Credit_rating_agency (accessed 13h56 16/06/2014.

 

The National Directorate of Public Prosecutions

I  dealt with this issue last week, but it is making bigger and more anxiety provoking headlines than ever.

So what

The NDPP was drawn into the fight between Mbeki and Zuma and since that time has limped along to the rhythm of one or other faction aligned to competing interests within the ANC seizing or losing power in the institution. This is not a situation in which one could safely choose one set of ‘good guys’ and back them against another set of ‘bad guys’. The situation is complex but relates primarily to the on-going struggle to either ensure that certain senior political leaders are brought to justice or to ensure that they are not.

The NDPP is one of the most important institutions of the justice system, and without certainty and stability here it is impossible to have certainty about the operating environment for any business in the country. This is a serious problem and it appears to be getting worse under the current administration.

 

Platinum Strike

(This is a bit dated, but you might be interested in my rude remarks about the new minister.)

“Government is ready to wash its hands of the protracted wage strike by platinum mineworkers in Rustenburg” according to the Sunday Independent 08/06/2014. Mines minister Ngoako Ramatlhodi threatened to pull out his inter-ministerial task team if a settlement was not reached at the last scheduled government facilitated meeting, which is due to take place today.

In addition, a formal ANC statement delivered by Gwede Mantashe at a press conference in Luthuli House in Johannesburg last night after the ANC weekend lekgotla[1] characterised the strike in a way that seemed to destroy the remote possibility that Ramatlhodi could have made a difference anyway:

“The articulation of AMCU position by white foreign nationals, signalling interest of the foreign forces in the distabilisation (sic) of our economy.

The direct participation of EFF in the negotiations, and thus collaboration with the foreign forces.

These two factors led the lekgotla into cautioning the Ministry of Mineral Resources in handling the facilitation with care. There were questions about the role of the state in workplace disputes where there are clear rules guiding it.”

This statement is interesting precisely because it borders on the bizarre

So what

The ANC statement indicates shows just why the new ANC minister cannot be an honest or effective broker in the negotiation – and it is therefore unsurprising that he is preparing to withdraw his team. The ANC is compelled to believe that this strike is only not ‘negotiable’ in the normal manner because the real issues driving it are political  and not about wages at all. The ANC might be correct about the strike being ‘political’ but the party itself is culpable of having politicised the strike by attempting to defend its Num ally against the vigorously growing Amcu, by alienating workers by characterising their union as ‘vigilantes’ and by the ‘Marikana massacre itself.’ s – There was never any real possibility of this government mediating between the parties or influencing the outcome.

 

Concerns about property rights

The South African Institute of Race Relations and AfriBusiness (AfriSake) have recently released warnings about property rights in South Africa. A proper assessment of these warning would require specialist legal opinions, but our own assumptions have long been that the South African Constitution provides adequate protections for private property (see here) and the ANC government is unlikely to risk fiddling with these principles.

However it seems to be a basic due diligence requirement to keep an eye on the risk – perhaps more so since Jacob Zuma spelled out at his Cabinet announcement (reiterating many recent ANC and SACP statements) that we are entering a “more radical” phase of economic transformation.

With this is mind, we reproduce the basic summary of legal concerns AfriBusiness and the South African Institute of Race Relations have raised in their research (note that below is a direct quote from the AfriBusiness statement linked above):

  1. The National Development Plan has as its aim the transfer of 20% of the agricultural land in a district to black recipients, at only 50% of the value as determined by the state (in terms of the Property Valuation Bill).
  2. The verdict of the Constitutional Court in April 2013 in the case of AgriSA v the Minister of Minerals and Energy distinguishes between “deprivation” and “expropriation”. After the verdict the state is able to dispossess and redistribute property, as long as the state does not assume ownership of the property and act (sic) only as custodian.
  3. The Green Paper on Land Reform aims a radical redesign of property rights, with inter alia a type of freehold on land which will drastically limit the rights of owners. Within this context a Land Management Commission is proposed, which will have discretionary powers regarding disputes over title deeds.
  4. The policy proposal by the Minister of Land Reform, Gugile Nkwinti, for “Strengthening the rights of workers working the land” aims to transfer 50% of the land to the workers, commensurate with their term of service. No compensation will be paid to the owner.
  5. The Expropriation Bill poses that expropriation may be used for the public interest and public goal. The Bill is not only applicable to land but will cover all types of property. Public interest and public goal are determined in an ad hoc manner and both have restitution as aim.
  6. The Promotion and Protection of Investment Bill allows state intervention in investment processes. The Bill explicitly provides for expropriation at less than market value. All in the name of so-called restitution. Any property used for commercial purposes is targeted by the Bill.
  7. The Infrastructure Development Bill aims to eliminate so-called inequalities in infrastructure. The Presidential Infrastructure Coordinating Commission is granted the authority to expropriate in the public interest and for the public goal.
  8. The Spatial Planning and Management of Land Use Act aims at centralized planning of land ownership. It proposed so-called spatial justice by integrating low and high cost housing in residential developments.
  9. The Extension of the Security of Tenure Amendment Bill expands the rights of occupants and their dependents. Evictions are strictly controlled and the Amendment Bill means a significant loss in control over property.
  10. The Restitution of Land Rights Amendment Bill creates further political and economic uncertainty regarding the future of property rights.
  11. The Rental Housing Amendment Bill proposes stricter regulation of the rental property market. Rental Tribunals will be established to hear disputes and will be able to determine increases in rent.
  12. The National Water Amendment Bill and Policy Review prohibits the trading of water rights and proposes a use-it-or-lose-it principle for water rights. Equality (including racial transformation) becomes the criterium (sic) for the allocation and re-allocation of water rights.

Consume that with the requisite amount of salt but keep an eye on the detail.

 

[1]Sesotho loan word meaning court or community council meeting; used in the South African context a “lekgotla is a meeting called by government, Cabinet or the ANC to discuss strategy planning”. Wikipedia accessed 04h30 09/06/2014.

 

There is something strangely compelling about Chris Griffith’s now infamous comments about his salary and perks – published in Business Day last week.

Remember these are the words of the CEO of Amplats, the biggest platinum company in the world. It cannot have escaped your notice that a bitter and grinding strike throughout the South African platinum sector is entering its 17th week. The Business Day story about the comments also refers to the 2013 Amplats annual report that mentions Mr Griffiths was paid R17.6m, of which R6.7m was a basic salary, for that year.

I have put the following quotes from Chris Griffith in the order in which they appear in the story but they did not necessarily flow together like this in the original interview:

If this debate is around the comparison of CEO pay and somebody else, then we’re completely missing the point. There is a greater supply of lower-skilled people … What the unions are doing is putting more people out on the street … Am I getting paid on a fair basis for what I’m having to deal with in this company? Must I run this company and deal with all this nonsense for nothing? I’m at work. I’m not on strike. I’m not demanding to be paid what I’m not worth.

Since then Griffith has apologised, saying:

I wish to apologise to the employees of Anglo American Platinum and the readership for comments I made in a Business Day article on Wednesday … My choice of words was inappropriate and a poor way to describe the extremely challenging situation we find ourselves in.

But the truth of the matter is that Griffith’s original comments are clearly what the company believes because this is what it does. Everything else is public relations and spin.

At the AGM of a listed company shareholders vote approval or otherwise of executive remuneration. So in one way or another the actual owners of this company are happy to pay Griffith’s fee. The company either believes he is worth that (and they pay him for it) or they do not believe he is worth it (and they pay him less … and perhaps he doesn’t accept the job.)

This might feel monstrous and unfair to you and me – especially when we read of the hardship experienced by the workers on those mines and the sacrifices they seem prepared to make to improve their lot. But in the world in which these hugely powerful companies operate, supply and demand is the basic mechanism that determines the price of everything.

I don’t like euphemisms – it is (almost) always better to see the snarling teeth of the beast rather than to be beguiled by its fake smile.

The whole exchange reminds me of a P. J. O’Rourke essay I read several years ago.

He’s talking about bigotry in apartheid South Africa (and be warned he uses language often considered to be rude or impolite*):

Everywhere you go in the world somebody’s raping women, expelling the ethnic Chinese, enslaving stone-age tribesmen, shooting communists, rounding up Jews, kidnapping Americans, settling fire to Sikhs, keeping Catholics out of the country clubs and hunting peasants from helicopters with automatic weapons. The world is built on discrimination of the most horrible kind. The problem with South Africans is they admit it. They don’t say, like the French, “Algerians have a legal right to live in the sixteenth arrondissement, but they can’t afford to.” They don’t say, like the Israelis, “Arabs have a legal right to live in West Jerusalem, but they’re afraid to.” They don’t say, like the Americans, “Indians have a legal right to live in Ohio, but oops, we killed them all.” The South Africans just say, “Fuck you.” I believe it’s right there in their constitution: “Article IV: Fuck you. We’re bigots.” We hate them for this. And we’re going to hold indignant demonstrations…until the South Africans learn to stand up and lie like white men.

That’s P. J. O’Rourke, Holidays In Hell,  Atlantic Monthly Press, 1988. It’s very, very funny – albeit irritatingly smug and right-wing. I have long since lost the book, but I found that quote here.

 

(Below anxiously added a few hours after initial publication.)

* And be further warned that he (O’Rourke) is sneakily winking at apartheid … weellll, at least they** don’t lie about it! 

** And be even further warned that he talked about “South Africans” in 1988 as if the term referred elusively exclusively to white South Africans who supported apartheid.

(Lawdy, enough already! Just leave it alone, the damage is done – Ed.)

(… and finally, despite Ed’s protestations, and after having glanced over this several weeks after publishing it: PJO also failed to understand the systemic and systematic nature of apartheid …. ‘hunting peasants from helicopters’ is an outrage, but comparing that to ‘apartheid’, the specific historical system of government and social control for a whole country,  is a category error.)

 

 

The Numsa exit from the alliance is a natural consequence of what appears to me to be a ‘Maggie Thatcher moment’ in South African politics.

(This is a loose characterisation and it purely means that I believe there is evidence that government is taking a much harder line with the union movement and is backing the private sector to do the same. As you will see in the final slide I do not think it is strictly accurate to define this moment as Thatcherite, but I do believe the metaphor has some value i.e. that Cosatu is collapsing because the ANC under Zuma is forcing it to come into line.)

Below is an extract from a piece of my weekly news commentary published just after SONA 2014 … and below that are three slides from a presentation I delivered in November last year – thanks to BNP Paribas Cadiz Securities, as always, for allowing me to republish here.

Amplats to sue Amcu for strike related damages – various news reports (17/02/2014)

Several news outlets reported on Sunday that Anglo American Platinum (Amplats) will sue the Association of Mining and Construction Union for R591m. “The company seeks payment of damages caused by Amcu’s failures to adhere to the law, damage to property, increased costs to pay protection services staff overtime, and loss of production because non-striking workers were prevented from working” – Amplats statement quoted in the Sunday Times 16/02/2014.

So what?

I think a combination of factors are making it probable that the major platinum companies will use this strike to attempt to reset the balance of power between the companies and labour in the sector. The legal action by Amplats is probably part of such a generally agreed strategy by companies in the sector.

My reasoning includes the following supporting conjectures:

  • Management will not want to again make the mistakes in made in 2012. The damage suffered by the platinum companies during that year – when unions appeared to push their advantage with little resistance or any coherent counterstrategy from management – led, in part, to the state clumsily stepping in, with Marikana the centrepiece of the gruesome consequences.
  • (According to various media, for example the Business Day) the platinum market is in oversupply, the companies are cash flush and the rand is weak – an ideal combination of conditions that would assist the companies ‘digging in’ and waiting for Amcu to break.
  •  It is increasingly clear that the union resources are stretched to the limit and strikers are carrying high levels of unsecured debt which makes both strikers and their union unable to last more than one payday

I am suggesting that the companies have tacit government support in taking a hard line with the strike. Amcu is, after all, the union that displaced key ANC ally Num and any strategy to break Amcu would probably be tacitly supported by the ruling party (although this is not something the ANC could admit to.)

Solidarity general secretary Gideon du Plessis put it best when he said Amplats’s action would restore the balance of power and send out a message that unreasonable pay demands and irresponsible union action would not be tolerated. He summarised Amplats’ intention as to “bankrupt Amcu and get rid of this militant and irresponsible union once and for all; or to send out a strong message to Amcu and all other trade unions that Amplats has had enough of union bullying; or to merely place Amcu under huge pressure to call off the strike and accept the final offer made by the companies.”

What is clear to me, is Amplats would only be behaving in the vigorous and hard-line manner if it has been given the tacit support of government. Zuma’s SONA2014 statement that “We cannot have industrial conflict that destroys the economy” is the visible spine of a deep seam of just such support.

