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For those who were tortured by my somnolently incoherent post last night, here is the follow up. Hopefully a little clearer.
- The flip-flops around the Minister of Finance leave Jacob Zuma looking weak and vulnerable. There are grounds to begin questioning whether he will see out his full term.
- The appointment of Pravin Gordhan is a victory on a number of different fronts and should be celebrated.
- We can expect the process of fiscal consolidation to continue on track.
- It really is the season to be jolly.
Gordhan’s shock reappointment as Finance Minister – positive
Jacob Zuma fired the increasingly widely respected Minister of Finance, Nhlanhla Nene, on Wednesday December the 9th. He gave no reasons but there had already been wide speculation that:
- Nene decisively blocked a nonsense SAA deal to lease some Airbus planes upon which Zuma associate SAA board chair Dudu Myeni had set her sights;
- That Nene was pushing important investigations into corruption or mismanagement at SABC that were getting uncomfortably close to Zuma’s close personal friend Hlaudi Motsoeneng and
- Most importantly Nene was blocking the (approximately) ZAR1-trillion nuclear deal that was the pet project of Jacob Zuma and his close business associates the Guptas – who had appeared to prepare for the deal by investing heavily through Oakbay investments in several uranium mines
Almost immediately the ZAR tanked, the bond yields spiked and everyone with a voice screamed blue murder at the irrationality of the axing.
Zuma then, perhaps more mysteriously, appointed the relatively unknown and unqualified David Van Rooyen to the post, despite there being many highly qualified candidates available (South Africa has made a point of putting its highest quality ministers into the National Treasury position.) The widespread assumption was that Nene was being replaced by someone who would be more compliant to the President’s wishes, and more importantly, to the wishes of those who are in business with the President.
Then, even more shockingly, late last night (13/12/2015) Jacob Zuma did an about turn, dropped Van Rooyen and reappointed Minister of Co-Operative Governance, Pravin Gordhan, as Finance Minister (a post he – Gordhan – held prior to Nene’s appointment 18 Months ago.)
Jacob Zuma has had his wings closely clipped – which is a good thing
The decision to axe Nene bordered on the criminal but most analysts thought that Zuma could get away with anything he wanted within the ANC – even as the ANC lost support amongst the electorate. Well it appears they were wrong. A powerful enough group of leaders have got together, sat Zuma down and forced him to make a humiliating climb down. The financial market response might have helped and the bleating of the opposition and the press would have given some support, but the ANC prides itself of being impervious to the shallow swings of public opinion (which is no bad thing). This was an internal leadership revolt against Zuma, the Holy Grail that many had been hoping for as the country went from the healthy constitutional democracy of 2007 to this damaged (in many of its most important institutions) country, almost overwhelmed by rent-seeking and corruption.
We out here in the public realm don’t know anything for sure, except Zuma was given a ‘warm klap’ (warm slap – colloquial Afrikaans) and we can hope that this might begin the unravelling of his negative influence on the country and its politics. The admonishment and humiliating climb-down must have been caused by ANC heavyweights who have finally found their voice and power enough to put Zuma in his place.
Pravin Gordhan will be a better Minister of Finance – even than he was before
Gordhan has all the credentials and had a close to faultless term as head of the National Treasury. (If memory serves, like all heads of the NT his slips concerned the public wage sector bill and desperate attempts to avoid public sector strikes.) His only weak point is he tends to run an unhappy office … it was widely speculated that the staff at the National Treasury were unhappy with his dictatorial style of leadership. This we can live with.
Of interest is that since Gordhan had left the Treasury a witch hunt has been conducted in Gordhan’s previous posting, the South African Revenue Service, SARS. The witch hunt has been against an alleged “rogue spy unit”. The fact is the special investigation units, established by Trevor Manuel and Pravin Gordhan were an essential part of investigating complicated tax avoidance and fraud cases, especially those involving heads of large criminal networks and powerful politicians. It is a small step to see who might have been the obvious targets of the special investigative units. And an even smaller step to see why and who has stimulated the witch hunts and slander against the loyal SARS investigators involved in these units – calling them rogues and criminals, and ensuring their dismissal or buyout.
Thus this is going to be a Finance Minister that nobody is going to push around – especially not Jacob Zuma and his cronies – against whom Gordhan has good reason to feel ill-disposed. It’s a win-win.
My only faint worry is I am not sure of Gordhan’s attitude to the nuclear programme. I am sure he will not do anything to threaten the process of fiscal consolidation, but as an old style ANC securocrat he might have an over-attachment to nuclear power (an affliction of those who grew up in the ANC in the 70’s mostly because of the USSR’s warm embrace of that technology).
Business Day this morning published an article suggesting that Nhlanhla Nene was on the verge of being shuffled out of his Minister of Finance position to some face-saving backwater.
I wrote early last week in a client note: “It is widely held that the National Treasury and Minister Nhlanhla Nene have come under hostile pressure for investigating close Zuma allies and an axe in the form a threatened Cabinet shuffle hangs over Nene’s head to keep him compliant with Zuma’s own spending priorities and plans for SOE’s and nuclear power roll-out (to which Nene is widely believed to be opposed in its current ZAR1-trillion form).”
However I have repeated to several of my clients that I believe that while Zuma might axe Nene is might be a step too far, the moment the great leader overestimates his greatness and fails to understand his Ozymandian limitations.
Nene is the first black African Minister of Finance and he is at least as steely and technically competent as any of his post 1994 predecessors. Last week be brought the meat-clever down on the plan of SAA board chair Dudu Myeni (widely suggested to be an intimate of Jacob Zuma) to place a mock-up company in an already done leasing deal between the national carrier and Airbus. The company would have been nothing other than a rent extraction tool – and added hugely to the costs of the deal. Myeni’s reprehensible argument was that it was all for the purpose of transformation – proving that the political elite uses the practice to loot the SOE budgets as much as it ever does to promote real BEE.
Nene has also been going after the SABC’s Motsoeneng (another person who brags widely about his relationship with the President and his untouchable status) and he (Nene) has been widely assessed to be dragging his heals on Jacob Zuma’s pet nuclear deal that in its current form would beggar the country and state finance for many years to come.
So Nene has apparently got in Zuma’s face and he is facing the axe – according to various stories including the one linked above.
When Nene was first appointed on May 24 2014 I expressed concern about his seniority in the party and questioned whether he would be able to stand up to the fiscal pressures that would be placed on him – especially in relation to his predecessors in the position and especially in our declining growth environment.
I was wrong – if anything Nene has been both stronger and more tactical in his attempts to meet the increasingly difficult targets of fiscal consolidation – given the endlessly lower levels of growth. The rating agencies, those who grade South African government debt and have recently moved us closer to non-investment grade (i.e., junk) have come to rely on the dependability of the head of the National Treasury. We have a tradition of putting some of our best ministers in the position and Nene has risen to the challenge.
