Business and Economy

ANC wants to attract investors, tones down on populist rhetoric

President Jacob Zuma and the writers of the ANC policy discussion paper “Economic Transformation” seem to hold differing opinions on what “radical economic transformation” means. Photo: GCIS

The drafters of the ANC’s discussion document titled “Economic Transformation” must be alarmed at the policy uncertainty that the recent cabinet reshuffle has created. 

Last month, the South African foreign currency-denominated debt was downgraded to junk status by global credit rating agencies Standard & Poor’s Global and Fitch Ratings after the controversial cabinet reshuffle that saw President Jacob Zuma replacing his finance minister Pravin Gordhan with Malusi Gigaba.

The 19-page “Economic Transformation” document -- part of a series of discussion papers released ahead of the ANC’s policy conference to be held in Johannesburg from 30 June to 5 July – warns against the ruling party heightening policy uncertainty, which may deter investors from taking an investment bet on South Africa.

The document insinuates that if the country wants to meet the economic growth targets envisaged in the National Development Plan (NDP) it has to increase the combined investment by the private and public sectors to 30% of Gross Domestic Product (GDP) from 19% of GDP currently.

But attaining significant increase in private sector investment will require political and policy certainty.

“Policy certainty is key for long-term investment. Concerted efforts are required at eliminating policy uncertainties and unwarranted regulatory hurdles. Government should conduct an audit of the policy and regulatory constraints to investment and set a clear timeframe for addressing them,” the document reads.

Despite numerous assurances by Gigaba that there will be no economic policy shifts under his watch, the markets have not bought into his story in the wake of the cabinet reshuffle that involved 10 ministers and 10 deputy ministers.

At the heart of investors’ nervousness are the calls by Zuma for radical economic transformation (RET), which the credit rating agencies interpret as a move away from Gordhan’s prudent fiscal policy to reckless government spending by Gigaba.

Interestingly, Zuma and the writers of the ANC policy discussion paper “Economic Transformation” seem to hold differing opinions on what “radical economic transformation” means. 

“Primarily, radical economic transformation is about fundamentally changing the structure of SA’s economy from an exploitative exporter of raw materials, to one which is based on beneficiation and manufacturing"

In his State of the Nation Address on 9 February, Zuma described RET as follows: “We mean fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom are African and female, as defined by the governing party, which makes policy for the democratic government.” 

Zuma believes that the solution to undoing skewed economic ownership by whites is for the state to intervene in the economy by using legislation, regulations, licensing, race-based procurement and black economic empowerment (BEE) policy to give black people a bigger share of the economy. 

But the drafters of the ANC’s policy discussion document have a different version of RET in mind.  The document drafters want economic growth prioristised before wealth redistribution while Zuma wants redistribution now.

“Primarily, radical economic transformation is about fundamentally changing the structure of SA’s economy from an exploitative exporter of raw materials, to one which is based on beneficiation and manufacturing, in which our people’s full potential can be realised. 

“In addition to ensuring increased economic participation by black people in the commanding heights of the economy, radical economic transformation must have a mass character,” the document explains. 

But Zuma and the drafters appear to agree that RET -- which can be best described as black economic empowerment (BEE) on steroids --  must benefit a broader society than benefitting a small elite, as it was the case under first-generation BEE policies.

Calls for RET correlates with the introduction of the third phase of BEE implementation, which kicked off in 2015, whereby the focus is on creating black industrialists. The first two phases of BEE implementation dating back from 1998 to 2013 focused on selling minority stakes in white-owned companies to a few politically-connected individuals, but little of this wealth trickled down to the poor black majority.

It remains to be seen if the RET will succeed where BEE failed in radically increasing black ownership and control of the South African economy and benefitting the poor.

The ANC policy document writers seem to be wary of the growing political influence of the left-leaning political party, Economic Freedom Fighters (EFF), which is espousing the nationalisation of mines and the expropriation of land without compensation. The EFF was instrumental in the ANC losing the key metros of Port Elizabeth, Pretoria and Johannesburg in last year’s municipal elections.

“The ANC’s political opponents on the right have resisted interventions aimed at increasing the state’s role in guiding the process of economic development. On the other hand, populist voices have sought to dismiss the ANC’s programme as not radical enough, often calling naively for nationalisation as a panacea for all ills,” the ANC document reads. It warns that the nationalisation of mines would lead to massive job losses and severely damage SA’s fiscal position.

 

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