… and then as part of the background that leads me to those conclusions, 3 slides from a presentation entitled “The Curate’s Egg” from November last year:

Slide1

Slide2

Slide3

I have been agonising over whether to keep this website going –  or to consign it to the wastelands of the interwebs there to wander mournfully, accumulating lurid advertisements for secret ways of getting rid of belly fat and invitations from young, beautiful and lonely people, in your area, waiting by their phones for a call from you.

After weighing matters too arcane to bore you with here I decided to gird my sagging loins (that’s long and loose clothing, not that other thing you were thinking – Ed) and once more into the breach … and all of that.

So … I have written various 2014 previews. One you may have seen was for the Mail & Guardian and titled ‘What I will be telling investors in 2014′. I would have liked to give it a better edit – and I think I don’t adequately deal with the issue of the corroding effects of the original arms scandal – but you may be interested in reading it anyway. Catch it here.

I also published in early January, as part of BNP Paribas Cadiz Securities’ 2014 Outlook, the overview below. (Thanks, as always, to my main contract holder for generously allowing me to republish a few weeks later here.)

(Remember, no-one has been to the future and returned with any useful information as far as I am aware … so treat the following with a healthy degree of scepticism – Ed)

Political outlook 2014: No safe haven in the storm

Introduction

At least part of our sanguine view of South African politics has rested on the belief that the ANC had several more decades of 60%-plus support at the polls. We were of the view that while this could lead to corruption, complaisance and cronyism, it would also allow the party to keep the country, government and constitution steady while SA undertook a wrenching transformation from its apartheid past to whatever the future held.

However, several important fissures have appeared in the ANC’s support base that suggest this assumption of indefinite ruling party dominance may not be correct and, therefore, that the essentially benign shepherding of that transition is under strain.

Amcu: bridgehead in previously safe African working-class constituency

Firstly, the success of the Amcu (Association of Mineworkers and Construction Union) in the mining (particularly platinum) sector has led to the virtual collapse of a key ANC labour ally, the National Union of Mineworkers (Num). Amcu is important for a number of reasons, but in this section, the issue is that it has created a bridgehead in the ANC’s core constituency that has every possibility of linking up with new left-wing (or in other ways radical) political formations that will challenge the ANC politically in the next few years.

Julius Malema and the formation of the EFF

Secondly, the expulsion of Julius Malema from the ANC and his formation of the Economic Freedom Fighters (EFF) party damages the ANC in two important ways. It draws disaffected young black South Africans, who are experiencing unemployment rates of about 60%, out of the ANC. And it captures ideological terrain that the ANC was previously able to control and finesse, namely, the question of the nationalisation of mines and land.

A strong and confident ANC has, since 1994, essentially been able to tell its electoral constituency that patience is required for transformation and that constituency has, with mutterings, accepted the ANC’s moral authority on the matter. However, that consensus is collapsing. Mr Malema’s ‘red berets’ are attacking the president at every opportunity and arguing that the ANC has sold out the birth-right of Africans and has been bought off by the opportunity to loot the state and by juicy empowerment deals. The message has a natural resonance among poor urban and unemployed youth – but up until Mr Malema’s expulsion, the ANC was able to articulate both sides of this debate within itself.

NUMSA split: The unravelling of the ruling alliance

Thirdly, it appears that the long-standing split within Cosatu (Congress of South African Trade Unions) over its relationship with the ANC has been forced to a head by the suspension of Cosatu Secretary General Zwelinzima Vavi. A ‘left’ faction had, with a degree of discomfort, existed within Cosatu since the formation of the union federation in 1985. This faction has its roots in non-ANC liberation traditions and was concentrated mostly in Cosatu manufacturing unions, especially Numsa. The moves to get rid of Mr Vavi and close down Numsa’s criticism of the president and of ANC economic policy probably emanate from the hegemonic faction within the ANC itself, in other words, Jacob Zuma and his closest allies. Not unsurprisingly, Numsa has now formally called on Cosatu to leave the alliance with the ANC, has said it will not be supporting the ANC in the election in 2014 and has called for the immediate resignation of President Zuma.

Over time, this will impact ANC electoral support, though not necessarily profoundly in 2014. How Numsa members and their dependants vote in next year’s election was probably a ‘done deal’ prior to Numsa’s defection decision at its special congress in late December 2013. Numsa may link up with ‘left’ or ‘workers’ parties (and may actually form a ‘socialist party’ that could challenge the ANC for support in the ANC’s key black working-class constituency), but this will likely impact more profoundly on electoral outcomes in the 2019 election.

ANC swelling in rural conservative areas and shrinking amongst urban sophisticates

Fourthly, the patronage and diversion of state resources as depicted by the Nkandla saga, combined with the vigorous pursuit of the rural vote in Kwazulu-Natal, has meant that the ANC is gradually appealing less to urban Africans (although this is by no means a majority trend) and more to rural and traditional poor black South Africans. This appears to mean that parties like the Democratic Alliance, AgangSA and the EFF are picking up a degree of unexpected traction in such constituencies.

Labour environment

After a catastrophic 2012 as far as the labour environment was concerned – especially the repeated waves of illegal and violent strikes in the platinum sector – 2013 saw stabilisation, albeit at still unacceptably high levels of unrest and strike activity.

In the platinum sector, the Amcu is ‘bedding down’, but likely to continue contesting with the Num in the gold sector. The next public-sector wage round is scheduled for 2015, so we have a breather before that storm hits (and we expected it to be a big storm when it does).

The formalisation of the Numsa split from the alliance probably means that this union will begin to actively contest with the Cosatu unions and in several other sectors of the economy. We are looking for the formation of new and smaller unions in sectors where the incumbent unions have grown too cumbersome or complacent to deal with the demands of specialist groups of workers. Unionism is a growth industry in South Africa, with annuity income for those who set them up. As Cosatu shudders, there are many opportunities emerging.

Labour unrest, poor labour productivity and inflexible labour markets (price, size, skills) are among the biggest negative domestic drivers of economic growth and we expect the figures to show a slight improvement in 2013 over 2012 and a significant deterioration in 2014 and 2015 – which may have significant negative implications along the lines of the BMW ‘disinvestment’ decision.

National Development Plan: The political rise of the Treasury and fall of Cosatu

The ruling party and the ruling alliance’s approach to the National Development Plan (NDP) has appeared highly conflicted since the adoption of the plan at the 2012 Mangaung national conference of the ANC.

While our view is that the NDP is little more than a shopping list (and not the miracle cure some ratings and multilateral agencies hope it is) in the areas of large infrastructure roll-out and a disciplining/training/focusing of the public service, we may be in for upside surprises. The important political leaders to watch here are ministers Lindiwe Sisulu (public service and administration) and Malusi Gigaba (state-owned enterprises).

In several different ways, the Zuma leadership of the ANC has, over the last few months, appeared to back with a degree of fortitude previously orphaned policy thrusts from the NDP that are generally ‘financial-market positive’.

The first of these is the foregrounding of the NDP itself – both at Mangaung, but also in the medium-term budget statement in October 2013. Minister of Finance Pravin Gordhan stated that that this budget statement and all future budget statements would be ‘the accounts’ of the National Development Plan, putting the plan at the centre of government policy.

The trade-union movement – especially the now defecting faction rooted in Numsa, but actually common to the whole federation – was outraged by this, as it sees the NDP as a capitulation by the ANC to (variously) ‘white monopoly capital’, ‘neoliberalism’ or ‘business interests’.

In conjunction with this foregrounding of the NDP, Jacob Zuma has recently signed into law two major policy thrusts that are bitterly opposed by the ANC’s labour ally.

The first of these is the Transport Laws and Related Matters Amendment Act, which allows for the implementation of ‘e-tolling’ on Gauteng highways and has been bitterly opposed by COSATU and other community groups in that province. Bond-market investors and ratings agencies have repeatedly said it is crucial that the ANC implement ‘e-tolling’ if the government is to maintain credibility on the global capital markets. It is significant that the Zuma administration has grasped this nettle, despite facing (by all accounts) a significant electoral challenge in Gauteng in 2014.

The second surprising nettle-grasping activity has been the promulgation of the employment tax incentive bill in the face of united Coatu fury. This is the ‘youth wage subsidy’ of yore, and the ANC under Jacob Zuma has obviously decided to accept thunderous criticism from its ally in the hope that longer-term employment growth benefits will weigh in its favour at the polls, in both 2014 and 2019.

Together, these initiatives are surprising positives and have probably come about because the Treasury has managed to persuade Mr Zuma and his cabinet that failure to take a stand on these various measures could lead to downgrades by the ratings agencies.

Policy and regulatory risks predominate

Thus, our view is that the Presidency, bereft of any real policy direction itself (because it is busy purely with rent seeking and hanging onto power) has been persuaded by Pravin Gordhan that the country is in trouble, that the deficit is looking genuinely threatening, that downgrades are a real possibility and that if this goes south, President Zuma might go with it. The National Treasury briefly has the reins, and this gives us a moment of respite.

However, hostile mining regulations, a fiddly and interventionist Department of Trade and Industry, an overly ambitious Department of Economic Development, a hostile Department of Labour, liquor legislation, more and tighter empowerment legislation and deepening regulations on all fronts, but especially in the credit markets, mean that, on the whole, government in 2014 will be an unreliable financial-market ally.

State finances: The deeper risks are fiscal

The country’s increasing dependence for stability on social grants and other forms of social spending is a real and deepening political risk. While the social grant system has lifted millions of South Africans out of poverty and the public sector has employed hundreds of thousands of others, it has also created a culture of dependency and paternalism and is an unsustainable expense that the government will at some stage be forced to reduce. This is definitely going to be accompanied by severe social turmoil, although as mentioned previously, the real ‘fiscal cliff’ is still some way ahead of the forecast period dealt with in this report.

Election 2014

The election results will be important, but in ways that are difficult to predict.

If the ANC’s share of the national vote plummets to the low 50% range, will this force the party into a process of renewal, or will it be panicked into populist measures? It probably depends on which parties take up the slack.

If the ANC gets 65% of the vote, will it be ‘Nkandla business’ as usual – an unhealthy rural populism à la the Traditional Courts Bill, combined with activities like the significant public resources (ZAR208m) spent on building the president’s Nkandla compound and accusations of corruption?
If Mr Malema’s Economic Freedom Fighters get 10% of the vote, will that mean ANC policymaking is paralysed until 2019 as the party attempts to appease the angry and disenfranchised youth? Will it mean legislation relating to mining and land ownership swerves into uncertain and dangerous territory?

If the Democratic Alliance wins 27% of the national vote (which we think unlikely) and if it is able to form a provincial government in alliance with other parties in Gauteng (which we also think unlikely), how might that cause the ANC to behave? Better? To continue to allow the Treasury to set the tone of probity and effectiveness, concentrate on fixing education and focus on economic growth as the only guarantor of electoral success in 2019? Will this kind of threat cause the ruling party to attempt to make opposition strongholds ungovernable? We suspect different impulses are already at war within the ANC and investors should watch how that battle plays out.

Below, purely as a way of presenting our latest ‘guesstimates’, are our ‘most likely’ electoral outcomes for 2014 (these may change as campaigning performance changes before the election and as various crises emerge, eg, the booing of Jacob Zuma at the FNB Stadium commemoration for Nelson Mandela in December 2013).

votingresultsinpreview

BRICs and the uncertain rise of the SACP

A relatively new and difficult-to-unpick issue is the growing confidence the South African Communist Party (SACP) has in shaping the national agenda. The inappropriate focus on BRICS speakers at the FNB Mandela memorial (over Africans and European Union speakers, with Obama the inevitable exception) is probably evidence of the Communists having very significant influence.

We think this could have fed through into the announced Zuma/Putin ZAR 100bn nuclear deal.

This is a matter of growing tension within the ANC, with a previously dominant (under Mandela and Mbeki) group of ‘progressive Africanists’ having lost power to the Communists, who are now in an alliance with a patronage-seeking, provincial elite with strong links to state-security apparatuses and rent-seeking business interests (‘the Nkandla crew’.)

This struggle could play into succession issues and might be a driver of attempts to impeach Jacob Zuma (a strategy unlikely to succeed, in our view) over the next few years.

Succession and a ‘rescue mission’ in the ANC?

While this matter probably lies beyond the 2014 scope of this report, within the ANC, the possibility of a rescue mission is taking shape (driven, in part, by growing commentary about how many public resources are ending up on and around Jacob Zuma’s person and his tight control of security agencies). A group now on the outskirts of the party, and in very general terms representing the ‘old guard’, appears set to begin working on securing a succession process that reverses the decline (moral and in popularity) over which Jacob Zuma appears to be presiding.

This move has not yet taken shape, nor is it properly manifest, but in our view the important people to watch are previous President Thabo Mbeki, Lindiwe Sisulu, Nkosazana Dlamini Zuma, Cyril Ramaphosa and Zweli Mkhize.