The Business Day story quoted above (which might be rubbish, but chimes with several of our initial views) suggests that some “malleable” nobody by the name of Des van Rooyen from the Parliament’s finance committee could replace Nene (the closest information I could find on a web search for this character was this smarmy speech on the ANC website).
I have no idea if this is true, but have concluded elsewhere for a range of reasons and from a range of sources that Nene is vulnerable and that ‘an axe hovers over his neck’ because he has stood up to Zuma.
If Zuma gets rid of Nene, because the head of the NT has offended Zuma’s friends and he is showing opposition to Zuma’s nuclear retirement plan or legacy project he (Zuma) would be making a grave mistake – a mistake leaders who have come to overestimate their power often make.
Axing Nene will be read by the capital markets and rating agencies in exactly the terms I have described above – Nene has been exemplary in his job except when forced to concede to political pressure from the top – and even then he has skilfully manoeuvred to lessen the damage.
If Nene is axed I will be unsurprised to see us downgraded to junk by the end of 2016.
I will also be unsurprised to see political shifts against the leader (Zuma) who has finally overstepped the mark, who has heaped damage upon damage on the South African political economy, especially as regards to its reputation for probity, but who has especially damaged the reputation of the ANC.
I see from the Business Day story that the rumour is the Guptas “let the cat out of the bag” (read “announced”) the impending Cabinet reshuffle. Excuse me! This more than anything suggests (if it is true), not for the first time, that Zuma has sold our sovereignty to these shady interlopers for something a lot more than a mess of pottage.
My underlying point is that Zuma’s power is becoming more brittle and his lines of support stretched thinner and thinner. He is engaging in actions that parts of his party find repulsive and there is a point beyond which a system under stress can quickly unravel as the connections snap and the nodes pop.
There were several times last week when I felt admiration for the protesting students, including those who crashed through the gates of parliament and, quite bravely in many cases, stood up to the SAPS’s counter attack, stun grenades and all.
I admit to some brief, irresponsible, trickster elation – Loki let loose upon the world – good for them … ha ha, let it all burn … that will show the fat bastards inside the building.
I didn’t lose my sense of judgement to the degree that I never felt sorry for some of the SAPS members who were woefully unprepared and overwhelmed, just as I felt disgusted with others for the unnecessary violence against the initially peaceful, if somewhat over-boisterous, students.
But by the time the Sunday papers rolled out I was becoming slightly nauseated by the ridiculously laudatory and pompous language being used to describe the protesting student of the #FeesMustFall and #shutdown campaigns.
I am not giving examples because these were mostly hyperbolic aberrations from commentators and journalists I otherwise admire (read City Press, the Sunday Independent or the Sunday Times of the 25th of October 2015 and the point will clearly and quickly be made). In general the pitch and tenor was thus:
… which is Eugène Delacroix ‘s “Liberty leading the People”, 1830 – the French Revolution before it ate its children.
Well, this week the #FeesMustFall movement is also eating its children – although it’s a much smaller snack than the French feast after 1830.
However the students have banked the partial victory of the 0% fee increase for 2016. And can there be anyone in the SA news-consuming-public who has not considered the many accounts of black students shaving their nutritional intake so they can send part of their National Student Financial Aid money back to their parents and siblings?
This is what I wrote in a client note earlier this week:
Student protests – expect splits, fragmentation, radicalisation, isolation, ill-discipline and loss of momentum – but they kept it together long enough to change the game.
The student protests against fee increases have begun to wind down and fragment after the sometimes violent clashes at the Union Buildings on Friday where President Zuma acceded, in a closed meeting with student leaders, to the 0%-increase-for-2016 demand.
In parliament Minister of Higher Education (and General Secretary of the SACP) Blade Nzimande had a torrid time defending his handling of the protests and explaining where the money for a 0% increase would come from. His main proposal was: “My view is that the government must have the political will to tax the rich and wealthy to fund higher education” – quoted in Business Day 28/10/2015.
The student revolt has deepened the opposition to government in general and increased disillusionment with party politics amongst students throughout the country. On balance the ANC has probably lost more ground than it was losing in this constituency anyway. However, the ruling party retains a variety of youth allies that operate on the campuses (including several SRCs, the ANC Youth League, the South African Students Congress – SASCO – and the Young Communists League – YCL.)
There will be fiscal implications that we will be exploring in the next few weeks as we examine the problem of funding for education generally and higher education in particular.
Zuma’s government must feel beset from all sides but the more focussed political attack is on the South African Communist Party – coming from within the ANC. Prior to its special national congress in July the SACP let it be put out that it wasn’t quite as gung-ho about Zuma’s increasingly corrupt and incompetent presidency than it appeared from its slavish defence of the man from Nkandla for the last 6 years. This in turn has led to Zuma’s most ardent (and patronage driven) supporters in the ANC Youth League (and the so called premier league) to escalate an attack on the SACP and its leadership. The student revolt against fee increases was a opportunity welcomed by these groups to join an attack on Nzimande.
It is still too early to predict with high levels of confidence a final collapse of the ruling alliance but the possibility is probably higher than it has been since 1994. An exit of the SACP (and probably Cosatu) from their formal ‘governing alliance’ status with the ANC might lead to ‘financial market positive’ changes in industrial and labour policy, but as likely might remove some of the constraints on corruption the SACP and Cosatu have brought to government and the alliance.
Okay, enough of all of that.
What I really wanted to say was that while watching the student and police confrontations my thoughts went back to the many protests and clashes my ‘comrades’ and I had with with the police and army in the 1980’s.
On the ‘white’ campuses it was largely just teargas and beatings with shamboks or quirts – although I remember the panic and fear as much as I do the elation.
In the townships it was a different matter – shotguns, R5 rifles and necklacing – excitement, yes; but also horror and terror.
I was explaining some of the differences between then and now to a close family member who is a student at a ‘previously white’ campus.
As I spoke I gradually came to realise something – funny at first, but then embarrassing. I was starting to sound remarkably like the Four Yorkshiremen.
The 1980’s was not worse than Marikana; and I am forced to remind myself that this, too, hovered over those students last week as the possible consequences of their actions.
So to lighten it slightly and to own up to my own pomposity, I sent that family member a copy of the famous Monty Python piece.
Four Yorkshiremen Sketch
Four well-dressed men sitting together at a vacation resort.
Michael Palin: Ahh.. Very passable, this, very passable.
Graham Chapman: Nothing like a good glass of Chateau de Chassilier wine, ay Gessiah?
Terry Gilliam: You’re right there Obediah.
Eric Idle: Who’d a thought thirty years ago we’d all be sittin’ here drinking Chateau de Chassilier wine?
MP: Aye. In them days, we’d a’ been glad to have the price of a cup o’ tea.
GC: A cup ‘ COLD tea.
EI: Without milk or sugar.
TG: OR tea!
MP: In a filthy, cracked cup.
EI: We never used to have a cup. We used to have to drink out of a rolled up newspaper.
GC: The best WE could manage was to suck on a piece of damp cloth.
TG: But you know, we were happy in those days, though we were poor.
