Futuregrowth was right after all. In September the asset manager’s chief investment officer, Andrew Canter, said his firm had decided that "we could not provide additional finance to some of the largest state-owned companies (such as Eskom) without having deeper sight of, and comfort around, their governance, decision-making and independence."
It was a position that infuriated the state-owned companies and their minister, Lynne Brown. Canter was strong-armed into "apologising" for not warning the state-owned companies before issuing a public statement.
How different it is today, a few months down the line, in the wake of President Jacob Zuma’s reckless cabinet reshuffle and the inevitable downgrade to junk status. Futuregrowth’s position almost seems positively restrained.
Which is probably why there was far less of an outcry when Coronation’s Neville Chester said last week that his company wasn’t buying SA bonds because of "our concerns over the likelihood of SA’s debt burden rising significantly".
He added: "Current valuations do not compensate for the negative fundamental backdrop and uncertainties in SA, as well as the potential for a very different set of fiscal strategies, already pronounced on by the new finance minister."
It’s a reflection of the shattered trust between government and business leaders. The veil has slipped, and CEOs feel that Zuma cares not a jot about the impact of his actions on the economy.
On April 28 the CEO Initiative met Zuma at his presidential guesthouse in Pretoria, and reports of the meeting suggest the CEOs didn’t pull any punches. Telkom chairman Jabu Mabuza reportedly said business needed clarity on a few key issues — including the nuclear deal, whether there will be an inquiry into state capture, the need to reform the boards of state companies, and the need to boost investor confidence.
But Zuma was at his slippery best. True to form, he gave precious few commitments.
Mabuza’s speaking notes, as quoted in City Press, warned that "unless we take swift action, SA’s growth rate will be cut in half this year, and we will probably have a recession next year instead of the recovery that was on the cards."
The cost of his cabinet reshuffle would be "more unemployment and poverty".
Mabuza said: "Many are angry at what they see as a decision that delivers political and economic benefits to a select few at the expense of the rest of SA — and, most of all, at the expense of the poor." He told Zuma that Eskom’s weak board should be dissolved. "We call on you, Mr President, to replace the entire current Eskom board and appoint a credible and strong chairperson to lead the board, and to appoint a new CEO."
Candour of this sort from CEOs is unprecedented. So what can be done to repair the trust?
Though a country can take years to recover from a ratings downgrade, the same is not true of the reputation of state-owned companies. Under successive ANC governments, the boards of state companies became expensive toy telephones. They’ve had all the paraphernalia of private-sector companies — glossy annual reports, governance tick-boxes, fat directors’ fees — but their directors either weren’t the right people, or had little power to truly change the companies.
To woo back investors 2and improve the risk profile of state companies, Zuma must take the CEOs’ views to heart. Were all state-owned companies headed by honourable and competent leaders, and freed from fiddling by craven politicians, governance would improve.
Then, investors would return.