MANDELA'S ECONOMIC LEGACY

JSE halts trade in tribute to Mandela

AS SOUTH Africa ground to a halt after the death of Nelson Mandela, the JSE followed suit.

In an unprecedented move, the local bourse stopped trading temporarily at 11am for five minutes to pay respect to the country’s most celebrated son.

Nicky Newton-King, the CEO of the JSE, said the only other time the bourse stopped trading was back in 1994 when Mandela walked onto the exchange’s trading floor.

“We didn’t really need to halt the market that day — it did by itself, because people are so in awe of the man,” Newton-King said.

After the markets resumed trade there were some winners such as Nampak (2.6%), Grindrod (2.6%) and Remgro (2.11%), which offset the losses of companies like Caxton, Assore and Brait.

The JSE’s All Share index gained half a percentage point, close to its record high of 45 000 points.

The rand, perhaps the best indicator of the mood of for- eign investors, showed no major reaction to Mandela’s death. It was at R10.30 to the dollar, down only 1% from the previous day.

Analysts said markets were focused on the release of US payroll figures.

It has long been speculated that Mandela’s death would spark a flurry of stock market activity. But the market’s behaviour was no different from any other day.

Cannon Asset Management CEO Geoff Blount said Mandela had largely ceased to be a factor in market economics.

“This is possibly Madiba’s great legacy: how he engi- neered his withdrawal from the country’s governance. This is the ultimate in succession planning,” Blount said.

“[The] economy is driven by policy and the current government. The course is set.”

Nadim Mohamed, equity analyst at First Avenue Investment Management, said the news was “much expected”.

“If the market had reacted, it would have been lower. Instead it was higher, so there’s no indication [of] any effect.”

NELSON Mandela, South Africa’s first democratically elected president, had limited understanding of the business and financial world.

This was evident in the speech shortly after coming out of prison when he called for the nationalisation of mines, banks and other monopoly industries.

Nationalisation, he said, was “the policy of the ANC, and a change or modification of our views in this regard is inconceivable”.

Mandela’s speech was made three months after the Berlin Wall was knocked down, as the building blocks of socialism and communism were slowly crumbling.

Madiba, and the ANC, were both caught in a time-warp, says Econometrix chief economist Dr Azar Jammine. The business community did not take him seriously at the time, Jammine recalls.

Due to give a speech to the World Economic Forum in 1991, there was hasty behind-the-scenes panic when it was discovered that Mandela’s speech was crafted using traditional socialist rhetoric. Tito Mboweni, later to become the labour minister in Mandela’s cabinet and then the Reserve Bank governor, hastily rewrote the speech, which was then delivered.

“Mboweni had to say as little as possible while appearing to say more, without offending anyone,” as Alan Hirsh noted in his book Season of Hope: Economic Reform Under Man- dela and Mbeki.

A year later in Davos, Mandela was less unambiguous, Hirsh said, as he spoke about “mixed economies”.

Mandela once told Investec CEO Stephen Koseff that he changed his views on nationalisation after world leaders and the international business community expressed concerns about his speech at that World Economic Forum event.

Mandela revealed privately to Koseff that he had to lobby his party to alter their position.

Just before Mandela became president in 1994, he told Jammine that the ANC government will increase public spending to uplift the communities but soon “reality hit home”.

“They (ANC) realised that they could not do whatever they wanted but stick within a certain budget,” said Jammine.

Independent political economist analyst Nic Borain concurs, pointing out that Mandela and the ANC learnt quickly that they had to compromise.

This despite the fact that Mandela was “quite grand and authoritarian” — he was, after all, a qualified lawyer, and not an economist.

Borain believes that as a result of the precedent that Mandela set, the leaders who came after him were more consultative with the business community as they warmed up to world’s economic changes.

Slowly, the socialist rhetoric ebbed, as the ANC knuckled down to running a country moulded into a capitalist framework.

The ANC formed the Macro-Eco- nomic Research Group to study modern day economics and financial practices, while Mandela appointed “technocrats” like Christo Liebenberg as minister for finance, from 1994 to 1996. Trevor Manuel, who served as finance minister from 1996 to 2009, was his appointment too.

Thabo Mbeki, who acted like a prime minister during his predecessor’s reign, was generally more astute when it came to how the financial world worked, so Mandela left much of the country’s financial matters to him.

Wayne McCurrie, the head of portfolio management at Momentum Wealth, said that ever since the ANC took over power in 1994, it managed the macroeconomic environment better than expected.

This doesn’t placate Mandela’s critics, who repeat their rhetoric that he “sold out” black people, and that he made “too many compromises to white capital”.

Borain responds by pointing out that compromises were made by everyone, in order to make the country work. “Unfortunately he represented those compromises ... but those compromises made our democracy possible. The idea that we were never going to re-visit those compromises were wrong,” he said.

Economically, the challenges faced by Mandela’s administration included a stagnant economy with high and rising unemployment, high inequality between and within the different race groups, and widespread poverty.

Just to spice up the environment even more, South Africa remained a violent and polarised society, according to the Electoral Institute for Sustainable Democracy in Africa.

To tackle these problems, Mandela’s government first announced its Reconstruction and Development Programme (RDP) which, though vague on details, was essentially social democratic in orientation and aimed at empowering the poor.

Then in 1996, after a sharp plunge in the value of the rand, the government abandoned the RDP in favour of a new policy called GEAR (Growth, Employment, and Redistribution) that aimed at creating jobs through a structural reform of the economy, trade liberalisation privatisation and the attraction of foreign investment.

But the new rainbow-nation found itself feeling the ripple effect of the Asian financial crisis when growth and investment rates plummeted.

Short-term investors had lost confidence in emerging countries. This led to massive capital outflows in 1998, along with a 16% decline in the rand’s value. Meanwhile, the South African Reserve Bank did all it could to reduce inflation from 9.9% in 1993 before the ANC came into power to the level of 6.9% in 1998, when Mandela stepped down.

Not everyone was impressed. Critics moaned that the Reserve Bank’s focus on curbing inflation, as well as sudden trade liberalisation, inflamed unemployment in the country.

At the time, though, the priorities of Madiba’s administration were to stabilise the economy, keep inflation in check, retain foreign investment and chart an economic philosophy to govern the country’s new dispensation. Hefty economic problems remain — and none of Mandela’s successors have been able to deal decisively with the employment problem — but at least when it comes to steadying the rudder of the ship, Madiba’s tenure was a success.