As promised some comments on the politics of Pravin Gordhan’s medium-term budget … but first forgive me for expressing some of my irritation at two of his (Gordhan’s)  recent statements.

That will be followed by some of  the bits and pieces I found interesting in the weekly newspapers – if you didn’t see the ‘Zuma gaffes” selection in the Sunday Times and City Press I reproduce some of them here.

Excuse me?

Look I am not yet ready to start calling him a tubby little tyrant with the charisma of a mud prawn but Pravin Gordhan has been saying some things that are not hugely endearing.

First he told a joint parliamentary committee that negative news flow from ‘the media” was partly responsible for sovereign downgrades of South Africa’s debt. So what, he thinks Moody’s, S&P and Fitch get their understanding of government policy from the Sunday Times?  It is just a stupid thing to say and makes him sound just like a National Party ministers circa about 1986. Catch that here.

Secondly, responding to the flurry around South Africa’s cancellation of its bilateral investment treaty with Germany he “blamed lawyers serving the private sector for increasing uncertainty in South Africa’s investment environment” – catch that Business Day story here .

I didn’t personally hear Gordhan in either of these instances but there might be a pattern emerging:

Pravin (PW Botha) Gordhan

Look familiar … think PW Botha? (That’s Business Day’s photo btw, I hope and trust they don’t mind)

Okay, I am glad I got that off my chest – on with the rest.

Political messaging and the medium-term budget – all good

If political messaging was all that we were looking at in the MTBPS then we would have to conclude that Pravin Gordhan’s performance was overwhelmingly financial market positive. Obviously ‘messaging’ doesn’t determined the price of eggs or the price of much else. The believability of Minister Gordhan’s various estimates and projections is ultimately more important for determining sovereign risk, but the overt politics of the message indicates a more confident government prepared to stand on organised labour’s toes to reassure global capital markets (and other investors).

Firstly, Gordhan was on message with regard to the Employment Tax Incentive Bill. This is the latest manifestation of the youth wage subsidy and has been bitterly opposed by Cosatu and, to some degree, by members of the SACP (for reasons that I have explained elsewhere). It is unclear whether the policy will make a significant dent in South Africa’s serious youth unemployment problem (which deputy minister of Finance Nhlanlha Nene recently put at  42% for  those aged between 19 and 29) but what the rating agencies have been looking for is signs that the ANC and government can forge policy independent of, especially, Cosatu – and in this confident assertion by Gordhan they have their signal.

Secondly, the Finance minister cast the MTBPS – and, in fact, all future budget statements – as the accounts of the National Development Plan (NDP). Again, the NDP is bitterly opposed by Cosatu – and is less than warmly regarded by the SACP. It is a confident Jacob Zuma that backs his Minister of Finance to define government budgeting as : “(t)aking the National Development Plan as the point of departure”.

The NDP is little more than a shopping list and a general statement of intent but it generally conceives of the market as the appropriate mechanism for the allocation of capital (at least more so than the New Growth Path and the Industrial Policy Action plans do). It also puts the infrastructure plans and improving capacity and accountability of the public service as key planning objectives. There is no evidence that the ANC and the Zuma administration is going to succeed in moving beyond planning to implementation, but Gordhan made the right noises in his speech.

Thirdly Gordhan pressed every conceivable button in his attempts to tone down excesses in the executive and the public services. He placed a number of ceilings on luxuries, cars, travel, catering, accommodation, use of credit cards – and amongst the Twitterati the cry went out: Gordhan derails the gravy train!

Again this is good form but we have to keep an eye out for the content. After all this is a government led by a president deeply implicated in the ambitious abuse of various privileges. It is going to take a more than fine sounding words to convince the country that the gravy train has, in fact, been delayed let alone derailed.

Fourthly the key political aspect of political risk in relation to the budget is the commitment to restrain growth of the public sector wage bill and social grants – two pillars of both political stability and continued electoral support for the ANC. Obviously the minister (at this stage the apparently tough and skilful Lindiwe Sisulu) in public service and administration will have to hold the line in public sector wage negotiations – we will have to wait to see how that plays out, but Sisulu is the right person for the job of holding that thin red line.

Loud and widespread muttering about power struggles in the Democratic Alliance

It should probably be seen as a sign that the Democratic Alliance is on the verge of breaking out of its previously narrow ethnic base that the fine details of its internal power struggles are becoming a matter of national public debate. All the major weeklies discussed a putative succession struggle between the DA’s national spokesman and candidate for Gauteng premier, Mmusi Maimane and the DA parliamentary leader Lindiwe Mazibuko. The point being that Maimane’s supporters are pushing for him to be on the parliamentary list so that if the DA does not win Gauteng next year (dah!) he will still get into parliament.

So what?

Obviously the Democratic Alliance believes that it needs a black leader if it is to make a serious dent on ANC support in 2019 – but the matter is not so pressingly urgent that they are likely to dump their extremely successful and popular leader Helen Zille any time soon. I still think there is space for an amalgamation of the DA and AgangSA after that new party performs adequately but fails to shoot out the lights in 2014. That will leave the tantalising possibility of Mamphela Ramphele finding her way into the top leadership of the DA some time in about 2016. So of the three potential black leaders of the DA, Maimane probably has most township credibility and would represent the DA going out there head-to-head with the ANC for the African vote. Lindiwe Mazibuko would be the most palatable for the DA’s traditional support base (yes, we all know who I mean). And Ramphele, with her struggle credibility and achievement in academia and business seems like a perfect – and heavy hitting – compromise. She might need a charisma injection, but that is purely a personal observation.

Mozambique – Renamo rears its scarred and ugly old head

The Mozambique army overran a key Renamo base in central Sofala province on Monday last week and Renamo guerrillas hit back on Saturday by ambushing a minibus, killing one person and injuring 10 more.

So what?

This might seem like small cheese, but Monday’s government attack has forced Renamo opposition leader Afonso Dhlakama to flee into the bush and has raised the spectre of the restart of the 16-year civil war which ended in a 1992 peace pact that established multi-party democracy in Mozambique. Renamo has lost every election since 1992 but Dhlakama’s party said on Monday it was abandoning the peace agreement. In and of itself what has happened over the last week is not huge, but in the context of the hopes for Mozambique’s economic growth as that country emerges as a natural gas giant, Renamo becomes a significant risk that needs careful attention.

The Cosatu vortex is sucking in everyone in – this is a clear and present danger

This weekend the national general council of the powerful South African Democratic Teachers Union lined up in precise opposition to Numsa in the on-going and bitter struggle taking place in Cosatu. Sadtu backed the disciplinary process against Zwelinzima Vavi, it vigorously opposed the holding of a special Cosatu conference and it unequivocally backed the ANC in elections next year.

So what?

My own (perhaps counter-intuitive) view is that the only way for Cosatu to remain as a functional federation and part of the ruling alliance is for a special congress to be held during which Zwelinzima Vavi wins the popular vote, escapes disciplinary action for his various infractions (both the real ones and the made up ones) and Numsa decides to stay in the federation. However, it is looking increasingly like the ANC loyalists are going to force Numsa, Vavi and their various allies out of the federation. Note that Sadtu itself is facing something of a minor palace revolt after receiving threats from some of its own members who are angry at the suspension of the union’s president Thobile Ntola for supporting Zwelinzima Vavi. Yes the key Zuma and ANC allies in Cosatu can force the leftist critics out of the federation but that will lead to a split – and, in my opinion, cascading instability throughout the labour sector as Numsa and others compete in every workplace against the incumbent Cosatu union. This outcome is closer than ever and it appears to me can only be averted if a special Cosatu congress is allowed to take place and that a likely democratic victory by Numsa and Vavi is allowed to carry at any such conference. It would stick in some ANC craws, but it would re-establish the status quo of a restive Cosatu that remains a faithful, if critical, ANC ally.

Jacob Zuma provides some light relief

Politicians often say things that outrage some and delight others by providing grist to the social satirist’s mill.

Jacob Zuma provided a gem last week when he said:

“We can’t think like Africans in Africa, generally; we’re in Johannesburg (the N1 is) not some national road in Malawi”.

(Gauteng ANC manifesto forum – October 21 2013)

This provided the opportunity for several journalists (most notably Gareth Von Onsellen in the Sunday Time and Carien Du Plessis in the City Press) to aggregate some of Jacob Zuma’s more illuminating gaffs from the last several years. Here, purely to save you from having to dig into the papers yourself, are some of those:

“I’ve always said that a wise business person will support the ANC … because supporting the ANC means you’re investing very well in your business”

(ANC 101st anniversary gala dinner in Durban – January 12 2013)

“Sorry, we have more rights here because we are a majority. You have fewer rights because you are a minority. Absolutely, that’s how democracy works”

(President’s question time in the National Assembly – September 13 2012)

“Kids are important to a woman because they give extra training to a woman, to be a mother.”

(SABC interview with Dali Tambo August 19 2012)

“Even some Africans, who become too clever, take a position, they become the most eloquent in criticising themselves about their own traditions and everything”

(Speech to the National House of Traditional Leaders November 1 2012)

“When you are carrying an ANC membership card, you are blessed.”

 (Address to ANC supporter in Easter Cape – February 4 2011)

“The ANC will rule South Africa until Jesus comes back.”

 (Gauteng ANC special council – March 15 2004)

We don’t want to review the Constitutional Court; we want to review its powers.

(Interview in The Star Newspaper – Feb 13 2012)

So what?

When compared with other famous presidents Zuma’s gaffes are fairly benign … (hmm I am no longer as sure that those are quite as benign and cute as I thought they were when I wrote that early Monday morning … but I will let it stand for now.) What is interesting is how socially conservative some of his off-the-cuff comments are. It gives some insight into the gradually building pressures in the ANC with regard to appealing to an urban professional class versus traditional rural groups. There is no question that Zuma represents only one of those choices.

Bits and pieces

  • Pravin Gordhan’s medium-term budget statement received both criticism and praise. Cosatu’s spokesman Patrick Craven described it as “a conservative macroeconomic framework predicated on a neo-liberal paradigm”. Piet le Roux, the senior economic researcher at Solidarity (coming, in some ways, from the other side of the spectrum) said Gordhan’s mini budget was based on an “unsustainable model of deficit spending, mounting government debt and onerous taxation”.
  • The Association of Mineworkers and Construction Union (Amcu) announced on Friday (25/10/13) it would consult its members on a possible strike after it received a certificate to strike at Impala Platinum (Implats) when wage negotiations deadlocked. Amcu is demanding a basic salary of R12 500 a month for underground workers and R11 500 for surface workers.

Forgive the dearth of postings here … I was brought low by some late winter dreaded lurgy and as a result my life came to grinding halt for almost two weeks.

The big story (which I will deal with later today or tomorrow)  is the astonishingly decisively manner in which the ANC and its government is blocking Cosatu on a whole range of policy issues … immediately prior to an election.

Later today I will  attempt to assess whether the medium-term budget policy statement holds the same line, particularly with regard to the public sector wage bill. If it does then I am going to have to start reassessing whether Jacob this-isn’t-some-African-shithole Zuma is quite as soft-in-the-middle on policy as I have previously asserted. The implications of the putatively shifting position are huge and, I suspect, driven by a complex and contradictory set of factors.

Meanwhile here is an excerpt from my weekly news commentary describing the rising decibels and pitch of the moan coming from business and its representatives (and from financial markets in general) around policy, especially policy related to the labour market. The ascending pitch and loudness of the whine are undoubtedly two of the factors pushing Zuma’s showdown with Cosatu – but I think it would be premature to think of the president’s actions as primarily about bowing down to business and the diktats of global capital markets.

South Africa deteriorating investment destination

Complaints about South Africa’s hostile policy environment are getting louder.

Pepkor chairman Christo Wiese added his voice to a chorus complaining about a hostile investment environment in South Africa. In other African countries “infrastructure is improving, border crossings are becoming easier, more property development is taking place and, in some cases, they are offering more opportunities.” But in South Africa government is “certainly not cooperative” and “one is left with the impression that government sees business as the opposition, not as a partner … you can’t have German rules because we can’t administer them,”

The wizened and iconoclastic Christo Wiese held up Angola, Nigeria and, especially, Rwanda as improving business destinations. South Africa’s labour regime, according to Wiese, is becoming one of the greatest inducements to invest in other African countries. (Wiese was quoted in an interesting interview with Chris Barron in the Sunday Times 22/10/2013 – here’s a link to the republished article in Business Day … Barron is always interesting and not to be missed in your weekly news read.)

Wiese’s comments came soon after Moody’s Investor Services said in a credit opinion on 12 October that South Africa’s elevated strike activity continues to affect the investment climate. “BMW’s announcement that South Africa has been removed for consideration for the new car is tangible evidence of the negative impact that the increase in work days lost to strikes in the past two years is likely to pose for the medium-term outlook of the economy … Such decisions are likely to be repeated by other companies when such significant losses are incurred -” Bloomberg and Moody’s Credit Opinion 12/10/2013.

