I am on my way to London to speak to the funds that buy and sell South Africa’s corporate and government bonds i.e. the market that sets the price at which the world is prepared to lend us money.

Daily I become more convinced that the South African political economy is, like quick clay so unstable that when a mass …  is subjected to sufficient stress, the material behavior may transition from that of a particulate material to that of a fluid.” 

The other metaphor I was fiddling with was: all the cards have been thrown in the air and where they will land, nobody knows. (I’m sure there is an elegant song or poem that says something like that, any help there would be appreciated  … that request  is the WordPress equivalent of a  #twoogle – Ed) 

But before I get onto the more lofty questions about the future of life, the universe and everything, I thought I would send you my latest news update – so you can see the gradually building case for my sense that everything has changed. (Thanks as always to BNP Paribas Cadiz Securities for generously allowing me to republish this – albeit a few days later – here.)

  • A new socialist party appears on the horizon of South African politics … it’s not all good news, but nor is it all bad
  • Murmurs about vote rigging – a leading indicator of political instability 
  • Mining policy meets with surprising levels of push-back from the private sector – in the Business Day at least
  • The future push for the NDP, Hitachi and the ANC, final takes on the budget and why South African telecommunications infrastructure is a very fat golden goose

Numsa confirms it will launch socialist party

The biggest union in the country is effectively in the process of being expelled from the ANC- aligned Cosatu and has announced its intention to establish a party, provisionally to be called the United Front and Movement for Socialism.

“We need a movement for socialism,” general-secretary Irvin Jim told reporters in Johannesburg on Saturday.

He (Jim) continued on to argue that ‘leadership of the national liberation movement as a whole had failed to lead a consistent radical democratic process …’ (Jim paraphrased in numbing detail in SABC Online, Sunday, 2 March 2014, 17h49.)

Numsa has been given seven days (from last Thursday) by the Cosatu NEC to provide reasons why it should not be suspended from the federation. The main issues motivating the suspension are that Numsa has been openly critical of the ANC and the Cosatu leadership and that Numsa has begun competing with, especially, the National Union of Mineworkers, in defiance of Cosatu’ s one-industry-one-union slogan.

So what?

This is unfolding much as predicted. The ANC under Jacob Zuma has decided (or been compelled) to impose discipline on the ruling alliance and force a degree of compliance with the various policies of the ANC and its government. The discipline sought by the ruling group within the ANC is motivated by apparently divergent concerns. On the one hand, Jacob Zuma and his allies are attempting to get the left-wing to stop attacking them (Jacob Zuma and his allies) as corrupt and incompetent. On the other, Jacob Zuma and his allies are attempting to force a degree of support for the National Development Plan (NDP), a policy that the left-wing generally sees as ‘neo-liberal’, anti-poor, anti-working class and conservative in fiscal and monetary terms.

There is a fine tension here between positives and negatives (for the audience NB writes for … mainly fund-managers – Ed). The NDP has been widely welcomed in financial markets. But the corruption associated with the holding of high office in South Africa is becoming something of a crisis for investors of all stripes. It is as inaccurate to think of Jacob Zuma’s Nkandla faction as purely the champion of market friendly policy as it is to think that Irvin Jim, Zwelinzima Vavi and Numsa are purely the anti-corruption champions of South African politics.

For now, we need to watch for the formation of the socialist party, probably at or before the year-end. Such a party will have a multiplicity of impacts including (but not limited to) undercutting areas of ANC support and forcing the ANC towards finding policies that stimulate economic growth.

(By-the-way I feel it is likely that this new party will have more substance and longevity than the EFF and through a variety of possible mechanisms – including some kind of alliance or even amalgamation – could subsume much of the EFF support and intellectual leadership. But that sort of speculative concoction will follow this post some time over the next few days.)

UDM says beware of vote rigging

The Sunday Independent (2 March) reports that Bantu Holomisa of the United Democratic Movement claimed that ‘rogue elements’ in the Independent Electoral Commission will help rig the 7 May election to ‘facilitate the underperforming ANC’:

“The ANC is very concerned (about shedding votes), hence they are pinning their hopes that those rogue elements will run the elections, so rigging will be on the high. There is no doubt about that” – Bantu Holomisa in the Sunday Independent, 2 March 2014.

So what?

The effectiveness, reliability and constitutionality of the Independent Electoral Commission have been important guarantors of aspects of South African democracy. While Holomisa’s allegations are not substantiated (in the aforementioned interview), the fact that such allegations are made can be an important leading indicator of long-term political stability. People and political parties must trust the electoral system if they are to accept the outcome of elections.

(Holomisa’s ‘rogue elements’ probably refers to Pansy Tlakula, chairperson of the IEC, who was found last year by Public Protector Thuli Madonsela to be guilty of improper conduct and maladministration with regard to the R320 million lease contract for a new head office for the IEC. Tlakula is currently challenging Madonsela’s finding in courts. The IEC and the Public Protector are both institutions established in terms of Chapter 9 of the South African Constitution with specifies that they are designed to “strengthen constitutional democracy in the Republic” – Chapter 9 of the Constitution of the Republic of South Africa, 1996.)

Mining policy pushback – in the Business Day anyway

Today’s Business Day leads with a story claiming that there are ‘growing rumblings’ from the mining industry about the ‘once empowered, always empowered’ equity provisions in the Mining Charter. The issue in this case is that the government will this year audit the mining companies’ requirement to be at least 26% black owned. Neal Froneman, CEO of Sibanye Gold, is threatening to go to court to have Sibanye’s empowerment transactions counted in the audit, even if the black beneficiaries have since sold out of their equity.

