WHAT PATEL BELIEVES
the government planned to use the virus to fast-track the ANC’S desire for control of the economy, by imposing Soviet-style rules on everything from what you could eat, to what you should wear.
The DA’S Geordin Hill-lewis said Patel was in “full-on Soviet fantasy mode — next he’ll bring back the Lada”. The party’s Ghaleb Cachalia called them “the dumbest regulations ever published”.
Patel smiles. “Yes, I had to take quite a bit of a dig on the winter clothes issue.”
However, what many people don’t know is that the ludicrous level of specificity came from businesses themselves.
Earlier this month, Patel filed an affidavit in response to a legal bid by a group of University of Cape Town (UCT) students to declare the lockdown “unconstitutional”.
In the 69-page affidavit, Patel says the “winter clothing” rules were not an “attempt by ministers to micro-manage decisions best taken by businesses but, on the contrary, a response to the request by stakeholders for greater clarity and certainty”.
He says that when the lockdown began, “I had no intention of publishing the clothing directions — I had assumed at that stage that industry bodies would, as other industry bodies had, self-regulate by imposing their own internal standards.”
But retail CEOS were apparently worried that store managers would be arrested for breaking the rules on what could be sold, as had actually happened early in the lockdown. As a result, “I began receiving requests from representatives in the clothing retail sector that I provide clarity on what could be sold as winter clothes”, he says.
On May 4, Patel convened a meeting with the CEOS of Woolworths, Pick n Pay, Mr
Price, TFG, Truworths, Edcon, Pepkor, a number of clothing makers, and labour. At that meeting, the court papers say, one CEO “proposed that government compile a central list of what retailers can sell, and what they cannot sell”.
Patel’s team compiled the retailers’ suggestions, asked for feedback and amended the list. On May 7, for example, Mr Price
CEO Mark Blair wrote to the group, suggesting slight wording changes, like: “Under short-sleeved tops, either remove the word ‘knit’, or leave it in and also insert the word ‘woven’.” On May 12, Patel’s directions were gazetted — and he became a laughing stock.
What’s good for the e-goose …
It was the same, Patel said, with the e-commerce issue.
Here, he says, shopkeepers lobbied him to halt e-commerce. “They said: ‘Hang on, this would mean the large players would be able to bypass us by selling a much wider range of goods [online], undercutting our market.’”
The unions, too, argued that e-commerce would kill off physical retailers, which might not reopen in the wake of Covid-19.
“The caricature was that the government and this minister just don’t get e-commerce,” says Patel. “Obviously we know that e-commerce is an enormously helpful and flexible tool, as the risks of transmission are reduced enormously as fewer numbers of people need to travel to shops … but as a policymaker, along with the advantages, there are also other interests that are affected.”
Patel admits the government made many mistakes during the lockdown. If he had the chance to do it again, he would “make different judgment calls on communication. I think that when you take a decision, you do owe it to the public to explain that more fully than we have.”
Surely the errors extended beyond just bad communication? Haven’t the rules, like the ban on tobacco sales for example, been utterly irrational and hence, indefensible?
“No doubt many things could be done differently,” he says. “But these were not decisions that were taken with no attempt at trying to weigh up the considerations. You’re making plenty of these kind of decisions — every decision can’t be optimal and brilliant.”
He says citizens have a right to expect that decisions are taken rationally and with meticulousness, but not that you’ll agree with every judgment call.
The irony, in Patel’s case, is that the absurd regulations may actually have been issued because of his willingness to indulge business, rather than in spite of it.
Maybe the fatal flaw is that the government should rather have been keeping its eye on what was best for its citizens. After all, a small sports store might consider it “unfair” if Takealot is allowed to deliver a soccer ball if it can’t, but the average consumer won’t understand why he can’t get a ball to kick around during the lockdown.
Of course, it didn’t help Patel that his rules were conflated with the other muchdespised and ridiculous lockdown rules: the nine-week alcohol ban, and the still-in-place
tobacco ban.
(Patel won’t say if he supports that ban. Ever the disciplined deployee, he says it’s important to keep “collegiality” within the cabinet.)
But the fact that the cabinet agreed to the tobacco ban — which not only failed to stop 90% of smokers getting cigarettes, but also fuelled a thriving organised crime industry — doesn’t contradict the notion of an interventionist state that doesn’t trust its citizens to act as adults.
Red under the bed
The irony of the jibes about his Soviet inclinations is that Patel isn’t a communist. He’s never been a member, still less an official, of the SACP.
While he was studying at UCT in 1982, Patel went to work full-time at the research division of the university’s school of economics.
There, he unionised university workers and proved to have such a flair for labour matters that he was instrumental in the nationwide anti-apartheid strikes during the 1980s — which led to him spending months in what was then Victor Verster prison.