In the same week Amplats CEO Chris Griffith said (after the company was again battered by strikes) that it “is not possible that we can continue with these kinds of strikes, which are having an effect not only on the mining sector but all sectors of the economy. It’s hurting the economy … It is impacting jobs” – Business Day 16/10/2013.

From extensive plans to cut 230,000ozs of achievable platinum as well as 14 000 jobs announced in January this year, Amplats appears to have been steadily successfully bullied back by unions, government and the ANC from doing what it initially intended.

Read against South Africa’s scores in the recent WEF Global Competitiveness Report 2013 – 2014 (click here for a full copy) some of this anxiety seems justified. While South Africa is ranked 53rd this year out of 148 countries, the quality of the educational system is very poor at 146th, as was labour market efficiency at 116th – and ‘hiring and firing practices’ and ‘wage flexibility’ at 147th and 144th respectively. The ability of the employer to respond quickly to changing production needs for skills and size of workforce is called ‘labour market flexibility’- and aggregating our performance in these categories suggests a serious deficit compared with our peers.

Okay, so that sets the background for a follow-on post (today or tomorrow) dealing with the now unavoidable conclusion that Zuma’s government appears to be risking the wrath of its left-wing allies with regard to a range of policy measures. The important question to answer is ‘why’ is the ANC drawing the line? And why now?

 

I have been on the road without respite for close to 4 weeks … so here is brief selection of some of my news commentary over the last few weeks, just to show that I am alive and working, albeit a little frenetically. Apologies for the out of date bits and the bits that history has caught up on already.

  • Terror attack in Nairobi is the leading-edge of an expanding band across West, North and East Africa
  • The conflict in Cosatu is serious for financial markets for several reasons, and while there are some narrow paths out of the quagmire it is increasingly unlikely that these will be the roads travelled by the incumbent leadership of the Ruling Alliance
  • The mining regulatory instability is the tip of an iceberg of hostile policy that investors need to start putting at the centre of their vision.

Nairobi terror attack part of a developing African front

The death toll in an attack on a shopping mall in Kenya’s capital city, Nairobi, rose to 59 by the time of writing this morning. The attack began on Saturday morning and appears to have been carried out by an international unit affiliated to Somali’s al-Qaeda linked al-Shabaab movement and is retaliation for Kenya deployment of 4000 troops to back the Somali government against the rebel army. On the same weekend 80 people were killed in Northeast Nigeria in a series of Boko Haram attacks.

So what?

al-Shabaab, joins Mali’s AQIM (al-Qaeda in the Islamic Maghreb), Nigeria’s Boko Haram and similar movement in Tunisia and Algeria in a thickening arc (across the whole of West, North and East Africa) of a specific al-Qaeda franchised brand of jihadist rebellion linked to the Wahabi or Salafi traditions that have their origin in Saudi Arabia. This arc of organisations is likely to play a significantly destabilising role, pushing both North and South in the years ahead. The jihadists will be looking for equivalents of Chechnya and Afghanistan as safe ground on which to train and equip international brigades (as they did in Mali up until the French intervened in January this year but might be still doing in territory outside of government and French control) and world powers will be looking to stop them. This will become an increasingly important element of investment decision across the whole band of countries affected. Kenya, Nigeria and Uganda are not necessarily mortally injured by events like the one at the Westgate Mall in Nairobi (that is still on-going as I write this) but the signal is that we need to have this matter more central in our assessments of the region.

 

Cosatu ructions have potentially serious implications for investors

The trade union ally of the ruling African National Congress continues to suffer a debilitating leadership struggle.  Cosatu’s Central Executive Committee has received letters from the requisite quorum of unions insisting that a special congress of the federation be held. The weekly newspapers are full of speculation as to whether such a congress would reinstate Zwelinzima Vavi and get rid of Cosatu president Sdumo Dlamini, deputy secretary general Bheki Ntshalintshali; and Cosatu’s second deputy president Zingiswa Losi – who are Vavi’s main foes and Zuma’s main friends (simplification alert) amongst Cosatu’s NOBs (National Office Bearers).

So what?

It is possible that Sdumo Dlamini will attempt to block the special congress by arguing that several administrative and technical barriers (time, money and the upcoming national elections) make it too difficult to hold. This is what is at stake:

  • Based on previous voting patterns a special congress of Cosatu is likely to reinstate Vavi and it is conceivable that such a congress could expel the ANC and SACP loyalists from the federation’s top structure.
  • However an alternative outcome could be the reinstatement of Vavi, and the recovery of a fragile unity in the federation prior to next year’s election. This would require the top ANC leadership and its allies in Cosatu backing off their attempts to shaft Vavi. It appears this requirement would be difficult for the Zuma leadership of The Alliance to meet. Zuma’s leadership is increasingly characterised by a (essentially weak) reliance on force and the driving out of critics – as opposed to (an essentially strong) ability to provide leadership and establish hegemony over an unruly and contested alliance of forces.
  • Thus if the ruling group fails to find an accommodation with Vavi it is a real possibility that Vavi and his allies will be forced out of Cosatu. This result could be catastrophic for both the ANC and for industrial relations stability as a whole. Numsa would go with Vavi and Numsa would have the capacity to compete successfully with a host of other Cosatu unions, particularly the National Union of Mineworkers (Num). The disastrous consequences of the contest between Num and Amcu could be a template for similar contests between Numsa and several other Cosatu unions.
  • A split Cosatu could conceivable lead to the formation of a new ‘worker’ or ‘left’ political party or alliance that could, ultimately, challenge the ANC at the polls. There are a number of reasons why The Alliance has maintained its integrity for so long – and generally those who have been expelled or who have left of their own volition have shrivelled in the cold. However this conflict in Cosatu, driven as it is by the Zuma leadership’s attempt to supress criticism of corruption and dissent about policy, is changing the equation.
  • Vavi and his allies accuse the Zuma leadership of attempting to make Cosatu into a ‘labour desk’ of the ANC. It seems to me that this accusation is essentially correct and that the solution that would work best for the ANC and for industrial relations (in the short to medium term) would be to allow Cosatu to make its own decision about leadership at a special congress.

 

Mining regulatory instability is the tip of an iceberg of hostile policy

To understand how increasingly hostile is the stance of government towards business in South Africa, listen to the words of Chamber of Mines head Bheki Sibiya talking about the proposed mining law amendments after public hearings on the matter ended last week (in the Sunday Times, 22/09/2013 and Business Day of 20/09/2013).

He points out that the Mineral and Petroleum Resources Amendment Bill of 2013 intends to significantly empower the minister to intervene in the sector – specifically with regard to ownership and pricing. “Mining is long term. Once one is not so sure about one’s rights in the long term, one would rather say let’s cut our losses now. This is what investors will do … If pricing is not going to be decided by the markets but by some individual, then when you do your projections you’re shooting in the dark” he said.

Sibiya specifically bemoans the recent process of business engagement in various amendments to the Labour Relations Act and the Basic Conditions of Employment Act. In those cases years of proposals were essentially ignored by government and it (government) went ahead with what it wanted and what its alliance partner Cosatu wanted.

Business Day took these observations a little further this morning when it republished a quote from last week by Thami ka Plaatje, head of research at the ANC and an adviser to Public Service Minister Lindiwe Sisulu: “We are still wresting control from the white capitalist economy. We still reel under the oppressive yoke of all-pervading oligopolistic and monopolistic forms of the white economy.”

So what?

Regulation and policy in a complex, modern, small and open economy like South Africa’s requires a degree of sophistication that seems increasingly absent from this government. Policy and political risk is inevitably escalating as a government with a diminishing capacity develops an expanding agenda.

…. and then, from even further back, for those with an interest in ancient history …. like 4 weeks ago:

 

  • Strike wave breaks across the country – there are both normal and abnormal drivers
  • Alliance Summit – ANC’s inevitable schizophrenia on economic policy is leaving everyone dissatisfied, The tension is evident in mining minister Shabangu’s comments in Australia versus deputy president Motlanthe’s efforts at the Mining Lekgotla in Johannesburg
  • The criminal justice system is ever more appropriately named 
  • Editor in hiding from GuptaTV – comic relief tinged with embarrassment

Strikes – turbulence as the cycle hits the secular trend

Num (the National Union of Mineworkers) has served notice on the Chamber of Mines (COM) of its intention to strike across the gold sector, beginning with the Tuesday night shift this week. Num represents 72,000 of the country’s 120,000 goldmine workers. The Chamber made a final offer of a 6-6.5% wage increase, while Num is holding out for 60%. Amcu, which is also represented in the gold sector (now 19% of workforce according to the COM, but probably as high as 30% according to Adrian Hammond, gold analyst on the BNP Paribas Cadiz Securities) wants a 150% increase but has not announced that it intends to strike, and nor have Solidarity and Uasa.

There are ongoing strikes by workers in auto manufacturing, construction and aviation services and threatened strikes among textile workers and petrol station employees – but these strikes are, at this stage, part of the normal cycle.

So what?

We have mentioned previously:

“South Africa has a predictable strike season, the timing of which coincides with the expiration of bargaining chamber agreements in different sectors of the economy. Every year it appears that a wave of strikes is enveloping the country, but at some time during the gloom, journalists twig to the fact that this happens every year – much of the flurry in normal and predictable” – SA Politics, April 29 2013.

Several such ‘predictable’ strikes are happening or about to happen as I write this.

However, the gold sector breakdown is outside of the normal cycle both in how far the negotiating parties are away from each (6-6.5% versus 60-150%) and in the complex game being played between Num and Amcu. Amcu has quietly welcomed the impending strike as a chance to prove that, in fact, Num does not represent the majority of workers at key mines. On Friday, Amcu president Joseph Mathunjwa said Num’s strike would “qualify” its official representivity of more than 60%. He urged that everyone should: “watch this space”.

Business Report in the Sunday Independent argues that South Africa’s four biggest gold producers are hoarding cash and lining up access to more in preparing for an industry wide strike. “If we are, let’s say, bullied into a situation that we don’t like, we can ride out the storm for a very long period of time,” said Sibanye chief executive Neal Froneman in the Bloomberg sourced story.

The essence of the gamesmanship between Num and Amcu is Num must demand and win an increase via strike action that is satisfactory to its membership, and Amcu must try and undermine the strike action and argue that, anyway, the ‘demand’ in the Num led strike is inadequate. On mines where Amcu dominates (in the Carletonville region at AngloGold, Harmony Gold and Sibanye Gold, according to Adrian Hammond BNP Paribas Cadiz Securities gold analyst – see his note “Wage Negotiations – The Final Round? August 28 2013) Amcu must attempt to force mines out of the central bargaining process by ensuring that no central agreement can achieve a sustainable settlement at the local mine or company level.

Lock-out

An interesting discussion in today’s Business Day by the always excellent Carol Paton suggests that employers with large Amcu membership, specifically at Amcu strongholds at AngloGold Ashanti’s Mponeng mine; Harmony’s Kusasalethu and Sibanye’s Driefonteing favour a lock-out because they believe Amcu will sit out the Num strike and then strike themselves once that is settled. Paton’s story suggests that by locking workers out employers force all workers into one camp. “By declaring a lockout, employers would get around this problem, through forcing Amcu into the dispute now and exhausting workers’ resources to endure a strike.”

 

Alliance Summit

The African National Congress, the South African Communist Party, the Congress of South African Trade Unions and the South African National Civics Organisation met in a long postponed summit over the weekend to discuss and agree upon economic policy. The premise of the discussion was “unless we make significant inroads in addressing the challenges of poverty, inequality and unemployment, the democratic constitutional gains of the first phase of our transition will themselves be eroded” – from the Summit Declaration

The Declaration situated the discussion by arguing that

“… stagnation continues to characterise the developed economies, there has now been a significant slowing of growth in key developing economies, including China, India and Brazil. The commodity super-cycle of the recent past is now over. This has had an impact on economies dependent upon the export of industrial minerals and coal. The attempts to refloat growth in the US with a loose money policy have created further turbulence in many developing economies like SA.”

The Summit went to some lengths to defend against the accusation that poor economic performance was in any way related failures of “the South African government, or the labour movement”. Instead, the summit declaration lists achievements in infrastructure build, land reform and youth and labour market reform.

On macroeconomic policy the summit called for:

“bold forms of state intervention, including through:

  • Financial regulation and control;
  • Progressive and redistributive taxation
  • Wage and income policies and progressive competition policies that promote decent work, growth and address poverty and inequality.
  • A well-resourced state-led industrial and trade policy
  • Increased state ownership and control in strategic sectors, where deemed appropriate on the balance of evidence,
  • and the more effective use of state-owned enterprises

So what?

