CAROL PATON: By playing two sides, Malusi Gigaba takes a gamble on the economy’s strength
Finance Minister Malusi Gigaba may have dumped the language of radical economic transformation but he has beefed up its content. At a news conference on Thursday, Gigaba spent two hours expounding his rescue plan for the economy and responding to corruption allegations made against him due to his closeness to the notorious Gupta family. But to those who watched closely, Gigaba did a third thing: he put his transformation agenda squarely on the table and stressed that his mission was both growth and transformation.
Content to ignore the cloud above his head for now, markets and investors eagerly tuned in, craving a signal that Gigaba will be the kind of finance minister they hope to see. So far, he has been doing quite well: his appointment of a director-general met with their approval; his constant reiteration of a commitment to the government’s fiscal targets is reassuring; and the restatement of the Treasury’s desire to bring about structural reforms of the economy have all been viewed as encouraging.
But last Thursday was a very particular day. Hours before Gigaba announced his "rescue plan", Mineral Resources Minister Mosebenzi Zwane dropped a bombshell on the economy, proposing a new version of the Mining Charter that increased black ownership targets and imposed a raft of other requirements designed to fast-track transformation, all of which will have a profound effect on the profitability and sustainability of mining companies in SA.
Gigaba’s rescue plan, mainstream economists agree, contained nothing new. Many of them, as well as business leaders, had the opportunity of meeting Gigaba the day before he delivered the speech and clearly find him to be charming and sincere. Consequently, hardly one among them wanted to publicly pour cold water on the tired plan he announced. This is despite the reality that all of us have seen this movie several times: the finance minister promises to revive growth with structural reform and policies attractive for investment, for which, in reality, there is no political will.
Many commented on how unfortunate it was that while Gigaba was trying his best, others (such as Zwane) were undermining his efforts. But while the release of the Mining Charter and Gigaba’s rescue plan for the economy on the same day looked ham-fisted, there is a greater possibility that it wasn’t.
The bulk of Gigaba’s speech was geared towards saying the right thing to the investor community — promising commitment to fiscal targets; reforming state-owned enterprises and stabilising governance; and providing policy certainty. However, a significant portion of it was designed to appeal to the part of the ANC campaigning for a much bigger transformation agenda and various politically aligned lobby groups in black business.
It is no coincidence that in the list of items Gigaba presented on Thursday, in which he promised imminent policy certainty, the Mining Charter and the finalisation of the Mineral and Petroleum Resources Development Act were at the top. Also mentioned were the allocation of the telecommunications spectrum, the finalisation of agreements with independent power producers and certainty on land and agrarian reform.
Gigaba would have been aware of the plan to release the controversial new charter that morning. He would have been completely aware of the expected response by the industry. His message was explicit and repeated several times: "Inclusive growth and economic transformation are the top priorities of government. We must, and will, advance both of these."
Inclusive growth and economic transformation are the top priorities of government. We must, and will, advance both of theseMalusi Gigaba
Apart from the charter, Gigaba included some other enticing transformation measures in his speech: the government will support a R100bn fund for black businesses as part of the new iteration of the Financial Services Charter; it will soon table a new procurement bill that has "transformation as its core mandate"; and the government will ensure that the Public Investment Corporation gives a larger slice of funds to black asset managers to manage.
So while the mainstream mining industry might have been in a fury, champions of empowerment were optimistic and buoyed by Gigaba’s message.
Of all these announcements, the biggest by far is the Mining Charter. While the Chamber of Mines is furious as it watches the assets of its members sink in value, the flipside for "BEE entrepreneurs" — a term introduced in the new charter — is that the provisions will trigger a new round of black economic empowerment (BEE) deals at bargain prices as established firms are now obliged to complete new transactions within a tight time frame of the next 12 months.
Worsening the value problem is that other provisions in the charter — such as the fact that all future prospecting licences must be owned 50% plus one by black South Africans — is that mining assets in SA just became a good deal less desirable to global mining companies, even those whose business is based chiefly in SA.
The Regulation of Agricultural Land Holdings Bill (alluded to by Gigaba on Thursday under the title of Land and Agrarian Reform) will have a similar effect. Any farmer or land owner holding more than a stipulated amount of hectares will need to rapidly dispose of them after the act is passed, with a black person being the first choice of buyer and the state the second.
This looming disruption of property rights in mining and agriculture comes before the ANC policy conference has even begun to deliberate on the issue of land reform. While the party’s policy proposal — encompassed in a discussion paper — talks of an orderly land reform process within the bounds of the Constitution, prominent ANC leaders including President Jacob Zuma and Nkosazana Dlamini-Zuma, have spoken out in favour of the expropriation of land without compensation.
With the balance of forces in the ANC still very much in Zuma’s favour, and the tendency of policy conferences to be little other than proxy battles for factions, there is a strong likelihood that this will materialise as a policy position.
Communications Minister Ayanda Dlodlo, one of Zuma’s most effective supporters, has also publicly chastised her parliamentary colleagues for taking a position against expropriation in the parliamentary debate introduced by the EFF a few months back. The party has on several occasions offered its 6% to make changing the Constitution on the issue of land rights a reality for the ANC.
Judging from his comments and general stance, at this point, Gigaba is trying his best to keep both worlds — investors and the ANC radical economic transformation lobby — happy. He has indicated that he wants both an investor-friendly environment and one in which radical economic transformation is accelerated.
In his Thursday speech, for instance, Gigaba said he wanted to see SA’s top listed companies record double-digit growth. He also said he would like to see black-owned businesses doubling their market share in sectors such as financial services, auditing and construction.
While Gigaba hopefully referred to the 1% increase in fixed investment over the first quarter of the year, there is little doubt that with the dive in confidence levels, any green shoots there might have been were thoroughly trampled on Thursday
Whether things work out like he is hoping is a serious gamble.
The economy is tanking more quickly than anyone expected. Following the downgrades and the beginning of the recession, some economists now predict that SA will follow the same path as other emerging markets and that we are in for at least a year of negative growth rates. Revenue collection is already behind target for the year and the fiscal picture is deteriorating.
The RMB/BER Business Confidence index, out last week, was devastating. Confidence levels — an indication of future investment — are at levels last seen in the 2009 recession. The business cycle is in the longest downswing since 1989, with indications that this will now deepen.
While Gigaba hopefully referred to the 1% increase in fixed investment over the first quarter of the year, there is little doubt that with the dive in confidence levels, any green shoots there might have been were thoroughly trampled on Thursday.
In the short term, there will be a good deal of pain as investment shrinks, jobs become even scarcer and consumer spending tightens. It will become increasingly difficult, if not impossible, for the government to maintain its promised fiscal targets. As revenue declines because of the recession, expenditure cuts could become too deep and tax hikes too high, making it hard to maintain a feasible social equilibrium.
But in the long term, will the gamble bring an empowerment dividend in which the disruption of the economy as we know it re-emerges with a more transformed ownership profile?
This is the thinking within Zuma’s inner circle. In April, following SA’s credit rating downgrade by S&P Global Ratings to junk, Water and Sanitation Minister Nomvula Mokonyane told a WhatsApp chat group: "It’s actually better western investors will pull back and we have an opportunity to bring them back in our own terms‚ after we have consolidated our relations with Africa and Brics."
The answer to whether this move will pay off will depend on how much the economy shrinks during this transition and what will be left to build on.
• Paton is deputy editor.