New cabinet aimed at bolstering Zuma, not solving SA problems

It seems that in South Africa, as in many other places, election promises are not worth the paper they’re printed on. In the run up to the election, the ANC was eager to reassure business and investors that it would be taking a pro-business stance and implementing needed economic reform. But now, while the ballot boxes are practically still being packed away, it’s looking a lot like those reassurances were just so much hot air. Zuma has announced his new cabinet, and most of the appointments have experts and observers wringing their hands. As the interview below argues, a lot of the appointments seem mostly intended to bolster Zuma’s position within the ANC rather than to provide the country with solid and effective leadership, and there’s little evidence of the kind of folks who have a pro-business, reform-minded orientation. Indeed, if anything, it seems that the state will be taking an even stronger role in the economy going forward.– FD

GUGULETHU MFUPHI:  President Jacob Zuma announced his Cabinet over the weekend after his inauguration. According to Nomura, there has been a significant loss of talent in some of the moves, in both Motlanthe as well as Manuel leaving. Joining us on the line now for a quick update on those changes, from London, is Peter Attard Montalto from Nomura. Peter thanks for joining us today. I take it the changes to the latest Cabinet…do they instil any confidence in you?

PETER ATTARD MONTALTOPETER ATTARD MONTALTO: Well, I think it’s very difficult to find in the changes, where you’re going to get, if you’re going for the winning macro and microeconomic strategy that can allow the ANC to win/maintain support in the coming two elections in 2019. This seems to be largely about political moves to reinforce Zuma’s position in the current ANC leadership as opposed to making things work, if you want to put it that way. It’s not obvious to us for example, that reform on the microeconomic front in particular is going to be any more evident in this new Cabinet, than in the last.

ALEC HOGG: Peter, its Alec Hogg here. While reading through the detail of your report, it started to make me more and more depressed. I’m trying to find an upside in the things you said, but pretty much every one of the appointments…you were a little concerned, and some very concerned about. Possibly, we could start off or you could pay your attention to the Minerals portfolio, where Ramathlodi has now taken over. You call him a Zuma loyalist – very worrying views on the Constitution, that he’s expressed etcetera. Is this a view of yours that might be shared elsewhere?

PETER ATTARD MONTALTO: Well, I think the trouble is that it takes investors a while to really latch onto who’s who in the Cabinet, in the ANC leadership. People like him are less well known to your average foreign investor. When you look into details about his past, he seems to come from the side of the ANC that views the Constitution (if you like) as more of an optional add-on to the way the ANC governs as opposed to the essential core of what it is to be a Constitutional Democracy. It’s not particularly worrying, given that he was in charge of selling the second democratic revolution of the State involvement in the economy. He’ll have a lot more power now under the MPRDA, as well as more discretionary power. He is still somewhat an unknown force in terms of actual leadership in Government.

GUGULETHU MFUPHI:  Okay, it does seem as though we’re having technical difficulties with Peter, but we are joined by Neren Rau. He’s the Chief Executive of SACCI, also commenting on the Cabinet changes that have unfolded. Neren, thanks for joining us. What’s interesting is that in the release you sent us today, you’re worried about the legislative approach that the Government is taking here. What are your concerns around that?

NEREN RAUNEREN RAU: Correct. In the lead up to the election and even shortly after the election, there were a number of pro-business statements. We were going to see pro-business policy, to some extent. Perhaps it was wishful thinking on our part, but now post the election, the last couple of statements that came out, have indicated that we will see a stronger role for the State in the economy, and that is of concern to us. We have been engaging with Government for quite some time now, about what we perceive as its high degree of interventionism in the economy, and we believe that this interventionism, if it grows, could even be to the extent of undermining our right to do business, and even undermining some of our Constitutional rights. For the Chamber, it’s critical that Government, though its policy decision, allow us the space to do business in our country as we need to do.

ALEC HOGG: Neren, something happened in the past week. If you go back two weeks, you had Jacob Zuma telling us that this is pro-business. After the election, we were going to be driving business more aggressively to fix the economy. Then we have a Finance Minister who should have been appointed – who would have been pro-business – being kicked out effectively, and told to withdraw and now, we have more and more of the rhetoric of interventionism etcetera. What happened? What went on in that time?

NEREN RAU: Well, political decisions are always hard to guess and that as where we as businesses, sometimes struggle to understand the motivations behind particular decisions. There’s the rational element of it, which we would tend to support or agree with and then there’s the political element, which is influenced by a number of other factors. Of course, one cannot discount the role of the Alliance partners in terms of the final appointments of Ministers and in terms of the views that are currently being presented. Clearly, between the two periods, there’s been some engagement – broadly – within the Alliance, and that could conceivably have influenced the different perspectives that we’re now in receipt of.