The Alliance Summit used all the right language to keep the different elements of the alliance together but said nothing that might reassure spooked investors. The opposite is probably true. Just look at the words: “progressive and redistributive taxation”, “well-resourced state-led industrial and trade policy”, “increased state ownership” and “wage and income policies … that … promote decent work, growth and address poverty and inequality.” This is not the language that Kgalema Motlanthe used as he attempted to pacify investors at the presidential mining lekgotla in Johannesburg last week, but it is precisely the atmosphere of mining minister Susan Shabangu’s words at the Africa Down Under mining conference Perth, Western Australia, where she said investors had to “moderate” the rates of return they expected to earn on their investments so as to allow for the social expenditures that need to be made (Business Day August 28). The ANC and government are increasingly schizophrenic in their attempts to keep everyone (constituents, allies and investors) happy. In trying to keep everyone happy the ANC and the government seem more likely to achieve generalised dissatisfaction.

 

Criminal justice system appropriately named

The lead stories in the Weeklies were indicative of a growing anxiety about the criminal justice system. The Sunday Times led with “Magistrates: drunks, thieves and killers” and the other papers all discussed National Police Commissioner General Riah Phiyega’s embarrassment after she announced the appointment of a Major-General Mondli Zuma and then quickly reversed that when she was told that Zuma (whose relationship to the President is unknown to me) was being tried for driving under the influence of alcohol,  failing to comply with a traffic officer’s instructions to stop at a roadblock, escaping lawful custody, defeating the ends of justice and refusing to have a blood alcohol sample taken.

So what

This might look like a circus but there is a darker element to the state of the criminal justice system than is not immediately obvious in these comical stories. In the Sunday Independent, journalist Nathi Oliphant writes about the security and justice sector: “President Jacob Zuma has unflinchingly stuck to his guns in promoting ‘his own ’into key positions”. The security apparatuses and the criminal justice system more generally has been profoundly weakened by political interference and the dismaying newspaper headlines about criminality amongst magistrates and senior police generals is just the visible tip of the problem of Thabo Mbeki’s and Jacob Zuma’s serious fiddling in the security and justice clusters and institutions.

 

 

Editor flees from Gupta TV

“Visibly terrified and hiding in a Johannesburg hotel room, the former consulting editor at ANN7 has made explosive claims about visits by channel bosses to President Jacob Zuma, where Zuma made editorial recommendations and was ‘given assurances by the Guptas this channel was going to be pro-ANC’” – reads the lead story in City Press.

So what

Nothing, really. ANN7, or GuptaTV as it has been named in much of the South African media, continues to provide comic relief and excruciating embarrassment, in about equal measures. Jacob Zuma’s relationship with the Gupta brothers is probably no laughing matter, but I wouldn’t hold my breath waiting for the criminal justice system to test whether Zuma’s relationship with the Gupta brothers is in anyway similar to his relationship with the Shaik brothers.

Herewith an extract from my recent political news update.

Strikes – turbulence as the cycle hits the secular trend

Num (the National Union of Mineworkers) has served notice on the Chamber of Mines (COM) of its intention to strike across the gold sector, beginning with the Tuesday night shift this week. Num represents 72,000 of the country’s 120,000 goldmine workers. The Chamber made a final offer of a 6-6.5% wage increase, while Num is holding out for 60%. Amcu, which is also represented in the gold sector (now 19% of workforce according to the COM, but possibly as high as 30%,) wants a 150% increase but has not announced that it intends to strike, and nor have Solidarity and Uasa.

There are ongoing strikes by workers in auto manufacturing, construction and aviation services and threatened strikes among textile workers and petrol station employees – but these strikes are, at this stage, part of the normal cycle.

So what?

I mentioned previously:

“South Africa has a predictable strike season, the timing of which coincides with the expiration of bargaining chamber agreements in different sectors of the economy. Every year it appears that a wave of strikes is enveloping the country, but at some time during the gloom, journalists twig to the fact that this happens every year – much of the flurry in normal and predictable” – April 29 2013.

Several such ‘predictable’ strikes are happening or about to happen as I write this.

However, the gold sector breakdown is outside of the normal cycle both in how far the negotiating parties are away from each (6-6.5% versus 60-150%) and in the complex game being played between Num and Amcu. Amcu has quietly welcomed the impending strike as a chance to prove that, in fact, Num does not represent the majority of workers at key mines. On Friday, Amcu president Joseph Mathunjwa said Num’s strike would “qualify” its official representivity of more than 60%. He urged that everyone should “watch this space”.

Business Report in the Sunday Independent argues that South Africa’s four biggest gold producers are hoarding cash and lining up access to more in preparing for an industry wide strike. “If we are, let’s say, bullied into a situation that we don’t like, we can ride out the storm for a very long period of time,” said Sibanye chief executive Neal Froneman in the Bloomberg sourced story.

The essence of the gamesmanship between Num and Amcu is Num must demand and win an increase via strike action that is satisfactory to its membership, and Amcu must try and undermine the strike action and argue that, anyway, the ‘demand’ in the Num led strike is inadequate. On mines where Amcu dominates (in the Carletonville region at AngloGold, Harmony Gold and Sibanye Gold) Amcu must attempt to force mines out of the central bargaining process by ensuring that no central agreement can achieve a sustainable settlement at the local mine or company level.

Lock-out

An interesting discussion in today’s Business Day by the always excellent Carol Paton suggests that employers with large Amcu membership, specifically at Amcu strongholds at AngloGold Ashanti’s Mponeng mine; Harmony’s Kusasalethu and Sibanye’s Driefonteing favour a lock-out because they believe Amcu will sit out the Num strike and then strike themselves once that is settled. Paton’s story suggests that by locking workers out employers force all workers into one camp. “By declaring a lockout, employers would get around this problem, through forcing Amcu into the dispute now and exhausting workers’ resources to endure a strike.”

Alliance Summit

The African National Congress, the South African Communist Party, the Congress of South African Trade Unions and the South African National Civics Organisation met in a long postponed summit over the weekend to discuss and agree upon economic policy. The premise of the discussion was “unless we make significant inroads in addressing the challenges of poverty, inequality and unemployment, the democratic constitutional gains of the first phase of our transition will themselves be eroded” – from the Summit Declaration.

The Declaration situated the discussion by arguing that:

“… stagnation continues to characterise the developed economies, there has now been a significant slowing of growth in key developing economies, including China, India and Brazil. The commodity super-cycle of the recent past is now over. This has had an impact on economies dependent upon the export of industrial minerals and coal. The attempts to refloat growth in the US with a loose money policy have created further turbulence in many developing economies like SA.”

The Summit went to some lengths to defend against the accusation that poor economic performance was in any way related failures of “the South African government, or the labour movement”. Instead, the summit declaration lists achievements in infrastructure build, land reform and youth and labour market reform.

On macroeconomic policy the summit called for:

… bold forms of state intervention, including through:

  • Financial regulation and control;

  • Progressive and redistributive taxation

  • Wage and income policies, and progressive competition policies that promote decent work, growth and address poverty and inequality.

  • A well-resourced state-led industrial and trade policy

  • Increased state ownership and control in strategic sectors, where deemed appropriate on the balance of evidence, and the more effective use of state-owned enterprises.

So what?

The Alliance Summit used all the right language to keep the different elements of the alliance together but said nothing that might reassure spooked investors.

The opposite is probably true. Just look at the words: “progressive and redistributive taxation”, “well-resourced state-led industrial and trade policy”, “increased state ownership” and “wage and income policies … that … promote decent work, growth and address poverty and inequality.”

This is not the language that Kgalema Motlanthe used as he attempted to pacify investors at the presidential mining lekgotla in Johannesburg last week, but it is precisely the atmosphere of mining minister Susan Shabangu’s words at the Africa Down Under mining conference Perth, Western Australia last week when she said investors had to “moderate” the rates of return they expected to earn on their investments so as to allow for the social expenditures that need to be made (Business Day August 28).

The ANC and government are increasingly schizophrenic in their attempts to keep everyone (constituents, allies and investors) happy. In trying to keep everyone happy the ANC and the government seem more likely to achieve generalised dissatisfaction.

Criminal justice system appropriately named

The lead stories in the Weeklies were indicative of a growing anxiety about the criminal justice system. The Sunday Times led with “Magistrates: drunks, thieves and killers” and the other papers all discussed National Police Commissioner General Riah Phiyega’s embarrassment after she announced the appointment of a Major-General Mondli Zuma and then quickly reversed that when she was told that Zuma (whose relationship to the President is unknown to me) was being tried for driving under the influence of alcohol, failing to comply with a traffic officer’s instructions to stop at a roadblock, escaping lawful custody, defeating the ends of justice and refusing to have a blood alcohol sample taken.

So what

This might look like a circus but there is a darker element to the state of the criminal justice system than is not immediately obvious in these comical stories. In the Sunday Independent, journalist Nathi Oliphant writes about the security and justice sector: “President Jacob Zuma has unflinchingly stuck to his guns in promoting ‘his own’ into key positions”.

The security apparatuses and the criminal justice system more generally has been profoundly weakened by political interference and the dismaying newspaper headlines about criminality amongst magistrates and senior police generals is just the visible tip of the problem of that, in part, originates in political fiddling in the security and justice clusters and institutions.

Editor flees from Gupta TV

“Visibly terrified and hiding in a Johannesburg hotel room, the former consulting editor at ANN7 has made explosive claims about visits by channel bosses to President Jacob Zuma, where Zuma made editorial recommendations and was ‘given assurances by the Guptas this channel was going to be pro-ANC’” – reads the lead story in City Press.

So what

Nothing, really. ANN7, or GuptaTV as it has been named in much of the South African media, continues to provide comic relief and excruciating embarrassment, in about equal measures (although I know a few professionals doing an honest day’s work there and I feel faintly protective of them). Jacob Zuma’s relationship with the Gupta brothers is probably no laughing matter, but I wouldn’t hold my breath waiting for the criminal justice system to test whether Zuma’s relationship with the Gupta brothers is in any way similar to his relationship with the Shaik brothers.

Zwelinzima Vavi’s suspension from Cosatu and the ANC/SACP/Num decision not to attend the Marikana commemoration, both on Friday last week, are, to my mind, indicative of a significant retreat of ANC hegemony.

Hegemony’,  as I imbibed the concept from probably slightly fevered readings of Antonio Gramsci’s sublime Prison Notebooks while I was a student activist (and from endless discussions in those semi-mythological ‘smoke filled rooms’) has proved, for me personally, a useful and adaptable tool for conceiving of the ebb and flow of political power.

The concept comes from the Greek word ἡγεμονία (look at me … I can cut-and-paste from Wikipedia) which means both ‘rule’ and ‘leadership’ but especially implied and indirect power or rule.

Hegemony (in my own lexicon) is used to describe the myriad ways in which the dominant group extends its direct power (let’s say, for argument’s sake, that direct power is that exercised through party discipline, or through the state, especially apparatuses of implicit or actual coercion). The extension of the reach of the dominant group beyond the immediate terrain that it obviously controls and into the middle ground or the rest of society (usually conceived of as civil society) is what I think of as hegemony. It is direct power extended as influence and leadership and as a result of occupying the high ground and by in some way representing the national as opposed to sectional interests and, ultimately, effective through persuasion rather than control - forgive all the awkward italicising.

The ANC that won to power in South Africa during the end of the 80’s and early 90’s was, to my mind, the exemplary example of the exercise of hegemony. The only power available to the ANC during this period was so called  ‘soft power that derived from its occupation of the moral high-ground and came about as a result of its (the ANC’s) careful building of broad fronts and tighter, more disciplined formations, like the ANC/SACP/Cosatu alliance itself.

This is the context in which I assess both Vavi’s suspension from Cosatu and the fact that the Marikana commemoration appears to have been a ‘no-go area’ for the Ruling Alliance. Obviously both news items can be understood as important for other reasons, but this is the prism through which I have chosen to view them.

(Note: ‘retreating power or hegemony” is not the same as having  ‘lost power or hegemony’. I am not saying in raising the points below that the ANC has lost its ability to ‘influence’ and ‘lead’ … rather I am saying that there are signs that it is significantly weakened in this regard. Not explored in this article is the consequences – which I believe are extremely serious and threatening – of any such potential loss of ANC hegemony. I have previously discussed this in an article entitled Beware the thing that might pick up power lying in the street and I have made similar points in Zuma’s brittle grip tightens.)

Cosatu suspends Vavi – and the Ruling Alliance shudders

Zwelinzima Vavi, suspended after a special meeting of Cosatu’s central executive committee on Wednesday last week, has indicated that he will challenge the decision in court.  During his press conference on Friday announcing this, Vavi released a document containing what purports to be a series of intelligence reports claiming that he (Vavi) is part of a US ‘soft-power’ plot to undermine Cosatu and the ANC.