Later, he helped create the SA Clothing & Textile Workers Union, where he was deputy secretary-general to Johnny Copelyn.
In 1997 he and Copelyn created Hosken Consolidated Investments (HCI), which is today a R2.8bn company listed on the JSE. It controls e.tv’s parent company emedia and Gallagher Estate, as well as 47% of Africa’s largest hotel company, Tsogo Sun and Tsogo Sun Gaming. (Patel has no shares in HCI.)
The union still owns 32.3% of HCI — which HCI says “allows dividends of the company to be distributed in a manner that is directly beneficial” to more than 100,000 union members.
Copelyn, today CEO of HCI, describes Patel as the most dedicated public servant around. “The chances of him getting involved in any arrangement where the smallest fragment of it is his own personal gain are zero,” he tells the FM.
“Apart from being absolutely clean, he is hardworking, industrious and creative. He is a good listener and carries no big ego.”
On the criticism of Patel during the lockdown, Copelyn says all countries have struggled. “Criticising government policies on Covid is the easy part; doing better is the hard part.”
Others are less generous. DA federal council chair Helen Zille has known Patel since university days.
“He is clever and he’s not corrupt, which puts him in a very small league in the ANC.
But he also believes in state control and state capacity,” she says.
Patel, she says, is a micro-manager, and while this works well for him, since he’s smart and capable, others in his department aren’t of the same calibre. “The end result is that things take forever to emerge from his department, and when they do, they’re often incapable of being implemented,” she says.
Another person who knows him well is Grant Pattison. In 2011, Pattison was CEO of Massmart, the owner of Game, Makro and Builders Warehouse, when it received a R16.5bn takeover offer from the world’s largest retailer, Arkansas-based Walmart.
“Patel had just taken over as minister of economic development and, unbeknown to us, the power of oversight for the Competition Commission had moved to him — and he took a different view to his predecessor of how the public interest clause should be used,” Pattison tells the FM.
Immediately, Patel filed legal papers to block Walmart’s takeover, arguing it would be a “risk” to the SA economy, as there was “clear and compelling evidence of probable job losses or deterioration in the working conditions of SA workers”.
It was a smart negotiating tactic. In the end, Walmart agreed to keep all the jobs and create a R240m “supplier development fund” to help small companies. Today, 33 SA companies have used the programme to export products overseas with Walmart’s help.
Pattison says Patel was superbly effective at wringing concessions out of Walmart. “It was an interesting experience to be in a battle with opponents who were honourable, which Ebrahim definitely was. I learnt that it’s possible to disagree with someone, have different interests, but still be able to work with [them].”
Pattison says he’s watched Patel evolve over the years from a hardline unionist to a practical civil servant.
“He understands his support base, but is quite practical about it. It’s a great pleasure to deal with him: he’s a great listener, he’s truthful, he’s on time, he does what he says he will, and he’s straight up and down. I don’t always agree with him, but there’s nothing deceptive about him,” he says.
Clearly, the notion of Patel as a hardline collectivist who’d nationalise your wallet if you left it on the table for long enough is misplaced.
Has his personal ideology changed much over the past two decades?
Patel, in answer, cites a statement credited to British economist John Maynard Keynes who, when asked why his views changed, supposedly replied: “When I find new information I change my mind — what do you do?”
Says Patel: “Anyone who says they have the same view as they had 20 years ago has had no personal growth. My ideals are the same — that we should live in a society that’s fair and equitable, and that we strive to help those who’ve been dealt a weak hand by history.”
He himself wasn’t dealt an especially rich hand. Born into a single-parent family (his mother was a garment worker) Patel grew up on the Cape Flats. Some of his friends in those days, he says, fell into gangs and ended up dealing drugs.
“Many of them could have been great leaders, but it was circumstance. It could have been me. So I want to live in a society where every kid is able to reach their full potential,” he says.
So which economies around the world does he admire?
Four countries come to mind, he says. “Japan provides rich lessons in industrial policy. Sweden represents an interesting example of solidarity that is founded on a model of efficiency. And I liked what I found in Germany, which has an interesting codetermination model where workers are on boards,” he says.
Patel also cites the US, during the Great Depression under Franklin D Roosevelt, as another inspiration. “It’s unfashionable to speak about the US, but Roosevelt was an enormously thoughtful leader. History has softened the edges around him, so he now looks like a saint. If you read, you’ll know he was accused of stacking the Supreme Court. But what he did was recognise that an economic model with so many people in poverty wasn’t sustainable,” he says.
Roosevelt’s is a name that has gained considerable currency in the ANC of late.
President Cyril Ramaphosa has been speaking of Covid-19 as a “wartime” moment, which necessitates a new economic plan. It echoes Roosevelt’s New Deal, which put his government at the centre of the US economy, seeking to create growth and jobs by injecting huge amounts of government spending into building roads, bridges and infrastructure.