MP: Aye. BECAUSE we were poor. My old Dad used to say to me, “Money doesn’t buy you happiness.”
EI: ‘E was right. I was happier then and I had NOTHIN’. We used to live in this tiny old house, with greaaaaat big holes in the roof.
GC: House? You were lucky to have a HOUSE! We used to live in one room, all hundred and twenty-six of us, no furniture. Half the floor was missing; we were all huddled together in one corner for fear of FALLING!
TG: You were lucky to have a ROOM! *We* used to have to live in a corridor!
MP: Ohhhh we used to DREAM of livin’ in a corridor! Woulda’ been a palace to us. We used to live in an old water tank on a rubbish tip. We got woken up every morning by having a load of rotting fish dumped all over us! House!? Hmph.
EI: Well when I say “house” it was only a hole in the ground covered by a piece of tarpolin, but it was a house to US.
GC: We were evicted from *our* hole in the ground; we had to go and live in a lake!
TG: You were lucky to have a LAKE! There were a hundred and sixty of us living in a small shoebox in the middle of the road.
MP: Cardboard box?
MP: You were lucky. We lived for three months in a brown paper bag in a septic tank. We used to have to get up at six o’clock in the morning, clean the bag, eat a crust of stale bread, go to work down mill for fourteen hours a day week in-week out. When we got home, out Dad would thrash us to sleep with his belt!
GC: Luxury. We used to have to get out of the lake at three o’clock in the morning, clean the lake, eat a handful of hot gravel, go to work at the mill every day for tuppence a month, come home, and Dad would beat us around the head and neck with a broken bottle, if we were LUCKY!
TG: Well we had it tough. We used to have to get up out of the shoebox at twelve o’clock at night, and LICK the road clean with our tongues. We had half a handful of freezing cold gravel, worked twenty-four hours a day at the mill for fourpence every six years, and when we got home, our Dad would slice us in two with a bread knife.
EI: Right. I had to get up in the morning at ten o’clock at night, half an hour before I went to bed, (pause for laughter), eat a lump of cold poison, work twenty-nine hours a day down mill, and pay mill owner for permission to come to work, and when we got home, our Dad would kill us, and dance about on our graves singing “Hallelujah.”
MP: But you try and tell the young people today that… and they won’t believe ya’.
ALL: Nope, nope..
I have been completely taken up with a project (now completed) that argued that the black African middle-class was our single biggest asset and the workings of the interests of that class in the world would save our politics and help our economics. Yaay!
The basic argument looked at the defection suffered by the ANC in the May elections from its most sophisticated constituency and went on to argue that things were going to turn out rosy in the end. (There are hundreds of tables and graphs and other clever financial market type number crunching that was mostly done by my brilliant colleagues …. but I will only publish a version of that when I have had a chance to chat to them and get their permission).
Not everyone bought our story, but soon you will be able to make up your own mind if our grounds for optimism (that the ANC self-corrects) have an adequate basis.
The ‘black African middle-class saves South Africa’ project (which is what we started calling as a sort of shorthand … the report is LONG so trust me that really is shorthand) has held me back from completing my promised comments about the SACP. The further we went with the ‘middle-class’ project, the more disturbed I have become about the the role the SACP played in engineering the end of Mbeki’s presidency and it’s iron protection of Zuma through the chaos he has brought upon us over the last 4 years.
So as promised I will write that out here and publish it before year end … that’s the SACP story … so 2 promises so far.
Meanwhile here is an extract of my bespoke comments (now too dated to remain bespoke) on the Numsa split (written on the trot) a week ago. My brilliant editor friend in London suggested it be titled:
South African politics: Love’s labours lost
Numsa expulsion … if you love it let it go, if you hate it pray for its demise
The central Executive Committee of Cosatu expelled the largest member of the trade union federation at an extended weekend meeting of the special Central Executive Committee (CEC). Irwin Jim, Numsa general secretary gave a 3 hour long spirited defence of Numsa and attack on those trying expelling the union – but to no avail. It has always been a foregone conclusion, but what Numsa was doing was contesting the terrain, trying to stay as long as possible to take as many members and individual with them. The strategy has probably worked and they have come out, if not smelling of roses, then not badly damaged.
Numsa’s ideological position reaches back in an unbroken line to a strong and independent left faction (referred to as Workerists) which at the formation of Cosatu in 1985 were still strongly critical of the over-close relationship with the ANC. They believed that the ‘national liberation agenda’ of the ANC would swamp the more limited agenda of the pursuit of workers’ rights – and the more expansive pursuit of socialism – and that therefore the unions need to be wary of this ally and always fight for their independence.
As it turns out Cosatu did pretty well out of its relationship with the ANC – getting much of the labour market structured in their favour – to the point that it has done some real damage to our economy. However, the tension between the ANC and Cosatu has continued to rise. Cosatu didn’t like the National Development Plan (too pro-markets), Cosatu didn’t like e-tolling (who in Gauteng and outside The Treasury does?), Cosatu didn’t like the Treasury setting the limits of public sector wage increases, Cosatu didn’t like the youth wage subsidy, believing it to be the short end of segmentation of the labour market into more and less protected (cheaper and more expensive) workers.
And of late the ANC, at the end of its tether about the losses of revenue from the platinum and Numsa strikes, at the violence that accompanied the platinum strikes, at the damage done our investment image by strikes, at the damage done the limping infrastructure programme plagued by strikes, has finally started talking about amendments to the Labour Relations Act that would make it a lot more difficult for Cosatu to strike (make secret balloting compulsory) and make it difficult for nationally damaging strikes (like Amcu’s strike in the platinum sector) to go on indefinitely (make some form of forced independent mediation obligatory after a certain time of being on strike.)
Numsa, and Irvin Jim – and Cosatu general secretary Zwlinzima Vavi – have gradually come into more and more serious conflict with the ANC and the SACP over these policies – and the relationship has finally broken. It must be said that Vavi and Jim have also been on the side of the angels on a number of different issues as well; Corruption Watch, abuse of ministerial car allowances, various human rights issues, including the Dalai Lama visit, the Right to Know Campaign, the Treatment Action Campaign, the protection of the Public Protector, the getting of Zuma to pay back the money, the Gupta wedding, horror at the proposed done Russian nuclear deal … the list is too long, but, in general (and with one or two notable exceptions), Cosatu under Vavi and Jim have defended the defensible – unlike their erstwhile comrades in the ANC and SACP
The expulsion of Numsa, which might quickly be followed by the exit of its closest allies the South African Commercial Clothing and Allied Workers Union (Saccawu), Communication Workers Union of South Africa (Pawusa), Democratic Nurses Organisation of South Africa (Denosa), and South African Football Players Union (Safpu) will leave Cosatu much weakened and with an over preponderance of public sector unions.
Numsa – the world is its oyster
For Numsa, the world is its oyster. It has announced intention to set up forums of some form of ‘socialist alliance’ – which we must assume will evolve into a political party, perhaps testing the waters of some constituencies in Nelson Mandela Bay and Johannesburg (where it has pre-existing strong union organisation that could easily be redeployed as party structures in the 2016 municipal election.