Vavi’s strategy, and that of his supporters, appears to be to mobilise ordinary workers, notably in the National Union of Metalworkers of South Africa (Numsa), the Food and Allied Workers Union (Fawu), the South African Municipal Workers’ Union (Samwu) as well as in those branches, regions and local areas of otherwise anti-Vavi unions where Vavi remains popular with the rank and file – including, for example, the Kokstad region of the SA Democratic Teachers’ Union (Sadtu).  The ‘fight back’ strategy will culminate in a special Numsa congress to be held in December.

So what?

Vavi’s refusal to accept his suspension and his publically announcing that he will contest in court the Cosatu CEC decision suspending him is more serious than it first appears – and may well lead to his expulsion. (To get a sense of why this may be the case, here is what Gwede Mantashe, ANC secretary general, said of Vavi’s decision to challenge his suspension: “This is unprecedented. It is the worst case of organisational ill-discipline. If the ANC takes me through a disciplinary process, the worst thing I can ever do is to go out and attack the ANC. That is unheard of” – Sunday Times.)

The so-called ‘intelligence document’ that Vavi released on Friday (available as a pdf at the Mail and Guardian website here) appears to be a clumsy attempt to discredit Vavi by linking him (and various other Zuma opponents) to comical ‘imperialist plots’ to spread coups and chaos in Africa. The contents of the document are not worthy of consideration. However, if it is true, as Vavi claims, that his opponents in Cosatu and the ANC distributed the document, it is legitimate to consider the possibility that it was produced in a ‘dirty tricks’ department somewhere within the state security apparatus and/or somewhere close to the leadership of the ruling party.

The outstanding question is whether Vavi’s suspension or expulsion could lead to a defection of Numsa and other unions or parts of unions from Cosatu. The labour environment could be catastrophically impacted upon by this kind of collapse of Cosatu – especially if Numsa, already the largest, best organised and, perhaps, most militant Cosatu union, decides to contest with other Cosatu unions (especially Num) for membership.

The difficulty in making an assessment of whether Numsa could split from Cosatu is rooted in the fact that there is no template for the consequences of the factional driven axing of such a senior, respected and popular alliance leader such as is Vavi.

Up until now it was always a good bet that while ‘left’ and other ‘militant’ factions of the Alliance might fight against various positions and policies with which they disagree, the benefits of being within the Alliance always outweighed the loss of access to the policy-making/leadership-election processes that would go along with being outside the Alliance.  However, Vavi represents, more than any other single individual, the ‘left’ critique of ANC/government corruption (particularly allegations around Jacob Zuma’s Nkandla residence) and of government economic policy (particularly the National Development Plan) and it is distinctly possible that ‘left’ factions of Cosatu could conclude that the space for them to operate within the alliance would be closed down if Vavi is forced out.

Marikana – ANC and Num refuse to participate in commemorations

The African National Congress, the SACP and the National Union of Mineworkers boycotted the first anniversary commemoration of the Marikana killings, saying the event was “hijacked” (Num), that Amcu was  “a vigilante grouping” (SACP, quoted in Business Day 16.08.13) and that the “commemoration is organised by an illegitimate team called ‘Marikana support group’” (ANC, quoted in Business Day 16.08.13).

Thousands gathered on Friday at the hillside in Marikana where 34 mineworkers were shot a year earlier. During the commemoration, Lonmin CEO Ben Magara “apologised for last year’s deaths, the first and only company or government official to do so” – Business Day 19.08.13.  Ben Magara said at the commemoration: “I heard about your request to employ a relative of each of the deceased. I heard about the request for R12,500. I am here today to say: let us sit down and talk”. Joseph Mathunjwa, president of Amcu said this apology “was overwhelming” … he is the only person who came and gave an apology and he was not (at the time of the massacre) even part of the management … not even government has done that …his gestures show that he is a man who is willing to engage” – Business Day 19.08.13.

During the commemoration Dali Mpofu, legal representative of injured and arrested miners at the Farlam Commission, acted as the master of ceremonies, Julius Malema was among the speakers and Agang SA leader, Dr Mamphela Ramphele, “deposed” PAC leader Letlapa Mphahlele, NFP leader Zanele kaMagwaza-Msibi, IFP president Mangosuthu Buthelezi, Cope leader Mosiuoa Lekota, African People’s Convention leader Themba Godi, EFF leaders Kenny Kunene and Floyd Shivambu and UDM leader Bantu Holomisa also attended (City Press).

So what?

The complete retreat of the ANC and its allies (the SACP and Cosatu) in Marikana represents a highly significant loss of political terrain. The commemoration gathering was widely accepted and legitimate, Lonmin was represented as was a broad cross-section of the Nkaneng community as well as church, political and worker organisations. The fact that this was a ‘no-go area’ for the ANC and its allies is, in my opinion, the most significant evidence of loss of ANC hegemony since the 1994 election. The political loss for the ANC is reproduced throughout the platinum sector and tracks the relative gain of Amcu and the losses of Num. The opposition political parties are hovering around the platinum sector hoping to pick up the votes the ANC loses … but it is not yet evident which parties, if any, will benefit from the ANC’s apparent loss of support and legitimacy amongst platinum mineworkers. However, the existence of ‘no-go areas’ in national election campaigns is a recipe for violence.

Here are some bits and pieces of my latest commentary:

Vavi and Numsa – the underlying risks

Zwelinzima Vavi faces a special central executive committee of Cosatu meeting today to decide his fate following his admission that he had sex with a junior Cosatu employee in her office in the Cosatu headquarters. Numsa, the National Union of Metalworkers of South Africa (perhaps Cosatu’s largest union after the collapse of Num in the face of Amcu competition) characterises the attempt to discipline, and possibly shaft, Vavi as  “a  real rupture in the Alliance, and therefore in Cosatu, the ANC and the SACP between the forces of socialism and the forces of neoliberal capitalism”. There is widespread speculation that Numsa might exit Cosatu if Vavi is axed.

So what?

It would be a mistake  to dismiss Numsa’s position as just so much socialist babble and dissembling (although I did I see a  recent Numsa paper defending Vavi with this quote from the Communist Manifesto: “The proletarian is without property; his relation to his wife and children has no longer anything in common with the bourgeois family relations … law, morality, religion, are to him so many bourgeois prejudices” – tee hee ).

Numsa reads the pressure being placed on Vavi as rooted in Vavi’s criticism of the ANC leadership with regard to corruption and with regard to the ANC’s adoption of the National Development Plan. For Numsa and ‘the left’ in Cosatu/ANC/SACP,  Vavi’s sexual practices are irrelevant, the ‘real’ issue is that the Zuma-led ANC and its allies in Cosatu and the SACP are attempting to rid themselves of a strident critic before the 2014 election. The left is, implicitly, saying: ‘you are trying to get rid of Vavi so that you can continue stealing from state coffers and selling us to the global corporations in whose pockets you now reside.’

The strategic planners around Zuma probably did want to get rid of Vavi and saw the sexual misconduct as an opportunity to do so with the least cost to Alliance strength and unity. However a result that leads to Numsa splitting from Cosatu might end up being catastrophic for Zuma and his allies. Numsa is the best organised and most militant union in Cosatu. It already effectively competes with Num (at Medupi for example) and if it were to set itself up in competition to other Cosatu unions the platinum sector circa-2012 could, conceivably, end up looking like a labour-relations picnic. Such a split could also cause unforeseeable disruptions in the ANC’s electoral support, conceivably leading to a political realignment and possibly to the formation of a ‘left’ or ‘workers’ party.

However, the Zuma administration and the central ANC leadership is desperately trying to unite the constituent elements of the Alliance behind the National Development Plan – partly in an attempt to prove to global capital markets and other investors that the ANC is serious about creating a settled environment for investment, and partly because it appears to believe that plan is the right path to ensure increased levels of economic growth and employment. Numsa sees the NDP as a direct extension of the ‘neoliberal’ Growth, Employment and Redistribution macroeconomic policy.

To understand more fully what is at stake here it is interesting to examine how Numsa, in its own words, understands the NDP and GEAR and how it interprets the ‘real’ reasons the Zuma leadership is attempting to get rid of Vavi:

“The capitalist neoliberal trajectory which the ANC leadership had  adopted”, designed to “ deepened and entrenched South African capitalism” and “ it also laid the grounds for deepening imperialist domination in South Africa” … “allowed monopoly capitalism to evade expropriation“  … “thus in fact GEAR negated one of the fundamental objectives of any liberation struggle – the elimination of imperialism”.  Finally: “Inevitably, the rupture in Cosatu is between those who want to see a thoroughgoing implementation of the Freedom Charter …  and those who are consciously or unconsciously defending South African capitalism and imperialism by defending the NDP and not openly supporting the implementation of the Freedom Charter, especially its nationalisation demands.”

The stakes are high. The Zuma administration needs to prove to investors that these political positions are not represented in ANC policy making AND it has to keep the Ruling Alliance intact. The disciplining of Vavi today brings this to a head. The Zuma aligned faction probably wants to achieve a disciplining of Vavi with regard to his public utterances but to a degree that keeps Numsa in the tent. It’s a delicate balance and fraught with risk.

 

The Democratic Alliance – much talk of the possibility of taking Gauteng

The DA Electoral College decided late last week that Mmusi Maimane will head its campaign to take Gauteng from the ANC is 2014. Maimane stood against Jack Bloom for the position of ‘premier candidate’ for the DA in Gauteng. The election comes amidst increased media speculation that the Official Opposition could realistically pursue victory against the ANC in the economic heartland of the country.

So what?

The peculiarly South African ‘coded’ relevance of this story, is that Maimane is black and Bloom is white – and therefore the DA electoral college’s choice of Maimane over the more experienced Bloom is seen as indicative of the DA’s decision to ‘go all out’ to win a greater share of the black vote, especially in the region where it is assumed that ‘urban African professionals’ are both most abundant and most likely to be disaffected with corruption and ANC failures of governance.

At this distance out from a national election any definite prediction about results should be taken with a mountain of salt. Parties are either trying to talk up their chances or are predicting dire results to scare their members and supporters into campaigning mode. In the 2009 election the Democratic Alliance won 16.6% of the vote in Gauteng and it is vanishingly unlikely that the party will win a majority in the province in 2014. It is conceivable that the DA could find itself in a position to lead an alliance of parties to victory over the ANC in the province next year. However the parties themselves and their expensive private polling consultants possess the only real ‘scientific‘ (probably ‘empirical’ is better) – ed) data. Any hints that emerge into the public domain that come from those party contracted polling agencies are probably designed to serve specific party objectives, rather than the truth – and should be treated with maximum scepticism.

 

Zuma expected to tell SADC ‘our work in Zimbabwe is done’

It is unlikely that the 15 member SADC Heads of State meeting scheduled to take place on August 17 will call for a coalition government in Zimbabwe – as the body did after the disputed 2008 elections. City Press reported on Sunday that a source close to the South African mediation effort has said: “As far as South Africa is concerned, we have ended mediation in Zimbabwe”. It is likely that the regional body will vote to accept the election result (although not unequivocally and not without polite reservations) and further, that the body will call for the UK and the US to drop sanctions against Zimbabwe as part of an economic recovery plan.

So what?

The SADC is likely to err on the side of order if the trade-off is between political/economic stability and electoral fairness in the region. In 2008 the body assessed that the election was so unfair that accepting Mugabe’s refusal to acknowledge an MDC victory would be an unstable result. Thus the body forced Mugabe and his party into a coalition government. The estimation appears, this time around, to be that accepting a Zanu-PF victory is the more stable of the possible outcomes – and that stability is rooted in Zanu-PF having performed better and the MDC having performed worse this time around.

There is an interesting account in the Mail & Guardian of how Zanu-PF won Harare from the MDC that bears testimony to a real shift in voter sympathies in Zimbabwe – as opposed to purely cheating and skullduggery on Zanu-PF’s part (catch that story here). It is impossible to make a serious estimation of how much Zanu-PF’s victory was legitimate and how much a result of the aforementioned skullduggery. However, it is my opinion that the SADC will conclude that enough of the victory is ‘legitimate’ to declare it so, and thereby help make it so.

The outstanding questions, it seems to me, are:

• Will the party implement the indigenisation programme in a way that further drives foreign investment out of the economy?
• Will the party implement catastrophic monetary and fiscal policy?

It is probably a correct response to be ‘optimally cautious’ rather than ‘cautiously optimistic, given Zanu-PF’s serious mismanagement of the economy post-1999. However, it is also important to think of Zanu-PF and Mugabe as conscious and politically aware players in their game. Zanu-PF is likely to be cautious about policy – it is no longer necessary to implement ‘panic’ measures and any incumbent administration is likely to want to seek a degree of economic stability. This does not mean Zanu-PF will back-off ‘indigenisation’ – it appears to have worked for the party up to a point. But it does mean that Mugabe and his party are unlikely to implement indigenisation that further (i.e. any worse than it already has) breaks international norms and standards about property or in a manner that causes a stampede out of the economy. (Important qualification: One of my colleagues who specialises in analysing platinum companies has suggested that the indigenisation ‘deals’ that were struck prior to the election are actually coming ‘unstuck’ because Zanu-PF appears to believe it can get more favourable terms now that it has won such a divisive victory in the election. If that is, in fact, the case then it would be appropriate to be less confident of my formulation that  “Zanu-PF is likely to be cautious about policy”.)