GUGULETHU MFUPHI:  That involvement: does that not concern you as a member of business and commerce in South Africa?

NEREN RAU: Well, it’s been an issue that we’ve always had to deal with. In some cases, it has reared its head in a very strong and very concerning manner, for business. A case in point is the Amendments to the Labour Laws, which we encountered late last year. We had agreed on certain Amendments at NEDLAC over two years of negotiations. Then the laws go to Parliament…there was clearly some behind-the-scenes influence and certain changes were made. That point is very difficult for business to have a say…for us to gain access to the total Parliamentary Platform. What SACCI was forced to do was write to each MP – 400 MP’s – individually and ask them to please reconsider. We then wrote to the State President and we asked him to reconsider, so we are used to dealing with the Alliance.

ALEC HOGG: What was the reaction to that?

NEREN RAU: Well, he did respond. However, it seems as though it was a done deal on the side of the State President. There was some back and forth between their attorneys and ours. There was some lack of understanding as well, and once that was clarified, he had unfortunately, already put pen to paper. Now we have to explore how we’re going to function with these Labour Laws and whether the Chamber wants to pursue the matter in any other form or forum.

ALEC HOGG: Neren, businesses put a lot of store in Cyril Ramaphosa being made Deputy President. We have Peter Montalta from Numura back. Peter, you aren’t that excited about the fact that Cyril Ramaphosa, the Deputy President, is going to be that pro-business…in fact, that he would be able to be so. Just elaborate on your views.

PETER ATTARD MONTALTO: Well, I think we should be clear that we’re not talking about deterioration in policy or anything like that. It’s just that the current status quo is ultimately [inaudible 0:15:59.3], so the BEE economy is very different from an investor-friendly one, particularly in terms of how the State is involved in the economy, that it creates opportunities for BEE investment etcetera. For me it’s not obvious that he is this big champion of business, which many people thought. Having said that, we’re certainly that what he’s very good at is PR, talking to businesses, and making the right noises, so we have to differentiate in the coming five years, between what he says in terms of rhetoric and good PR, and actual policy checks that he might be in charge of.

NEREN RAU: We didn’t expect any huge pro-business positions coming out of the Deputy-President. What we did expect and what we were pleased about is that very high up in Government, we have someone who understands the business environment, someone who would pursue/understand/appreciate the issues that we present, in a very rational and balanced manner. However, we’re not naïve in discounting the political forces that act on the Deputy President and the fact that he has to answer to a boss, as well, just as the rest of us also do. What we really look for, as a favourable/desirable outcome from a business perspective is balanced partners on the other side of the table. For example, partners with an appreciation of the challenges we face and how we can address those challenges, partners with an appreciation of the proposals we put on the table, and most importantly, partners with an appreciation of the long-term and fairly complex implications of some of the decisions that are made. If one looks at a very obscure example right now – the proposed carbon tax – we want to engage with parties on the other side of the table who understand what this means, not just for our domestic economy, but also for our standing in the trade environment – totally – and what it means for our competitiveness.

ALEC HOGG: You mentioned ‘partners’. Are you feeling that this new Cabinet can be a partner of business, given the statements that have already come out?

NEREN RAU:  We’ve always looked at Government as a partner in the economy. We have no other way of perceiving/bringing about change or improvement in the environment other than to extend the hand of partnership to Government. I must say that while its often spoken of a trust deficit in the broader business/government relationship, we as a Chamber have been fortunate that we’ve had access to relevant ministers when we’ve desired them – within reason, of course. I do believe that our investment in relationships over time, we have created the type of access we require. The changes do present a new challenge. We have to, in certain instances, build new relations or develop different types of relationships, but we believe we’re at a critical point right now, where Government, business, and Labour must come together to determine how the next five-year period is going to be better than the last five- year period was. If we don’t utilise this opportunity before the political leaders and the technocrats are caught up in their day-to-day activities then that opportunity would largely be lost and we’d have to continue with the very slow pace of advocacy. As a Chamber, we view this as a critical period. We’re at a precipice that could indicate dramatic change for our economy and for business in South Africa.

GUGULETHU MFUPHI:  Indeed. Thank you so much to both our guests, Peter Attard Montalto from Nomura joining us from London and Neren Rau, Chief Executive of SACCI. Do remember that you can email us on [email protected] or interact with us on Twitter at cnbcafrica#powerlunch410. Do stay with us, because after the break we take a look at some company results from the sugar producers. More Power Lunch right after this.