More mud­dling along

The do­mes­tic fi­nan­cial mar­kets have be­come tired of volatil­ity, but don’t hope for much eco­nomic pol­icy clar­ity in 2017 ei­ther.

Finweek English Edition - - THE PESSIMIST’S GUIDE: ECONOMIC POLICY - Ed­i­to­rial@fin­week.co.za is a free­lance jour­nal­ist who came to SA in 2000 as chief fi­nan­cial cor­re­spon­dent for Reuters news agency af­ter work­ing in the Mid­dle East, the UK and Swe­den, cov­er­ing top­ics rang­ing from war to oil, as well as pol­i­tics and economi

the pol­icy di­rec­tion for South Africa’s econ­omy hangs in the bal­ance as op­pos­ing fac­tions of the ANC line up for a bru­tal bat­tle to choose a suc­ces­sor for Pres­i­dent Ja­cob Zuma at the party’s elec­tive con­fer­ence in De­cem­ber 2017. His abil­ity to with­stand an at­tempt to oust him at a meet­ing of the ANC’s top brass at the end of Novem­ber does not bode well for those who want to in­stall a leader in favour of re­forms that will en­cour­age in­vest­ment and end the gravy train of pa­tron­age for the coun­try’s po­lit­i­cal elite.

If Zuma’s back­ers suc­ceed, their pre­ferred suc­ces­sor will be his ex-wife, Nkosazana Dlamini-Zuma, who would en­sure continued di­lu­tion of the re­forms needed to boost the coun­try’s tepid growth rate and clamp-down on cor­rup­tion and mis­man­age­ment, which has es­ca­lated alarm­ingly in the past few years.

The ur­gency of a change to the sta­tus quo has in­creased af­ter of­fi­cial data in Novem­ber showed that the econ­omy ex­panded by just 0.2% in the third quar­ter of the year, while in­vest­ment con­tracted for the fourth quar­ter in a row and un­em­ploy­ment jumped to 27.1% – the high­est in twelve-and-a-half years.

Zuma’s camp scored two big vic­to­ries late in 2016. The day af­ter sur­viv­ing the vit­ri­olic ANC de­bate over his sta­tus, he sent back to Par­lia­ment an amend­ment to the Fi­nan­cial In­tel­li­gence Cen­tre Act (Fica), which is re­quired for the coun­try to meet its in­ter­na­tional obli­ga­tions to fight money laun­der­ing and ter­ror­ist fi­nanc­ing.

Zuma claims that the bill, which will re­quire banks to in­ves­ti­gate “po­lit­i­cally in­flu­en­tial” clients more thor­oughly, is un­con­sti­tu­tional be­cause it would al­low searches with­out a war­rant. But the Bank­ing As­so­ci­a­tion South Africa dis­agrees. It is wor­ry­ing that the pres­i­dent de­layed his de­ci­sion on it for five months, which means that SA will miss a Fe­bru­ary dead­line for its in­tro­duc­tion and risks be­ing put on an in­ter­na­tional watch list.

Mining in­vestors were also dis­ap­pointed by changes to min­eral re­sources reg­u­la­tions, which were passed by Par­lia­ment for the sec­ond time in De­cem­ber af­ter years of wran­gling. The bill gives the min­is­ter of mines sweep­ing power to de­clare cer­tain min­er­als strate­gic – which will ar­ti­fi­cially af­fect their price – and paves the way for the state to take a 20% mi­nor­ity stake in new gas and oil pro­duc­tion and ex­plo­ration ven­tures.

Al­though the bill is likely to be chal­lenged in court in 2017, this means that for now reg­u­la­tory clar­ity still falls short of what an­a­lysts say is needed to re­vive a strug­gling sec­tor which re­mains one of the coun­try’s most im­por­tant gen­er­a­tors of em­ploy­ment and for­eign ex­change ex­port earn­ings. The po­si­tion of fi­nance min­is­ter Pravin Gord­han, who led ef­forts in 2016 to keep the re­form process on track, now looks as­sured af­ter SA nar­rowly kept its in­vest­ment grade credit rat­ing in yearend assess­ments by Stan­dard & Poor’s and Fitch. None­the­less, the big dan­ger is that Zuma could carry out a cabi­net reshuf­fle early in the year to re­move the min­is­ters who have openly op­posed him, and to put his loy­al­ists in place. This would hit SA mar­kets and frighten in­vestors, who will be as­sess­ing emerg­ing mar­kets more closely this year as US growth ac­cel­er­ates. No­mura an­a­lyst Peter At­tard Mon­talto, who tracks SA closely, points out that do­mes­tic fi­nan­cial mar­kets have be­come tired of the volatil­ity trig­gered by 2016’s po­lit­i­cal roller­coaster, and less sen­si­tive to events which con­tin­u­ously fall short of re­solv­ing the im­passe be­tween ANC lead­ers. “This is not a good thing for the mar­ket, act­ing as a con­strain­ing factor against more extreme do­mes­tic events,” he wrote in a re­cent re­search note. Po­lit­i­cal econ­o­mist Moeletsi Mbeki, the brother of for­mer pres­i­dent Thabo Mbeki, is dis­mis­sive of the party’s ef­forts to re­vive the econ­omy. “I’m not sure the ANC is di­vided – they dis­agree about one is­sue or an­other but it does not mean they are di­vided. They take sur­plus from the pri­vate sec­tor and use it for con­sump­tion in the pub­lic sec­tor and will con­tinue in that di­rec­tion,” he said. At the end of the ANC’s heated Na­tional Ex­ec­u­tive Com­mit­tee (NEC) con­fer­ence, sec­re­tary-gen­eral Gwede Man­tashe said that the only way to unify the party was through “ide­ol­ogy”. No­body is clear on what he ac­tu­ally meant, but his com­ments were a dis­cor­dant note for those com­mit­ted to prag­matic pol­icy re­form. He was also quoted as say­ing that the ANC was “a move­ment, not a con­tentious or­gan­i­sa­tion of peo­ple who are pulled by their con­science, no. We are an ide­o­log­i­cal or­gan­i­sa­tion.” There thus ap­pears to be lit­tle hope that the rul­ing party will aban­don its pol­icy of con­sen­sus, which means that com­pro­mise and “mud­dling along” will re­main the name of the game.

Gwede Man­tashe Sec­re­tary-gen­eral of the ANC

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