Mining companies are issued licences pursuant to them meeting certain criteria with regard to Black Economic Empowerment, employment, social, community and labour obligations.

So what?

The series of stories in the Business Day about this matter smacks a little of a campaign by the newspaper – nothing wrong with that but then consume them tentatively. The story is worth reading just to catch the tone and tenor of Neal Froneman – who sounds fed-up to the point of rebellion. Catch it here.

The article quotes Mike Schroder, a portfolio manager of Old Mutual’s gold fund, at a mining conference last year: “One cost that I can’t chart is BEE (black economic empowerment). It doesn’t affect the bottom line or the EPS (earnings per share) or PE (price:earnings) ratios, but every time a BEE deal is done, our pension funds, our provident funds, our unit trusts have to chip in.”

I expect these legislative interventions by the government to strengthen not weaken over time. It is my initial impression that part of the ANC’s answer to the populist incursions onto its territory by the EFF will be to significantly strengthen ‘transformation obligations’ on the private sector – and in return the government will back the private sector against the labour unions. I think these trends will become visible before the end of the year and will be accompanied by greater emphasis on the NDP and by the axing of the ANC’s left-wing elements. Thus, the ANC will attempt to reconfigure South African politics, basing itself more tightly on the emerging property-owning and middle classes than previously, and in a loose alliance with the private sector.  This feeds into my ‘hoping for the best’ view of last week – although we should be cautious, because these complicated trade-offs will as likely end in tears as smiles.

Bits and Pieces

  • Last week, Helen Zille, leader of the opposition Democratic Alliance, became involved in an unseemly Twitter spat with City Press journalist Carien du Plessis. Actually, it was only Zille doing the spatting and (probably to Zille’s mortification) du Plessis wrote a calm and thoughtful defence of herself in the City Press on Sunday (2 March 2014). In the Twitter exchange, Zille essentially accuses du Plessis of apologising for being white (as far as I can make out). Zille is feisty and combative and there have been several ‘scandals’ around her phraseology and views. She definitely skirts the boundary of what is acceptable in the highly circumscribed and sensitive language of political debate in ‘post-apartheid South Africa’. Will this lose the DA any votes on 7 May? Will it gain the party any? I have no idea.
  • Business Day editor Peter Bruce’s Monday morning column, ‘The Cutting Edge The Thick Edge of the Wedge: The Political Basis for budgets (if he perchance comes to these lonely shores and find’s that error, I ask his forgiveness in advance) should be required reading for anyone interested in the speculative intersections between South African politics and economics. This morning, he claims that a normally reliable informant, someone “spectacularly close to the Presidency”, told him that Trevor Manuel will stay on in government as a super-minister in the Presidency in Zuma’s next administration, that other ‘left leaning ministers in the economics cluster’ (he probably means Ebrahim Patel in EDD and Rob Davies in DTI) will be shifted aside, that the ANC will hold its vote above 60% on 7 May, that the new administration will make “a big and forceful push after the elections to begin implementing the National Development Plan”, that the EFF and Numsa’s new party will not fly, and that Zuma will secure his safety from prosecution for fraud post his presidency by ensuring that his ex-wife and African Union President Nkosazana Dlamini-Zuma is his successor. (The argument in Peter Bruce’s article being: “She would not put the father of her children in jeopardy – which I don’t necessarily buy, but is interesting anyway). This view concurs quite closely with my view articulated last week that it appears, shorn of its ‘left’ and ‘right’ factions, the ANC will be obliged (and set free) to pursue vigorous economic growth if it is to win the 2019 election.
  • Hitachi has bought back the ANC stake (held by investment company Chancellor House) in Hitachi Power Africa as the shareholding constituted ‘a conflict of interest’. You don’t say. Hitachi Power Africa won R38.5 billion of contracts from Eskom for the Medupi and Kusile power plants. Nuff said.
  • The weekend press had a few ‘final takes’ on the budget. The two I found most interesting were Peter Bruce, in his aforementioned column, writing that it was “a budget of almost unsurpassable banality”, and Numsa’s Irwin Jim saying at his Johannesburg press conference on Saturday that the budget “more than anything else confirms the right-wing shift in the ANC/SACP government”. I won’t say anything.
  • Telkom CEO Sipho Maseko wrote a paid-for ‘open letter’ in the Sunday Times yesterday accusing MTN SA and Vodacom of acting against the public interest (of expanding access to and lowering costs of a ‘modern communications infrastructure’) by opposing lower termination rates. Maseko claims that Telkom had subsidised Vodacom and MTM to the tune of R50bn over two decades. Professor Alison Gillwald of Research ICT Africa was quoted in today’s Business Day (by the excellent Carol Paton) as saying “Telkom is right. MTN and Vodacom had an extraordinary termination rate asymmetry with Telkom over 20 years.” She went on to say that, during the period of asymmetry, the private companies rolled out “enormous infrastructure that has improved access.” Finally, she says: “While one wouldn’t want to kill the golden goose, she was a very fat goose”  … which I thought was a good enough turn of phrase to deserve republication anywhere.

* That is deliberately missing an apostrophe – the ‘*’ makes you think it might be there and you are forced back and forward between the noun and verb meaning. (Get a life! – Ed.)

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