Additionally, a serious and high-risk ‘unknown’ is what might happen if and when Mugabe (finally) dies. My own assumptions about how history works is that individuals rarely make a huge difference to outcomes. However, through careful manipulation and a clever ruthlessness Mugabe has become the lynchpin of Zanu-PF power and I am uncertain as to what might happen if a vacuum suddenly appears in the space he currently occupies, but I think it is unlikely to be pretty.

 

Pravin Gordhan – mutters at The Treasury

“Finance Minister Pravin Gordhan’s leadership style has been called into question as treasury employees accuse him of taking a unilateral decision to cut performance bonuses by more than half, while failing to condemn publicly the expenditure on the multimillion-rand upgrade of President Jacob Zuma’s compound in Nkandla” – Mail & Guardian.

So what?

Aggrieved staff members are not necessarily the most reliable critics of the bosses for whom they toil. However, successive ANC governments have relied on the Department of Finance being a centre of excellence that consistently trains and/or attracts top, highly motivated and effective officials – so any signs of serious stress in the organisation is worthy of consideration. The article, from the ‘quality weekly’, quotes a ‘senior official’ in the following manner: “Since he [Gordhan] was appointed as minister, things have never been the same in the national treasury. He brought a management style that is foreign to the team of the national treasury. He sometimes speaks to the management team like they are kids. His leadership style has seen many of the senior treasury employees, including former director general Lesetja Kganyago, leaving … All he is focusing on is making sure that he is reappointed as the minister of finance after next year’s election. People here say that this is one of the reasons he does not condemn the enormous amount of taxpayers’ money that was spent on the president’s residence”

In the same story, the Democratic Alliance finance spokesman Tim Harris claims that recent replies by the Treasury to the party’s parliamentary questions revealed a ‘significant’ vacancy rate at senior levels within the department, “in particular, 25 senior employees have left the department in the past year,” he said.

We have to take this from whence it comes (aggrieved employees and the official parliamentary opposition) but the status and functioning of the previously above reproach Treasury is important enough to consider even the fruit of this tainted tree.

 

Julius Malema seeks spiritual guidance

City Press reported on Sunday that Julius Malema and his colleagues in the Economic Freedom Fighters left South Africa on Friday for a week’s visit to a massively popular Nigerian preacher in Lagos who has ‘prophesied’ a huge and bloody revolt in South Africa – presumably one led by Malema. The EFF said in a statement that this is a “spiritual visit to meet and create friendship with this son of Africa and his congregation, and ask for blessings on the journey ahead”.

So what?

Nothing really … it’s just that Malema’s antics are endlessly entertaining. Of course this lighthearted approach is based purely on the belief that Julius and cronies are never going to get anywhere in their political party endeavours. If the EFF ever looked like it was a real threat I would probably not be sniggering up my sleeve at their tormenting of the ANC …

Herewith my news commentary as of yesterday morning. I thought I would republish it here because it includes my brief assessments of how to think about the Zimbabwe election, Vavi and the EFF. I also, politely, imply that the Seriti commission might be a cover-up and that Amcu’s underlying objectives in the gold sector are potentially quite scary.

Zimbabwe – grin and bear it

Robert Mugabe has won 61% of the votes (2.11 million votes) in the presidential poll, against Prime Minister Morgan Tsvangirai’s 34% (1.17 million votes). Zanu-PF won 158 parliamentary seats against the MDC’s 49.

The head of the SADC facilitation process, South African President Jacob Zuma’s office yesterday released a statement that began:

H.E President Jacob Zuma extends his profound congratulations to HE President Robert G Mugabe on his re-election as President of the Republic of Zimbabwe following the successful harmonised elections held on 31 July 2013. President Zuma urges all political parties in Zimbabwe to accept the outcome of the elections as election observers reported it to be an expression of the will of the people.

The opposition MDC has called the result “fraudulent” and has threatened not to take up its 49 seats and to boycott government institutions and “pursue peaceful, legal, political, constitutional and diplomatic remedies” (several online news sources, including BBC Africa).

The Mail & Guardian points out that monitors from the African Union and the Southern African Development Community (SADC) have stressed that the elections were peaceful and have endorsed them as ‘broadly free’. In contrast, the United States and European governments, which have sanctions in place against Mugabe over past election-rigging, “listed a litany of alleged flaws in the vote, from lack of availability of the voters’ roll to pro-Mugabe bias in the media and security services that skewed the election run-up” – M&G.

So what?
Even allowing for the myriad ways in which the MDC was (deliberately – and probably illegally) disadvantaged in this election it appears there has been a real shift away from the opposition. Perhaps this is because just by entering the unity government in 2008 the MDC both saved the economy from collapsing (and thereby saved Zanu-PF) and suffered some of the sins of incumbency. Perhaps it was how mediocre Morgan Tsvangirai has turned out and how endless have been his romantic and sexual travails. Whichever. I am not certain that the MDC will follow through and actually not take up it seats – this will only be revealed in the next few weeks.

To repeat comments I made on Friday:

  • It is deeply unfair. The election was brutally stolen in 2008 and every state resource that could be deployed against the MDC has been so deployed in the last 5 years. Slight economic upticks post 2008, the deepening indigenisation programme (or at least the promise of the goodies from the programme) combined with a host of tactical and strategic errors by the MDC appear to have allowed Zanu-PF to ‘pull off’ a victory at the edge of acceptability … and the edge of the law, but just within it. Even if that is not the opinion of the MDC or Western observers, it is going to be the formal assessment.
  • Thus, I am not suggesting that this result reflects the “will of the Zimbabwean people” … but it reflects it adequately to avoid the crisis that would result from an outright declaration that voters’ roll irregularities … and inadequate other preparations … and the historical legacy of repression and cheating … and misuse of security agencies and state media … constitute enough impact to declare the result not reflective of the will of the people.
  • Does this mean Zanu-PF’s deeply investor unfriendly, GDP growth unfriendly, economic policies will continue? Not entirely. I think Zanu-PF has, miraculously, won back a chance to control the post-Mugabe succession period. They very nearly lost it as a result of their catastrophic policies. I expect Zanu-PF to be more cautious and embracing of investors in future … including with regard to the indigenisation programme. 
  • I am less sure  of that final bullet than I was when I wrote it on Friday, but it appears to me that, at very least, Zanu-PF, will have learned a lesson from nearly losing its hold on the country and is likely to give more emphasis to ensuring that the benefits of its economic policies flow to ordinary Zimbabweans (and less to buying off Zanu-PF cronies, which has been the emphasis up until now.)

Arms probe in tatters

Last week Judge Francis Legodi resigned from the The Seriti Commission into the arms deal scandal and evidence leader, advocate Tayob Aboobaker, announced his resignation citing ‘nepotism, unprofessionalism and infighting’ (he may since have withdrawn his resignation). These ructions follow the earlier resignations of senior researcher Mokgale Norman Moabi and the law researcher, Kate Painting.
So what?
The elephant in this room is the Jacob Zuma himself is one of the individual ANC leaders whose reputation has been most tarnished by the scandal (corruption charges against him in this regard were only – controversially – withdrawn in 2009). At the same time, it is Jacob Zuma himself, in his capacity as President, that has instituted this commission, possibly in the hope that he can put the threat of the return of those charges permanently behind him. At this stage the commission is meant to begin hearings today, and among those who will be called are former President Thabo Mbeki, head of Cope and former Minister of Defence Mosiuoa Lekota, former Minister of Intelligence, Ronnie Kasrils, former Trade and Industry Minister Alec Erwin and former Minister of Finance Trevor Manuel. I think it extremely unlikely that this commission will ever pronounce on why the bizarre decisions were taken to purchase the singularly inappropriate (for the country’s defence needs) set of expensive weapons systems (including 48 Saab Gripen fighters and trainers, 4 Daphne class submarines and 4 frigates). I also think it vanishingly unlikely that the commission will find out where the kickbacks went.

I will not be surprised if it emerges that the resignations from the commission are motivated by the belief that the process will achieve the exact opposite to its apparent purpose.

Zwelinzima Vavi

Several of the weeklies speculate as to whether Zwelinzima Vavi will survive the scandal in which he had unprotected sex in Cosatu’s headquarters with a junior employee whose employment in Cosatu he had irregularly organised – and who accused him of rape and later withdrew the charge in an internal Cosatu procedure.

So what
I covered this in some detail last week, but there is an implication to what is happening here that needs emphasising.

The ANC is facing an election next year and much of the pressure Vavi has been under up until now (from ANC/Zuma loyalists in Cosatu) has been directed at pulling him (Vavi) into line, to stop him constantly accusing government leaders of corruption, to stop him criticising macro-economic policy. The ANC needs to establish a united front so that it can take on the various challenges it faces in the national election next year. 

But there is a difference between placing pressure on Vavi and forcing him out of Cosatu. If Vavi is forced to resign because of his actions in relation to the junior employee it is not inconceivable that Cosatu’s biggest union Numsa might go with him.

It is as if the ANC has been pushing a board – that it thought was solid – to get it into a better position. But the board was rotten all along and it suddenly collapses as it is being pressed. An actual split in Cosatu that drove the most left-wing elements together and out of the ruling alliance would be negative for the ANC in a number of ways. It would further weaken the credibility of the trade union ally, it could raise the spectre of a viable ‘left’ party, it could force the ANC into having to contest on too many fronts in the 2014 election, it could increasingly lead to policy paralysis in government and it could cause serious labour unrest as Cosatu member unions reconstitute and split in a number of different industries. None of this is certain (or even likely) but it is a threat or a series of threats we need to bear in mind.

Economic Freedom Fighters – taxing times … but behind the theatre there are credible risks

Along the same lines as the above, the latest round in the colourful pageant of Julius Malema’s attempts to re-establish himself at the centre of South African politics came yesterday when he mounted a fierce attack on the South African Revenue Service (the full text published at politcsweb.co.za) after SARS made public the details of his tax record. (Here for the SARS statement and here for Malema’s response.)
So what?
SARS is defending itself from Julius Malema’s accusation that it is being used as a tool by what Malema calls the ZANC (the Zuma ANC). The truth or otherwise of this particular matter cannot be established, but I wanted to use the opportunity to raise what I see as the main risk associated with the Economic Freedom Fighters. The risks are not dissimilar to those associated with a potential ‘left’ split in Cosatu. It is increasingly likely that the ANC will be contesting the 2014 elections with significant threats both to its ‘left’ and its ‘right’.

The Democratic Alliance, perhaps in a formal alliance with other opposition parties and independent candidates is starting to seriously consider the possibility that it could win the Western Northern and Northern Cape and come achingly close in the, Eastern Cape and Gauteng. While I am unable to assess whether these are realistic objectives, I think it is important to consider how the ANC might behave if it faces this threat at exactly the point as its own members, allies and the Economic Freedom Fighters, place it (the ANC) under pressure.

I have no grounds to argue that the EFF and any ‘workers’ party’ that could conceivably emerge from a split in Cosatu could win enough votes to become a viable parliamentary opposition, but I do think that the operation of these forces place the ANC in an awkward, even untenable, ‘policy’ and ‘message’ position.

In adopting the investor friendly National Development Plan at Mangaung and in the presidency’s concerted attempts to stabilise the platinum mining sector, the Zuma administration has made it clear that it is extremely worried that investor sentiment towards South African policy and policy risk has turned negative. An ANC fighting a populist wildfire from the EFF (perhaps more heat than light … but anyway), an incipient ‘ left’ split from Cosatu and an ascendant DA is hemmed-in, constrained, unable to formulate viable national policies and increasingly tempted to engage in dirty tricks against its enemies.

 

Amcu and the gold negotiations – some tentative speculation

Following Amcu’s apparent walkout from the Commission for Conciliation and Mediation of the gold sector wage negotiation that had become stuck at the Chamber of Mines last week, I made the following comments (note that Amcu has since said it intends participating in the process, although as you will see from the below, I would be cautious of accepting that at face value):

I think that it is directly in Amcu’s rational best interest to:

  •  ensure that collective bargaining through the Chamber of Mines breaks down (i.e. that the central bargaining chamber is destroyed) and that companies are forced to seek agreements on a mine by mine basis; and
  • to provoke crises similar to those that took place at Impala in January last year and Lonmin in August on gold mines where it is not yet recognised as the majority union.

Firstly, why is this “rational”?
Because any of the anger, hot-headedness and youthful passions rooted in the history of Amcu leadership’s conflict with Num would have been burnt out of them last year.