Numsa can also now freely pursue its strategy for vertical integration into mining, processing, construction, energy, and manufacturing, including light manufacturing and food processing. Numsa sees these whole value chains of particular metals (and possible other minerals) as natural pillars through which they can exert more power over employers and employer organisations. Up until now Cosatu’s slogan of “One Industry, One Union, One Federation” has prevented Numsa realising its full ambitions (although several unions, especially Num have complained for years that Numsa has poached its members.)
This leaves Cosatu with the heavyweight public sector unions as its dominant component (and, officially, remember it is still bigger, if not more vigorous, than the bits that have been expelled or might leave in sympathy with Numsa). However the public sector unions are about to embark on a do-or-die wage negotiation in the Public Service Co-ordinating Bargaining Council. Keep in mind that Numsa fought to stay in Cosatu primarily because it believed it could pull the heart of the federation with it, that in each of the unions, large and small, there were branches and sections and individuals who supported Numsa and supported Numsa’s decision to not back the ANC in the last election. Including significant parts of the public sector unions.
Strikes are a testing time – in fact, wage negotiation are a testing time – and even more so when you have on the other side of the table representatives of a state, so absolutely constrained by the fiscal ledge to which it is clinging that is unlikely to shift towards your bargaining position. The MTBF issued by Finance Minister Nhlanhla Nene last month was as close as we have come to the austerity of Trevor Manuel’s first few budgets in the mid 90’s. This was the heart of the Cosatu (and South African Communist Party) attack on Mbeki’s government, with ‘the left’ arguing it was a form of Kowtowing to the Washington Consensus. ‘The left’ then and now believe the way to economic growth is by state spending as a stimulus that creates the virtuous circle. Nene’s budget was the heart of the “1996 Class Project” that Zuma and his allies supposedly defeated at Polokwane in December 2007, which takes the decidedly opposite view of growth: that the state needs to make room for investment and that government needs to create an environment maximally attractive to the same. And part of doing that is keeping borrowing and therefore spending strictly within the bounds acceptable to global capital markets.
Cosatu is now dominated by unions that are not involved in the productive economy. It’s basically the South African Democratic Teachers Union (Sadtu) and the National Education, Health and Allied Workers Union (Nehawu) and the burned out cinders of the likes of the National Union of Mineworkers and other bits and pieces. More than anything these unions are dependent on state spending … but from a state that seems to be all out of resources. We do not think that while Sadtu and Nehawu are ostensibly close to the Zuma faction of the ANC that this is going to take any of the sting out of the coming public sector wage round. Which trade union loves the boss enough to tell its members to back off because he is in political trouble? None that we have ever heard of. And anyway these unions all face a myriad splits, including towards Numsa … they have to show their members they can win them a decent deal.
The SACP backed, to the hilt, with everything it had, Jacob Zuma’s rise to power at Polokwane. It did so because its main task was to stop Mbeki and the political programme he represented. Mbeki was increasingly basing ANC policy on promoting the rising black middle-classes and he was doing so at the expense of the trade unions and the SACP for whom he seemed to express ever greater public contempt – and in my opinion would eventually have moved out of the ruling alliance … essentially by collapsing it. The is no question in our minds that Mbeki was making sure that both the SACP and Cosatu had less and less power over ANC policy making. Obviously Mbeki overplayed his hand, not believing his enemies would stoop to backing Jacob Zuma for president. Well he certainly called that one wrong and the rest is history.
The SACP still sits as Zuma’s main backer. Cosatu has essentially collapsed under the pressure of trying to keep its unity and back this president at the same time. The ANC Youth League was expelled along with Julius Malema because Zuma became so tarnishing that it was impossible to stand by him … and it now (the ex-ANCYL) exists as a vigorous and challenging opposition party, the EFF.
So the SACP is sitting there in the Kraal with Jacob Zuma, defending him to the hilt on his myriad transgressions, trying to explain to the world how it (the SACP) is the true representative of the working class as the millions follow Numsa out of the alliance – and it is impossible to avoid the fact that Numsa’s most virulent criticisms are for the SACP.
The ANC is looking particularly forlorn. They fought this split, understanding that the loss of Numsa would lead to other losses and would make the 2016 municipal election a myriad-sided fight in which the ANC was likely to get a bloody nose. The ANC still has way to fall. It got just over 62% of the vote in the national election in May this year and just under 62% in the municipal election in 2011. The trajectory is downwards (the party does worse in municipal polls) and there is much fear (if you support the ANC) and much anticipation (if you don’t) of catastrophic results for the ANC in 2016.
As it happens part of our ‘upside surprise’ scenario, is one in which the ANC, freed from the constraints of its alliance with organised labour, recognises the errors of its ways, elects a clean, reforming and effective leadership in 2017 (the National Conference), shuffles the current crew off to the safe retirement and comfortably wins the 2019 elections with a decent development plan at the helm. But this precisely requires the ANC getting a serious shock in the 2016 election. It sounds like a fantasy and probably is. But it is unavoidably apparent that the conditions are looking increasingly hostile for the ANC.
It does appear that if the ANC doesn’t do something radical and soon, it could be in serious electoral trouble. Of course it might chase the EFF and Numsa’s socialist policy in the belief that this would win the party votes. We think there are other and better options the ANC is considering but they are not on the table yet and all we can hear is the repeat of “welcome to the second, more radical phase, of the transition” – which doesn’t actually mean anything, but sounds vaguely (distinctly?) threatening to investors.
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.
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.
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.)
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.
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.
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.
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.
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.
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.
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)
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.”
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.
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.
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.
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.
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.
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.
‘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.
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.)
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”.
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.
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.
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.
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 :
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.
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
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).
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
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.
- 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.
… 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.
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.
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.
The validity of the actual ratings and ratings outlook of these agencies is much disputed 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.
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.
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.
(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 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
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):
- 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).
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- The Restitution of Land Rights Amendment Bill creates further political and economic uncertainty regarding the future of property rights.
- 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.
- 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.
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.
Below are my comments about Sunday’s cabinet announcement followed by my comments about the elections from a week or so earlier – a sort of trip back in time.
In both cases the originals were written under tight deadlines and in both cases my initial impressions have been moderated by time, drifting towards the insipid end of the spectrum.
But for those who might be interested these were my first, slightly more vivid, impressions …
(Sent out 06h00 Monday 26th May):
Jacob Zuma’s Cabinet 2014 – through a glass darkly
From a narrow ‘financial market’ perspective the Cabinet announcement by Jacob Zuma last night was disappointing and confusing.
(Note: it would be possible to find much good in this Cabinet and the strategy it implies, but because the announcement was so late – about 1900 hours last night – I have decided to focus almost exclusively on the risks and problems, mostly because they dominate. Apologies if this makes me sound whiny.)
