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By Craig Featherby*
The National Policy Conference of South Africa’s governing party, the African National Congress (ANC), has come and gone, and the skies have not fallen.
But in the weeks preceding it, many people were seriously concerned over what might emerge from it, and quite rightly so. For the talk in ANC circles became increasingly radical and populist, two flavours that strongly remain part of the ANC’s political brew…or at least in one half of it.
In their mind’s eye, many concerned people probably saw a post-conference picture of capital fleeing out of the country on a large scale, or their home-based investments melting down to a few worthless revolutionary pennies. It did not happen, and is not about to happen…or at least not just yet, if at all.
But if it’s answers to SA’s multiple critical challenges you sought from the ANC’s National Policy Conference that ended on Wednesday, or policy certainty and direction, you probably were sorely disappointed.
Instead the noise around a few very controversial issues, such as nationalising the country’s central bank or expropriating white-owned land without compensation, were ratcheted up a few notches more. Other policy proposals were toned down a bit. But all remain inconclusive for now.
In the end the conference was arguably more about the ANC’s factionalism and the race to succeed President Jacob Zuma as ANC president, than about actual policies. The policy debates highlighted the fact that the ANC remains indecisively trapped between choosing a pro-free enterprise, market-driven route, or adopting redistributive socialism that will destroy wealth and growth.
However, the noise was enough to drive the rand down sharply on Wednesday and make investors very jittery. And global ratings agencies probably felt their ears pricking: they will certainly study the reports of the conference commissions – once they are released – with magnifying glasses with a view to their next round of ratings assessments.
As was to be expected, the policy debates were faction-driven, which is one reason why it ended with largely inconclusive, open-ended policy decisions. The other reason is that whatever is finally presented in the commission reports of this policy conference, has to be taken to the ANC’s elective National Conference in December for ratification. There it will most likely be tinkered with again and changed. Much can still change in the ANC between now and December.
Which makes for much lingering uncertainty, in itself no friend of economic stability, investment and growth.
The entire policy conference was conducted under the umbrella of “radical economic transformation”, a slogan that has many people concerned. And although the ANC tried to project a show of unity and agreement on all policy aspects, this slogan means different things to the two different camps in the ANC, as clearly emerged at the conference. The Zuma faction employs it as radical, populist rhetoric – that could recklessly lead to more concrete manifestation – as part of a strategy for their own and the ANC’s survival.
The faction aligned to Deputy President Cyril Ramaphosa sees it as an inclusive growth strategy within the context of the National Development Plan (NDP), to extend participation in the formal economy to blacks, the poor and women. The last word on this has yet to be spoken.
White monopoly capital
Monopoly capital is still the ANC’s public enemy number one, whether the money is white or all the colours of the rainbow. While the term “white monopoly capital” led to heated debate, in the end a diluted definition that included both “white monopoly capital” and just simply “monopoly capital” was adopted by the commissions, as articulated by President Zuma in his closing speech.
But it does seem that the reformist, pragmatic faction aligned to Deputy President Ramaphosa, himself a successful capitalist who hopes to become ANC president in December, did manage to drive back the populist assault of the faction aligned to President Zuma and his own choice of successor, his ex-wife Nkosazana Dlamini-Zuma.
The Ramaphosa camp argued that the term “white monopoly capital”, said to have been coined by London-based PR firm Bell-Pottinger as a distraction for SA’s troubled and controversial Gupta family – accused of state capture – was indeed that: a distraction. Not only to shield the Guptas from their mounting troubles via a mountain of damning leaked emails, but by implication also President Zuma and his associates.
The Ramaphosa camp says the problem of monopoly capital is much wider, goes beyond race and has its roots in the apartheid era…and should be addressed as such. They also say the fundamental, immediate challenge is rooting out state-capture and corruption – a direct reference to the alleged influence of the Guptas and those in government involved with them – and that the “white monopoly capital” narrative distracts from that and is a mere scapegoat.