Now it is probably more accurate to conceive of Amcu as rational competitors in a game where the objectives can be stacked in a very similar way to how one would stack objectives of a company with three or four major competitors in a set market.

Amcu can certainly get things wrong – and engage in activities that are counterproductive to the likelihood of it achieving its objectives – but this is less likely to be because Amcu is led by anarchist lunatics, and more likely to be because its leaders have made tactical and strategic errors.

Thus, while it is possible to argue that Amcu’s members and potential members are “tired of strikes” or “unable to bear the burden of further strikes” this should be conceived of as a constraint to Amcu pursuing its objective rather than an absolute barrier.
So what are Amcu’s objectives in the gold sector?
Firstly, to destroy the National Union of Mineworkers.

The Num, the loyalty of its (declining) membership, and its abuse of its prior dominance, is the most important obstacle to Amcu achieving its main objective which, unsurprisingly, is to be the only significant union in the resources sector. That is, Amcu’s primary objective is to occupy the eco-niche that Num has occupied up until now.

Trade unionism is a business … it’s about money and power. So yes, Amcu grows by more effectively representing (or portraying itself as more effectively representing) the collective interests of its members or potential members … and thereby actually getting greater numbers of signed up, due-paying members.

However, it cannot be effective in this task, even where it has already got more members than Num … because Num occupies an institutional and regulatory “space” that it is using to maintain its dominance.

Thus, in a central bargaining chamber system where the representivity of the participating members is outdated (as it clearly is in this case) the union that is actually dominant (or in the process of becoming dominant) must destroy the process and force employers to deal directly with it … and not with the old dinosaur that is taking up all the space by trading purely on the institutional lag effect.

So forcing employers to deal with Amcu, on a mine-by-mine basis, seems to be a no-brainer for the upstart union and explains perfectly Amcu’s actions up until now in the gold negotiation process that started 2 weeks ago.

The next step is that Amcu has to establish dominance at each mine … it has to “force” the employer to deal with Amcu rather than Num … even if the outdated books still show Num as the dominant union at each mine.

Thus Amcu will attempt to destroy Num’s negotiating position … it will work to ensure that workers do not feel that whatever Num and management settle for is an adequate settlement. Amcu only wins if that settlement fails; therefore it has an absolute imperative to cause those settlements between Num and management to fail (by proposing levels that are more difficult for management to meet and by mobilising workers against whatever settlement Num reaches).This is a competition that Amcu can lose. Num and management might strike a workable deal that the majority of mineworkers back … but it (Amcu) has got to fight it.

If this is correctly reasoned, there is a strong pressure on the central bargaining system in the gold sector and for possible mine level negotiations to be traumatic – in a very similar way to the trauma associated with strikes in the platinum sector last year and with an almost identical ‘architecture’.

Once (and if) Amcu has crushed Num and established its dominance across the industry its motivational hierarchy changes; it will then want to lock itself into the monopolistic position that Num now occupies. But that is a long way ahead, so long that it is not yet worthy of serious consideration. For now, it (Amcu) is trying to free up space so that it can go head-to-head with Num, which in turn is hiding behind bureaucracy. Thus Amcu is trying to increase competition because it believes in a straight fight it will win.

Finally, Amcu does not have a free hand in pursuing these objectives. Management and Num are going to fight back in all the ways (positive and negative) open to them. Also, workers are tired, indebted, the industry is shrinking and management is looking for excuses to downsize workforces – but within these constraints, I would argue that Amcu is forced by its own nature, to pursue the objectives here set out, as effectively as it can within those constraints.

Herewith an extract from my weekly news commentary* as of 06h30 yesterday.

‘A minefield of obstacles for Motlanthe’ – Sunday Independent

 The Presidency, in the person of Deputy President Kgalema Motlanthe, launched the “Draft Framework Agreement for a Sustainable Mining Industry” on Friday. The document is based on an initial process of discussion with all interested parties (including, amongst others, Amcu, Num and the Chamber of Mines) and each party is expected (hoped) to ratify the agreement by June 26. The document essentially acknowledges the importance of the mining sector for investment, economic growth and employment. If it is ratified, all parties would be formally accepting the need to re-establish law-and-order in the sector, improve labour relations and address the housing and community needs of workers and their families, both near the mine and in the labour sending area. The document commits the government to ensuring “that the legislative and regulatory programmes provide predictability and certainty for the industry” including with regard to “tax policy” – those quotes from 6.1.4 and 6.2.1 of the draft document.

So what?

This initiative is no more than the minimum of what has been demanded of government, especially of the commanding heights of government, by most of those affected by the industrial relations crises in the platinum sector that began in early 2012. Thus, Jacob Zuma, and his deputy, Kgalema Motlanthe, are looking busy and engaged with the crises and that will come as a welcome relief after what has appeared to be endless dithering and mixed messages.

However, there should be no expectation that the initiative will miraculously resolve the deep conflicts, both within government and ruling party policy and between the contesting trade unions. The Sunday Independent correctly points out that there is a tension in the government and ANC policy and the newspaper ascribes (or personifies) the tension as being between Finance Minister Pravin Gordhan (concerned about investment, profitability and revenues) on the one hand and Minister of Mineral Resources Susan Shabangu as well as ANC Secretary General Gwede Mantashe (concerned that mining companies owe South Africa, particularly black workers, a historic debt).

It is neat (but only partly accurate) to think of the policy conflict as being about the views of different powerful politicians within the government and the ruling party. The reality is that the ANC (and therefore, government) is, and has been since 1994, fundamentally torn between the economic necessity to reassure (mining and other) investors and the political imperative to demand redress and redistribution for its aggrieved constituents. Does the Motlanthe fronted attempt to negotiate a new understanding and modus operandi between the different interest groups in the mining sector represent a qualitative reassessment of where the ANC’s priorities lie? I doubt it, especially not 10 months before a national election where the ANC is starting to feel beset on several fronts but clearly (from a purely numeric perspective) has the most to win and the most to lose in the majority constituency of poor black South Africans.

It is tempting to see Kgalema Motlanthe’s role in the efforts to settle the sector as preparation for him to replace Susan Shabangu in the Minister of Mineral Resources post. Shabangu has gained a reputation as being instinctively suspicious of resource companies – although, again, I would suggest that this is more a characteristic of the ANC itself than of any particular individual. Motlanthe is perceived as ‘a good guy’, a person open to compromise, a peace-maker and a humble and loyal public servant. That would probably be a good thing for sentiment in the sector, but it would be important not to confuse form with content.

 

Julius Malema to party on down?

Malema has been explaining his decision to launch a new, yet to be formed, opposition party, the Economic Freedom Fighters. He yesterday described the ANC as “on a downward spiral ideologically, politically and morally” and under Zuma, as being characterised by “tribalism, regionalism, factionalism and corruption”, essentially “an association of careerists and neo-liberal bureaucrats whose sole mission and role was protecting the interests of white monopoly capital” – see what essentially looks like his draft manifesto on Politicsweb.co.za. At the heart of the expressed policy of the proposed new party (announced in the run up to June 16 Youth Day commemoration) is the demand (that Malema was central to codifying as President of the ANC Youth League) for the nationalisation of mines and the expropriation of white owned farm land.

So what?

Can Malema tap into the constituency of young black South Africans who feel abandoned by (or angry with) the ANC over its failure to affect more radical redress and redistribution measures? Can he win, as he promised last week, 5 million votes and thereby replace the Democratic Alliance as the official opposition? (Can he stay out of prison? – ed) Malema has an almost preternatural ability to identify, frame and play into the sense of disaffection amongst the most marginalised young black South Africans and he has the energy and charisma to at least make a go of forming a coherent opposition party. All his significant previous allies who have remained within the ANC (including Minister of Sport Fikile Mbalula and Limpopo Premier Cassel Mathale) came out strongly against of the former Youth League president over this last weekend.  Whether or not Malema manages to form the proposed Economic Freedom Fighters in time for it to have an impact in national elections next year, he will probably succeed in creating a gravitational pole that will keep the ANC from drifting towards business and financial markets. This will not be a new role for him.

 

Zimbabwe elections – Mugabe agrees to seek short delay

A South African Development Community (SADC) extraordinary summit met in Maputo, Mozambique on Saturday and Robert Mugabe acceded to the pressure to attempt to shift-out the July 31 date that had been set for the election in Zimbabwe that will bring to a close the current power sharing arrangement with the opposition Movement for a Democratic Change. Jacob Zuma is the SADC facilitator attempting to radically reform the regulatory, governance and security framework that allowed widespread repression and cheating in the failed 2008 election. None of the parties are ready for an election (including Zanu-PF which, amongst other problems, is riven with division at a central level and in key provinces Masvingo, Bulawayo and Manicaland).

So what?

The key reforms that must be in place for an election to succeed in Zimbabwe relate to control of the security apparatuses and to ensuring impartiality of those apparatuses and to establishing the impartiality of the state-owned media. Also, voter registration and various administrative issues need to be completed or rectified before the election takes place if it is to be ‘free and fair’. Zimbabwe is experiencing the beginnings of an economic recovery. This might benefit the incumbents (Zanu-PF) but the opposition hopes that the growing spirit of optimism will lead voters into their fold. There are no reliable opinion polls, so we will have to wait and see. The significant natural mineral assets, the exceptional tourism possibilities and the fact that a huge but uncounted Zimbabwean diaspora is in South Africa are amongst the issues that make the outcomes of what happens in Zimbabwe important.

Bits and pieces

  • City Press led with ‘War for Gaddafi billions’, based on the premise that two competing Libyan groups are in the country attempting to recover a fortune in gold, cash and diamonds that he (Gaddafi) allegedly stashed here – including a sizeable chunk “in gold bars in safe storage at OR Tambo International Airport” and in cash pallets held in the Reserve Bank. The story claims the Libyan factions are attempting to dangle the promise that the money will be used to buy South African manufactured armaments and that recovery of the many billions of dollars’ worth of assets would earn a 10% finder’s fee. The payload of the story comes in this paragraph: “According to Erasmus (a ‘controversial South African arms dealer’), Mphafudi (‘an ANC connected businessman’) and Maleka (‘the ANC security head’) were working with two Libyan investigators …. (Erasmus) claims that both South Africans accompanied the Libyans to see President Jacob Zuma at his Nkandla homestead.” (The Sunday Times reported that Zuma was accompanied by his cousin Deebo Mzobe during the meeting). Hmm. (Clarifications and emphasis in that quote from the City Press article added by me – ed).
  • Telkom’s bid to sort out its ‘legacy issues’ – by the “write-off of R12 billion in defunct assets” and by the settlement of its various cases with the competition authority – got headline coverage in City Press. “Our key shareholders are frustrated, our customers are frustrated and I can promise that we will not repeat the same mistakes of the past,” said new broom CEO Sipho Maseko last week. Don’t hold your breath.
  • Tina Joemat-Pettersson (Minister of Agriculture, Forestry and Fisheries) was directly accused on the front page of the Sunday Times of receiving a kickback of R100 000 in 2006 for her efforts in closing the purchase of Sunset Game Lodge, outside Douglas, while she was provincial minister in the Northern Cape. The allegation is serious, but as the story points out she is ‘the Teflon Minister’ and it is by no means clear that she will ever meet her comeuppance, no matter what she does or how badly she performs.
  • “Waterkloof scapegoat on warpath” – reports the Mail & Guardian. Lieutenant Colonel Christine Anderson, the movement control officer at Waterkloof airbase who was accused of being one of two key rule breakers that allowed the now infamous Gupta wedding party to land and be ferried from the strategically important military base, is approaching the public protector for relief. The Gupta’s of Sahara Computing are friends and funders of Jacob Zuma and his family and it is widely assumed that there was tacit pressure placed on Anderson and other officials to let the friends of “Number One” pass. This is an ugly affair where the real wrongdoers, the powerful and abusive politicians and their friends, get off scot-free and loyal and faithful officials take the fall.
  • Nelson Mandela’s health remains a key media topic (he’s still in hospital) and the symbol of the man is already deeply contested, especially between the ANC and the DA in the lead-up to next year’s elections. Mandela is an almost life-long ANC member and leader, but the DA is attempting (not altogether successfully) to argue that they are the true inheritor of his mantle while the ANC has drifted into a wilderness of incompetence and corruption. If Nelson Mandela dies between now and the national election next year, the essence of this contest would play itself out on perhaps the largest global stage in the history of human-kind.

* I write this news summary for clients of BNP Paribas Cadiz Securities and send it to them at 06h30 Mondays (Tuesday this week) and I occasionally republish it here a few days later if I think it might be of more general interest. I am, of course, grateful to BNP Paribas Cadiz Securities for allowing me to do this.

I am an independent political analyst focusing on Southern Africa and I specialise in examining political and policy risks for financial markets.

A significant portion of my income is currently derived from BNP Paribas Cadiz Securities (Pty) Ltd.

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