The appointment is finally made. It’s largely a good thing from a financial market perspective – given his understanding of how business works. However, the damage done him by his comments before the Marikana massacre should not be underestimated (he called for greater police action against strikers – see here) and his power within the ANC should not be over-estimated (he has, essentially, played hand-maiden to Jacob Zuma from assuming office of the ANC deputy president at Mangaung in December 2013). However, Ramaphosa was a clever and powerful negotiator for the ANC at Codesa I and II. It is likely that Ramaphosa’s authority and influence will gradually increase in the next few years, possibly leading to his ascension to the ANC’s and the country’s presidency.
Nhlanhla Nene – Minister of Finance
Nene became Deputy Minister of Finance in November 2008 and served in that role till May 2014. He is technically competent and liked by the few in the markets and in business who have dealt with him. As chairman of parliament’s finance committee Nene urged in October 2008 that “utmost care should be taken that parliament does not undermine macroeconomic stability” – see here for that reference.
Issues, problems and basis for assessment
Nene is the ‘continuity candidate’ in the absence of Pravin Gordhan – but it is this absence that increases uncertainty. Nene is not well known in the markets and he is particularly ‘lightweight’ politically in terms of his seniority and influence in the ANC (as opposed to his predecessors Trevor Manuel and Pravin Gordhan).
This becomes more of a problem when GDP growth is as sluggish as it is in South Africa and when the President himself summarises his intentions (as he did prefacing his cabinet announcement): “I announced on Saturday that we have entered the second phase of our transition to a national democratic society. I also said this would be a radical phase of socio-economic transformation.”
One must assume such “a radical phase of socio-economic transformation” would put even greater spending pressures on the Finance Minister. Gordhan (and before that Trevor Manuel) had proven levels of toughness and authority in holding the fiscal line – although at least in Manuel’s case the ‘markets’ were nervous for some time after his appointment in 1996 (and Gordhan was not, initially on the ANC NEC when he was appointed).
The problem is made worse by the fact that DTI and EDD are unchanged
One of my early concerns with Zuma’s first Cabinet in 2009 was that it distributed economic policy-making power around government apparently (to me) as a gift to the SACP and Cosatu for having backed Jacob Zuma in his struggle against Mbeki. Thus Rob Davies in DTI and Ebrahim Patel in EDD have been left in place in yesterday’s cabinet announcement. As it turned out after 2009 Pravin Gordhan was eventually able to establish the Department of Finance as the centre of government’s economic policy-making function. Appointing Nhlanhla Nene to head the Treasury while leaving the other (now more experienced) economic Tsars in place rather reawakens the original concern.
If public sector wages and public service productivity are key variables for balancing government books …
The removal of independent and powerful Lindiwe Sisulu to the backwaters of Human Settlements (formally housing) and her replacement with the quiet and self-effacing Collins Chabane, previously of monitoring and evaluation in the Presidency, is another cause for concern. Again, he is admired and liked and should be given the chance to rise to the challenge of this key portfolio, but my first take is this is another weak appointment. The major negotiations for 3-year wage agreements in the public sector come up for renewal this year. I would have preferred someone in this post who had the political weight to stand up to the public sector unions (and various other political interests).
The key idea seems to be to house the NDP in a politically beefed up Presidency
The new ‘centre’ of economic policy making will actually be within the Presidency where Zuma has appointed Jeff Radebe as a sort of Prime Minister of the National Development Plan into which he (Zuma) has collapsed performance and monitoring as well as ‘youth development’.
Radebe swings a lot of weight – and a more general comment is that Jacob Zuma has made weak appointments throughout his cabinet but has very significantly strengthened his own office. There are several problems with this, but I will mention only that Jeff Radebe has never played a role where he has been required to establish or defend (or even understand) macro-economic policy stability, but he has played the role of party fixer, strongman and bully in the ANC. If these talents can be deployed in giving flesh to the NDP bones that will be a good thing.
The Governor of the South African Reserve Bank consistently has expressed concern about various ‘supply side’ constraints (see here for the Monetary Policy Committee statement of May 22nd).
These constraints include energy prices, labour unrest, transport bottlenecks, broadband penetration and regulation and failures in the education system among a host of issues.
So here are just a few of the appointments in this area:
Energy: After a disastrous term in Agriculture, Forestry and Fisheries, Minister Tina Joemat-Peterssen has been appointed Minister of Energy. She has been the subject of several Public Protector Investigations and she has courted a highly confrontational relationship with the fishing industry. However, she is strongly supported by Jacob Zuma. Her new department will be central to the decisions about the biggest public tender in South African history: R1-trillion worth of nuclear power stations.
Telecommunications and Communications: The functions have been split, with the Minister of State Security Siyabonga Cwele moving to Telecommunications and Postal Services. The bigger problem is how many changes have been made here, with the telecommunications industry having expressing the hope that Minister Yunus Carrim would stay in the post and finally move towards stabilising the policy framework under which the local loop would be unbundled and the sector regulated – after a long succession of disastrous appointments. There are no grounds to be confident that Cwele is up to this task. The only grounds that we can see for the appointment is if the sector is conceived of as an extension of the country’s state intelligence function.
Communications: Ms Faith Muthambi has been appointed to head this department which will include the functions of the independent regulator Icasa, the state broadcaster SABC and government information services, the GCIS. It still needs to be assessed whether the structural change and appointments here and in telecommunications will be positive for the industry, but on the face of it is peculiar, to say the least, to group the regulator of the private sector (Icasa) with the ‘marketing’ and ‘promotion’ capacity of the government and state.
(See here for the eviscerating comments on the ‘communications’ decisions in the cabinet from the SOS Coalition (‘trade unions, community media and content producers hoping to support quality public broadcasting’).
Education, transport and labour: It can have escaped no-one concerned with South Africa’s economic development that these functions of government are failing or significantly underperforming. But Jacob Zuma has left education and training with Blade Nzimande, basic education with Angie Motshekga (which, btw, some NGO’s and the DA reckon is a good thing), transport with Dipuo Peters and labour with Mildred Oliphant.
(Because I don’t know him that well, I didn’t discuss Adv Ngoako Ramathlodi as mining minister in that note. But here is the new minister in 2011 essentially arguing that the South African constitution was a compromise from weakness on the ANC’s part and the the courts need to passop stepping on toes of government, the ANC and the Executive’s …. and here is constitutional expert Pierre De Vos apoplectic response to Ramatlhodi’s disturbing views.)