ANC statism
In recent weeks, the ANC released a 38page post-covid “economic reconstruction” document, which says: “Covid-19 has shown the critical role of the state. How does the state then leverage its capacity, inherent authority and capability in leading society for the recovery?”
Last week, Ramaphosa reiterated this analysis: “Any postwar situation must be state-led. The state must set policies, give direction, and the state is called upon to look at how the market is functioning and structured.”
It’s a problematic diagnosis since, whenever the state has tried to take the lead in the economy, it’s been an epic disaster. The litany of bankrupt state-owned entities (SOES) like SAA, the Land Bank and Eskom, and credit-ratings downgrades, attest to this.
Critics, including Business Unity SA CEO Cas Coovadia, describe the ANC’S plan as a mix of “old ideology and dogma”.
Patel will be central to giving effect to the ANC’S plans for the economy. So, the FM asks, is this a reversion to a tried-and-failed statist approach, in which the government leads, and the private sector is shunned?
No, he says.
“There is definitely a sense that an oldstyle command-and-control approach by the state isn’t able to achieve the objectives that we need to achieve in the 21st century.
That’s not to say there should be no state ownership — all societies have some degree of state ownership. But even then, why doesn’t one introduce competition between state players?”
When it comes to running companies, the private sector will outrun the government every time, he says. “[But] monopolies tend to become inefficient because there’s no rationale for them to remain efficient. Whether it’s a private monopoly or a public monopoly.”
Competition, he says, is the single-most important energising force that keeps management on their toes: it leads to consequences for bad decisions for those running inefficient enterprises.
Patel cites the example of his Japanese counterpart, who told him: “We don’t make decisions based on ideological propositions; we see what works, and if it does, we expand it … The government [isn’t] hostile to business because they know their job is to promote Japanese business.”
But will that approach resonate with the rest of Patel’s party, which often flights big scary ideas with ominous tones of nationalisation?
For one thing, at the ANC’S December 2017 elective conference at Nasrec, the party resolved to investigate a “new prescribed asset requirement” to ensure a “portion of all financial institutions’ funds be invested in public infrastructure, skills development and job-creation”.
Prescribed assets — forcing pension funds to invest a specific part of their assets in SOES — may be what the leftist forces in the ANC want, but it’s anathema for economists, since it usually obliges pensioners to accept sub-par returns.
Thankfully, it seems the ANC’S new
thinking on pensions is more market-friendly, in that specific infrastructure projects would be created, in which pension funds would be “enticed” to invest.
Patel says the ANC knows the starting point is that you can’t compromise people’s retirement savings. But, he adds, there’s sound logic behind pension funds investing more of their money in infrastructure projects, as happens in many other countries.
“Of course the projects must be sensible: you can’t be squandering pensions where there’s corruption, or on white elephants where there’s no real economic return. But I think we can find a value proposition that works for pension fund managers, and [meets] SA’S long-term infrastructure needs.”
It sounds sensible, but Patel is obviously aware that any “requirement” to invest in state-run projects will spook investors into running a mile.
The state as entrepreneur
Patel may not be hostile to business, but as the Walmart case shows, he has no compunction in intervening where he thinks it’ll create a better “social outcome”.
He says he favours the notion of the “entrepreneurial state”.
If there is a “grandmother” of this idea, it would be Prof Mariana Mazzucato of the University College London.
Mazzucato describes this as a case where a government, “through visionary and strategic public investments, distributed across the innovation chain, can create animal spirits in private businesses”. Countries that have done this — including the US, Israel, Denmark and China — have created remarkable innovation-led growth.
They didn’t just “enable” the private sector, Mazzucato writes; they actively took risks “as an investor of first resort”.
It’s an idea that has SA policymakers swooning: last year, Ramaphosa picked Mazzucato to be on his economic advisory panel.
Patel says Mazzucato hailed the government’s agreement with US soft drink giant Pepsico — which paid R26bn to buy Pioneer Foods, maker of Sasko bread and Ceres juices, in March — as a fine example of the “entrepreneurial state” in action.
“The agreement with Pepsico was a process of bargaining, where you tried to align your interests,” he says. “Mariana described this as a prime example of the entrepreneurial state — a state in partnership with business, but not captured by the narrow interests of any company.”
Pepsico, like Walmart, ended up agreeing to all sorts of things in exchange for the government’s
Zyda Rylands: Patel has shown a willingness to seek different views, engage and consult blessing. This included giving Pioneer employees shares worth R1.6bn, pledging to invest R6.5bn in SA, and committing not to retrench Pioneer’s 10,000 staff.
Patel says even Walmart’s top brass now see their 2012 deal as a template for how things can be done.