SA Reserve Bank
The ANC’s proposal to nationalise the South African Reserve Bank (SARB) is the one issue that caused the most consternation. Although the ANC has yet to confirm the proposal, it comes on the back of a Public Protector’s directive that the bank’s mandate should be changed, The reaction included bonds and the rand declining, with the rand falling sharply by 2.1 per cent to R13.4968 against the dollar at 4pm, before recovering somewhat to R13.4396 an hour later.
The recovery followed after the ANC itself, seeing the damage it was causing, tried to put out the fire. It issued a statement reaffirming the continued independence of the central bank even though it would look at changing its ownership. And Finance Minister Malusi Gigaba said he would ask the courts to review and possibly set aside the Public Protector’s recommendation.
However, the reaction may have been a bit premature in respect of the likely immediate effects. Since its establishment in 1921 the SARB has always had private shareholders who appoint 7 of the 10 non-executive directors, but who have no say over policy or the appointment of the governor. Many central banks around the world are government-owned. Removing the private shareholders is unlikely to have any immediate effect on SARB policy.
The greater danger is that there will be no holy cows left, as it sets a precedent to tamper with other respected and trusted institutions and sectors. It also comes at a time when there is talk within the ANC of tighter regulation of the financial sector, especially banks. And some will see it as part of the state-capture agenda, with Pravin Gordhan having already been removed as finance minister and the National Treasury now being controlled by the Zuma faction. Ratings agencies have also warned against tampering with institutions.
This is another issue – also inconclusive though – that rattled quite a few cages. Legislation in the form of the Regulation of Agricultural Land Holdings Bill is already being processed to bar foreigners from owning agricultural land and to limit the size of individual land-holdings.
In his closing speech at the policy conference, Zuma said the commissions had agreed on the need to accelerate land redistribution, but within the context of the law and Constitution. However, displaying the same ambiguity as with the future of the SARB, Zuma added that agreement had been reached in the conference that using the fiscus for land redistribution must be accompanied by “other measures”, and, “Where it is necessary and unavoidable this may include expropriation without compensation”. The Constitution, Zuma said, provides for legislative changes. But to change the Constitution itself, whether in respect of the SARB or land redistribution or anything else, the ANC needs a two-thirds majority in the National Assembly, which it doesn’t have at present.
While Zuma and Dlamini-Zuma’s home province of KwaZulu-Natal (their power base) pushed strongly for the introduction of expropriation without compensation, others in the ANC argued vehemently against it, calling it reckless, irrational, unconstitutional, and populist. All of these developments nonetheless create great uncertainty in the agricultural sector which is already struggling in the wake of a long and serious drought, rising costs and other issues.
Another highly controversial issue, the latest government version of the transformation-directed Mining Charter, was also debated heatedly. In the end the Zuma faction was blocked on implementing it, and the charter was effectively sent back to the drawing board for more work on its “design” and to consider the impact it could have on mining jobs.
What follows now?
It is clear that President Zuma and his radical supporters were pushed back and weakened somewhat at the conference, allowing the more moderate Ramaphosa faction to emerge slightly ahead. However, as mentioned, much could change in the next six months.
If any of the more radical policy proposals are taken to their intended conclusion, it may over the longer term impact adversely on aspects such as the economy, investment, monetary and fiscal policies, the long-term security of trusted institutions, growth, government debt, jobs, the cost of living, stocks and bonds, and more. It could well lead to more credit ratings downgrades, or at least make recovery from junk status near impossible, with all the consequences that implies.
As mentioned, the policy proposals could again change before being ratified at the December National Conference. Even then, the ANC’s policies for the next five years could take years before being enacted through the legislative process. And given the current state of decline of the ANC and its support, there is no guarantee it will remain exclusively in power beyond the 2019 general election. But none of this is certain.
Therefore, as the policy conference has done little more than prolong uncertainty and failed to decisively address the country’s multiple challenges, this is no time for the serious investor to sit back and be complacent. To borrow a phrase from the gambling fraternity: the smart money will hedge its bets. Plan and diversify your portfolio for the various possible outcomes to protect yourself against loss in whatever policy scenario may eventually materialise. Nobody lives in a bubble, and everyone will be affected.
- Craig Featherby, CEO, Carrick Wealth