(The Deputy President is Cyril Ramaphosa)
1. The Minister in the Presidency is Mr Jeff Radebe.
2. The Minister of Women in the Presidency is Ms Susan Shabangu.
3. The Minister of Justice and Correctional Services is Mr Michael Masutha.
4. The Minister of Public Service and Administration is Mr Collins Chabane.
5. The Minister of Defence and Military Veterans is Ms Nosiviwe Mapisa-Nqakula.
6. The Minister of Home Affairs is Mr Malusi Gigaba.
7. The Minister of Environmental Affairs is Ms Edna Molewa.
8. The Minister of State Security is Mr David Mahlobo.
9. The Minister of Telecommunications and Postal Services is Dr Siyabonga Cwele.
10. The Minister of Police is Mr Nkosinathi Nhleko.
11. The Minister of Trade and Industry is Dr Rob Davies.
12. The Minister of Finance is Mr Nhlanhla Nene.
13. The Minister of Agriculture, Forestry and Fisheries is Mr Senzeni Zokwana.
14. The Minister of Water and Sanitation is Ms Nomvula Mokonyane.
15. The Minister of Basic Education is Ms Angie Motshekga.
16. The Minister of Health is Dr Aaron Motsoaledi.
17. The Minister of International Relations and Cooperation is Ms Maite Nkoana-Mashabane.
18. The Minister of Rural Development and Land Reform is Mr Gugile Nkwinti.
19. The Minister of Higher Education and Training is Dr Bonginkosi “Blade” Nzimande.
20. The Minister of Economic Development is Mr Ebrahim Patel.
21. The Minister of Transport is Ms Dipuo Peters.
22. The Minister of Mineral Resources is Adv Ngoako Ramathlodi.
23. The Minister of Social Development is Ms Bathabile Dlamini.
24. The Minister of Public Enterprises is Ms Lyn Brown.
25. The Minister of Sport and Recreation is Mr Fikile Mbalula.
26. The Minister of Labour is Ms Mildred Oliphant.
27. The Minister of Arts and Culture is Mr Nathi Mthethwa.
28. The Minister of Public Works is Mr Thulas Nxesi.
29. The Minister of Small Business Development is Ms Lindiwe Zulu.
30. The Minister of Energy is Ms Tina Joemat-Peterssen.
31. The Minister of Science and Technology is Ms Naledi Pandor.
32. The Minister of Cooperative Governance and Traditional Affairs is Mr Pravin Gordhan.
33. The Minister of Communications is Ms Faith Muthambi.
34. The Minister of Human Settlements is Ms Lindiwe Sisulu.
35. The Minister of Tourism is Mr Derek Hanekom.
(And then this, sent out Monday 12 May 06h30)
Election 2014 results
South Africa’s Independent Electoral Commission (IEC) announced the following election results for the country’s National Assembly on Saturday 10 May 2014:
The ANC has 15 fewer National Assembly seats and the DA 22 more than they achieved in the 2009 election.
The provincial results followed a similar pattern, with the ANC winning 8 out of 9 provinces (with the Western Cape remaining in DA control). In three of those provinces the ANC increased its majority (Kwazulu-Natal, Eastern Cape and Northern Cape – and increasing its percentage of the vote in the Western Cape) and in five provinces the ANC majority was reduced.
ANC drop more significant in Gauteng and some other major cities
The most significant reduction in ANC support occurred in Gauteng, the country’s economic and industrial heartland and the province with the highest population and highest population density. In the provincial poll in Gauteng the ANC fell 10.45% to 53.59% from 64.04% in the 2009 election.
In the table below the trend is clearly revealed in the three major Gauteng metropolitan areas and is reproduced to some degree in Nelson Mandela Bay in the Eastern Cape:
(As an aside, News24’s coverage of the election as well as it’s app from which the above is a cut-and-paste was truly excellent – it’s set the new gold standard for election coverage in South Africa. To get a taste of that, visit here.)
‘Racial voting’ patterns persist
A feature of South African voting trends is that, in general, the parties have quite distinct racial or ethnic support bases.
This trend clearly persists (from City Press 11/05/2014)
A close examination of ward data changes between 2009 and today reveals that there is a blurring of the racial voting patterns in Gauteng’s metropolitan areas – but only to a limited degree and only in the most developed urban centres. The persistence of ‘racialised’ voting patterns is unsurprising given the country’s history and the persistence of apartheid’s spacial planning and economic, demographic and cultural disparities in the present. The implication is that party support patterns are as suborn and persistent as other social patterns. From a financial market perspective this can mean both that the political environment is stable and predictable but also that such secure incumbency is likely to gradually increase patronage and complacency.
(You might want to temper these conclusion with the views of Pallo Jordan who wrote in a Business Day column: “Racial interpretations of voter behaviour might be very comforting for analysts who confuse public manifestations of discontent with the rejection of the governing party. Unless the coloured voters of the Northern Cape are being included in the “racial solidarity” African voters are accused of, their political choices can only be explained in terms of attractive policies”. I think Jordan’s argument is taking on something different to the points I make above, but I include them – Jordan’s comments – here in case I am missing something.)
The main implications: government, the ANC, the NDP, the middle ground and the EFF
These are, in my opinion, the main financial market implications of the election:
- The result is generally financial market positive: it leaves the ANC with a secure enough majority to be able continue ‘grasping the nettle’ of macro-economic policy stability, including fiscal consolidation.
- However, there may be just enough voter admonishment implicit in the ANC’s loss of 15 National Assembly seats and the more dizzying drops in the major metropolitan areas to cause the party to attempt a clean-up of the behaviour of some of its top leaders.
- My reading of the relative ANC losses in the main urban centres of Gauteng is that these were only partly driven by the introduction of unpopular e-tolling gantries in that province. A more fundamental divide is the kind of leadership Jacob Zuma has brought to the ANC: with his ‘rural big man’ characteristics, the casual diversion of public funds for the development of his Nkandla home, his backing of patriarchal legislation like the Traditional Courts Bill and his too cosy, mutually beneficial, relationships with business people like the Shaik and the Gupta families (see here and here). The most educated urban voters are the least likely to tolerate this kind of behaviour by the country’s top politician – and this is reflected in voting patterns.
- There is very little disagreement between the ANC and the DA (and most of the smaller opposition parties, except the EFF) as to the broad outlines of economic policy. Thus the National Development Plan and a broadly stable macro-economic policy platform is the consensus of over 90% of the political establishment.
- It has long been a feature of South African politics that ‘the real opposition’ and political contest is not in parliament, but actually within the ANC/SACP/Cosatu alliance itself. This alliance has not, since 1994, been less divided over economic policy. The SACP is firmly backing the Zuma government and Cosatu is in disarray, leaving the ANC/SACP to pursue the NDP and related policies.
- While I do not think the NDP is a panacea for South Africa’s myriad economic problems, the programme’s holistic approach to economic development, it’s emphasis on improving infrastructure and its greater reliance on market mechanisms for the allocation of capital (more so than previous such policies like Asgisa, IPAP 1 & II and the New Growth Path) make it broadly financial market positive.
- The ANC is signalling its intention to ratchet up Black Economic Empowerment and affirmative action in the workplace (through legislative, regulatory, political and state spending mechanisms.) This will get loud – and will become a more central feature of the valuation of companies and economic sectors in South Africa.
- The rise and vibrancy of Julius Malema’s Economic Freedom Fighters has been, perhaps, the most notable feature of this election. Malema faces a final sequestration hearing on May 26 – and if his provisional sequestration is upheld he will be barred from being a member of parliament.