“Take one example: there was a small pasta and two-minute noodle company, and Walmart helped [the owner] with the marketing, changed his packaging, which was terrible, and provided some examples of how to improve his supply line. Today, he’s a supplier not just to Walmart, but also to Shoprite Checkers and others.”
Last year, Patel hosted Judith Mckenna, the CEO of Walmart’s international arm. “She told me: ‘We took the agreements imposed on us in SA, and used it as a template for our engagement in India and Chile,’” he says.
Mitchell Slape, who arrived from Walmart to resurrect Massmart last year, tells the FM that his “first priority” when he arrived from the US was to meet Patel.
“I find the minister to be pragmatic and with an intense desire to reinvigorate the SA industrial base,” Slape says. “He’s an excellent listener, supports his perspectives with thorough research and is incredibly well informed about SA’S industrial capacity and opportunities to improve local manufacturing competitiveness.”
Most of all, says Slape, Patel follows through on his commitments.
Patel argues that these sorts of deals achieve a better result for the country. “Conventional wisdom suggests that if one company takes over another, the state should get out the way. But we took the harder road, trying to combine their commercial imperatives with a developing country’s needs and interests,” he says.
Pattison says Patel’s intervention in the Walmart deal may have marginally damaged SA’S investment reputation at the time, but it hasn’t stopped other foreign companies, like
Pepsico and beer giant AB Inbev, from launching takeover offers.
“It was probably a good thing in the end,” he says. “Look, I don’t think governments should get involved in transactions, but it’s probably good that there are laws available to assign some power in the equation to the voiceless. As someone doing a transaction, it forces you to think wider, and consider the impact on the broader society.”
Patel says he’d prefer to use as little regulation as possible. He cites the way in which the government worked with food retailers during Covid-19 to ensure people didn’t panic about shops running out of food.
“We met with the top five or six retailers, and discussed how to maintain the food supply. We needed to limit panic buying or it would have created a vicious cycle of empty shelves … we could have issued directions limiting the amount of food that could be sold, but I was convinced the retailers had the commitment and the instruments to [handle this],” he says. This, he says, is an example of “where it makes enormous sense for government to act as an enabler, without having to come in with a battery of regulations and harder measures”.
The CEOS responded well. Woolworths SA CEO Zyda Rylands tells the FM that Patel has shown a “willingness to seek different views, engage and consult”; Pick n Pay CEO Richard Brasher describes the talks with him as “constructive and sensible”; while Truworths CEO Michael Mark says he was “extraordinarily impressed” with Patel’s handling of the notorious clothing rules.
Post-covid revival
Yet there are some harder questions to be asked of Patel’s stewardship. The fact is, he was economic development minister from 2009 until the department was folded into trade & industry in 2019. That was a decade in which SA’S economy imploded.
You could lay most of the blame on former president Jacob Zuma. But the fact is, in 2010, Patel’s department promised to create 5-million jobs by 2020 under a “new growth plan”. And it failed.
The Quarterly Labour Force figures, released this week, show that there are now 16.3-million employed South Africans — which is 2.7-million more than there were in 2010 when the promise was made; but the problem is that the workforce has grown by 5.1-million people in that time.
How does Patel reconcile this?
“Well, there was more than one reason we didn’t achieve it,” he says. “One of the biggest constraints was that the state was unable to do the things that a dynamic, efficient state would do since so many resources were sucked out of it. It wasn’t just the money — though that was enormous. It was also the loss of vision, because state capture did what any corruption does, it distorts decision-making.”
Patel also toed the party line in supporting Zuma. Yet in 2017, when Zuma was still president, Patel released a study which calculated that state capture and corruption were costing SA R27bn and 70,000 jobs every year. It was a contentious thing to do at a time when the president denied there was such a thing as “state capture”.
“Today, we know far more about the capacity challenges and constraints in the state at that time,” says Patel. “I think what President Ramaphosa has been able to do is open up the space for the kind of partnerships that the new growth path envisaged, but at the time, it couldn’t be pulled off.”
But will it ever happen? Or will the ANC’S new economic policy simply lay the ground for more intervention, more rules and more cash-guzzling failing SOES?
No, says Patel. “A state that relies on a toolbox of regulation as the one and only answer is going to be one that creates a very rigid economy.”
The real issue, he says, is what to do about an expanded need from citizens for services in a post-covid world, with the state’s limited capacity.
The answer, for Patel, doesn’t lie in the state taking the lead, but in more partnerships with private-sector companies.
“The private sector has enormous experience in making judgment calls every day about what customers will buy, and where they source their goods. If they get these judgment calls wrong, they suffer huge punishment. Out of that experience, there’s an enormous insight,” he says.
Patel, contrary to the caricature, realises the value of this insight. Which is more than you can say about everyone in his party.