- With or without its leader in parliament the EFF is already vigorously attempting to link up with striking platinum workers and with service delivery protesters. This will become an increasingly noisy feature of South African politics. The upside is the ANC will probably become less ambiguous in its attitude to such strikes and protests. The downside is there will now be a parliamentary pressure group backing the radical populist policies of land seizures and mine nationalisation. My view is this is, on the whole, a healthy development. The radical populist views have been present in the ruling alliance and the society more generally since 1994 anyway. Having those views directly represented by a minority party in parliament formalises the debate and contest within the democratic and constitutional structures of the country. Of course that doesn’t mean the EFF won’t constantly attempt to take its struggle to the streets, but it does mean that the ANC will be clear on where it stands in relation to those issues.
- All attention will now move to Jacob Zuma’s new cabinet (which will be announced soon after his inauguration – which I expect on the 24th of May) and to succession issues within the ANC.
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.
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.
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.
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 EdgeThe 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.)
“How seriously to take the EFF is becoming the question of the year for a view on South African political risk”
As I listened to Pravin Gordhan’s budget speech I thought I would share with you an extract of my news commentary from Monday morning.
But I forgot to hit ‘publish’ as I was being torn between being slightly underwhelmed and moderately admiring that Gordhan could make so few populist concessions this close to May 7.
Thus, the EFF and DA manifesto launches:
- The Economic Freedom Fighters and The Democratic Alliance both launched their manifestos this weekend
- The EFF will likely out-perform and its policies are the ‘sum of all fears’ for investors in emerging markets
- In the longer term, however, the ANC is set free to pursue more growth orientated, investor friendly policies – and success or failure in this regard is the key question about South Africa’s future
- The Democratic Alliance also launched its manifesto and is rapidly shifting its demographic appeal
- By 2019 we could have a Goldilocks scenario where the ANC and the DA comfortably occupy the middle ground of South African politics, keeping at bay both the left and right-wing, and pursuing economic growth. Other scenarios are both possible and plausible, but I thought I would, just this once, hope for the best
EFF – radical
left-wing populism of old (and marketing genius)
The EFF packed out the Mehlareng Stadium in Tembisa in Gauteng and launched a radical populist manifesto with great aplomb. Ambitious plans announced included free education up to tertiary level for all and double social grants paid for with the proceeds from nationalising 60% of the mines and banks. The party will build a state pharmaceutical company to produce medicines, scrap the tender system, ban the use of consultants while increasing civil servant salaries by 50% and it will subsidise the taxi industry and provide housing finance for middle-income earners. Mineworkers will take home a minimum wage of R12500.00 a month (undoubtedly designed to chime with current Amcu platinum sector strike) and other minimum wages would vary from R4500.00 for waiters and waitresses to R7500.00 for private security guards.
To get a sense of the scripting and impact of the launch here is Ranjeni Munusamy of The Daily Maverick describing the Marikana widows on the platform: “To make the point about the treachery of the ANC government, Malema had invited as his special guests the widows of the Marikana massacre, all clad in EFF t-shirts. They sang and spoke of the hardship, their heartbreak and the betrayal they feel at the ANC government killing their husbands on behalf of capital.”
The EFF is becoming the big story of this election. Previously in SA politics the ANC managed to encompass within itself the full spectrum of liberation ideologies including this radical populism. The expulsion of Julius Malema (paralleled by the pushing of Numsa out of the ruling alliance) has left the radical populists on the outside and unconstrained by previous alliances and loyalties.
The ANC ran a counter rally/concert aimed at a youthful audience not far from the EFF manifesto launch. While that concert/rally was well attended and festive, it didn’t appear to detract from the EFF launch. All it really indicated was that the ANC is taking the EFF threat seriously.
How seriously to take the EFF is becoming the question of the year for a view on South African political risk. The EFF is articulating the set of demands and occupying the political space that has always been of concern to investors in South Africa – characterised as it is by chronic unemployment, poverty and inequality with the racial underpinnings of apartheid. Previously markets had become convinced that the ANC by its size and reach and general authority, was able to mediate between the different and competing demands of the transition.
However, it is now clear that the ANC has either been forced to abandon the terrain of the radical populists and ultra-left and expel those factions – or it has chosen to do so for its own strategic objectives.
On the one hand this sets the ANC and government free to develop policy without the straitjacket that came from clinging to the populists and leftists. On the other, those groups are now free to compete for votes and the ANC is vulnerable to electoral shrinkage.
The EFF will undoubtedly grow, but the question for me is: ‘can the ANC, in the longer-term, now find policies to grow the economy that will allow it to regain ground in the 2019 election that it is likely to lose in the 2014 election?’
Meanwhile I think the EFF will do better in this election than expected …. and I am moving my expectation for its electoral performance up from 8% to 10% (a thumb suck, rough guide, purely for me to keep track) of the total vote on May 7th. I do, however, think that once the EFF gets to parliament the unworkability of its policies and the manipulations inherent in its campaigning will inevitably be exposed. Over the longer term it could be under pressure to hold onto its parliamentarians and its voters, especially if the ANC is pushed by the pressures from left and right into a process of internal renewal … and especially if the Cosatu unravelling results in a real labour/left party.
The Democratic Alliance
The Democratic Alliance also launched its manifesto this weekend – on Sunday in Polokwane in Limpopo Province. The launch was well attended – with an almost exclusively black audience, a feature which puzzled many commentators (but not you?- ed)
The party was at pains not to attack the pre-Zuma led ANC with Helen Zille saying of the ANC’s 2007 Polokwane conference ‘(t)hat was the moment when a great political movement lost its sense of direction. It was hijacked by leaders who care more about themselves than the people they are meant to serve … (the) good story ended in 2007.’
The economic aspects of the election platform emphasised job creation: ‘The manifesto we release today is a ‘manifesto for jobs’… Job creation is only possible if we cut corruption’.
The manifesto is worth reading and pushes all the right buttons balancing state encouraged redress with laying the conditions for private sector led growth. Catch Helen Zille’s speech, which is a useful summary of the manifesto, here.
The DA appears to be on top of its game and performing optimally, given the limitations imposed by its origins as a largely white party. The ‘ethnic’ or ‘racial’ character of the DA is clearly in transition, with Helen Zille the only white person who took the stage and the cameras covering the launch having to search long and hard for the few white faces in the audience. These contortions are going to be difficult.
The DA has clearly decided to appeal directly to defecting ANC voters and much of the tone and approach was structured with this in mind – including being respectful of the pre-Zuma ANC history. However it is my impression that defecting ANC voters are (mostly) going to abstain from voting or will vote EFF (and maybe UDM/COPE leftovers). I think that while the DA might get a portion of these votes the ‘racialisation’ of our politics means it is too early for the DA to capture enough black votes to shake the ANC.
However, I think the political realignment’s now taking place could mean that it will be the ANC and the DA that occupy the middle ground of South African politics by 2019, a scenario that has many more positive than negative features. (I wrote that line on Monday morning. I am not sure I agree with it still. Nothing has changed except my mind.)
In passing I should note the strong convergence of two features of both the DA and the EFF. They have both identified Jacob Zuma as the key individual responsible for the ANC’s and the country’s failures. True or not, fair or unfair, the ANC must be under pressure to find ways of shifting this president into the side-lines – which is, in my opinion, one of the features necessary for the emergence of a process of renewal in the ANC.
- Important defection from the ANC to the EFF, and the DA launches robust campaign in Soweto – but it is probably not yet enough to scare the ANC
- Appropriate concern grows at the Promotion of Investment and Protection Bill
- Stunning victory in eastern DRC is becoming a feather in Zuma’s cap …
- … while the chaos in the SAPS and crime intelligence is a serious indictment of South Africa’s political leaders – and is threatening the investment environment
Herewith my latest news summary and analysis.
As I have mentioned previously, I write these updates very early on Monday mornings for the paying clients of BNP Paribas Cadiz Securities. So thanks to those good people for allowing me to republish a few days later here (and thanks to them for giving me a fairly loose rein as to the style I am allowed to use).
Dali Mpofu announces defection from ANC to EFF
Dali Mpofu, advocate of the miners who were killed by the police in Marikana and a former CEO of the SABC, announced over the weekend that he was leaving the ANC and joining the Economic Freedom Fighters. While this is not completely unexpected (he represented Julius Malema in the ANC disciplinary hearings against the former ANCYL chairperson) Mpofu is perhaps the most mainstream figure to formally defect from the ANC and declare for the EFF.
This is my ‘shifting target’ predictions for the 2014 national election as of Friday November 1 (click on the graphic to see the details … and note the cute child sucking her thumb which is a graphic metaphor indicating I am making this up as I go along):
Some of you who saw those estimates in September might notice that I have massaged the EFF upwards and AgangSA downwards.
My Democratic Alliance results are probably too generous, although the pictures published in Afrikaans weekly Rapport on Sunday (11/03/2013) of the DA’s Gauteng premier candidate Mmusi Maimane’s launch of his campaign in the Walter Sisulu Square in Kliptown, Soweto on Saturday indicate a surprisingly robust start.
My caution about the upside for the DA is based on the history of outcomes in the four national elections since the advent of democracy in South Africa in 1994 (again click on the graphic for a version large enough to read … note DA at 16.66% in 2009 and ANC at 65.9% … hmm):
One would have to suggest that the DA has set itself too difficult a task in declaring that it hopes to achieve 30% of the national vote and be in a position to form a provincial government in Gauteng in an alliance with other opposition parties after elections in 2014. The EFF and AgangSA are likely to eat into ANC support but the challengers have a mountain to climb and the incumbent has to fall a long way before the climbers even catch sight of their objective.
Concern grows at the Promotion of Investment and Protection Bill
Legislation designed to replace a number of bilateral investment treaties that South Africa has maintained with over a hundred trade and investment partners was published in the government gazette on Friday and is starting to raise concerns among investors. Already Minister of Finance Pravin Gordhan has angrily blamed “lawyers serving the private sector” for increasing uncertainty in South Africa’s investment environment with regard to this legislation (in a deeply unhelpful statement he made on the side-lines of the African Economic Conference at Montecasino in Johannesburg last Monday – Business Day 28/03/2013).
At the height of the campaign for the nationalisation of mines during 2012 (by Julius Malema and the ANC Youth League) it was South Africa’s myriad bilateral investment protection treaties that were the strongest argument of reassurance for foreign investors. The problem is less the new legislation, and more that fact that existing treaties will not be renewed. Business Day in its front page lead story this morning says the decision not to renew the treaties has been criticised “by a range of groups, from foreign business to credit agencies for causing uncertainty over the security of future foreign investment”. An informed legal opinion would be a requirement for the proper assessment of the risk here, but it is appropriate to approach this policy and legislative shift with caution.
Jacob Zuma attempts to fill the Great Lakes power vacuum
In the light of a stunning and quick Congolese army (FARDC) victory over the occupying M23 rebels last week, Jacob Zuma has moved quickly to reinforce South Africa’s apparent sovereign advances in the region. Today he will host a joint summit of southern African and Great Lakes leaders in Pretoria to seek ways of consolidating this week’s victory by the FARDC and its Southern African allies … and on Tuesday he will chair another summit designed to kick-start an African Union plan for volunteer governments to form “coalitions of the willing” to tackle continental conflicts – Sunday Independent 03/11/2013.
The contending interests in and around the Eastern Congo are extraordinarily complex, but from a South African perspective the apparent defeat of the M23 is a success for the SADC Force Intervention Brigade (FIB) to which South Africa has contributed more than 1 300 troops alongside 1700 from Tanzania and Malawi. The M23 is backed by Rwanda which in turn is an ally of the US and the UK in the region. Crucially, those Western powers have warned Rwanda’s President Paul Kagame to back off supporting the M23 – which is probably what left the rebels vulnerable last week (Sunday Independent and other several other sources).
There are significant mineral resources in the region and the Inga hydroelectric projects might become decisive to economic development in several southern African countries. Stability in the eastern DRC impacts on Uganda, Tanzania, Rwanda, Sudan and even Angola, Zimbabwe and South Africa. Jacob Zuma has managed to shift significant obstacles out of the way of reformatting alliances in the region – an objective that eluded Thabo Mbeki. The situation is delicate and tentative but Jacob Zuma’s decisive follow-up indicates he is seizing the historical moment and the initiative in a manner that we would have thought unlikely a year ago.
The DRC is a Zuma plus but Crime Intelligence and the SAPS is deepening minus
The main domestic weekly newspapers (Mail & Guardian, Sunday Times, Sunday Independent and City Press) all attempted (unsuccessfully) to make sense of the damaging disarray and conflict in various aspects of the South African security services, most importantly in Crime Intelligence, the Hawks and the top echelons of the South African Police Services itself.
Last Monday the national police commissioner Riah Phiyega issued a suspension letter to the acting Crime Intelligence head, Chris Ngcobo (on the basis that there is some unspecified problem with Ngcobo’s qualifications). Almost immediately afterwards a spy tape emerged and was leaked to the press that indicated Riah Phiyega was guilty of a crime by having “tipped off Western Cape police boss Arno Lamoer about a crime intelligence investigation linked to him” – Mail & Guardian.
You have to go to the source code for what is happening here because the details of each claim and counter-claim are impossible to follow. Essentially the police, and particularly Crime Intelligence, have been profoundly damaged by having been drawn into high-level political contests, particularly those between former president Thabo Mbeki and then challenger Jacob Zuma. Significant parts of these apparatuses have become semi-criminal and out-of-control, pursuing sometimes arcane political (and worse) agendas. The top echelons of our political establishment are directly implicated in and linked to this chaos – having deployed these institutions in their internecine battles. No individual institutional failing in South Africa is more serious and more threatening for those seeking stability and certainty in the regulatory and institutional environment.
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.
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:
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.
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.
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.
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)
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?