Corporate SA cannot remain aloof from country’s challenges

Had the ambitions of the South African president and his inner circle not reached as far as capturing the Treasury two years or so ago starting with the ouster of its minister, I wonder whether we would know as much as we do now about the level of decay in the relationship between the private and public sectors. Up until that moment, big business for the most part had shrugged off the ever-increasing difficulties of doing business in a country where choosing the right “middle-man” was fast becoming the way to gain the competitive edge, especially if your business faced some or other regulatory burden. There was nothing for big business to really fret about until it became clear that there was an elaborate plan to capture the Treasury and the institutions it controls, the South African Revenue Service and the Public Investment Corporation.

Until that moment of clarity upon the ouster of Nhlanhla Nene, for corporate SA the idea of sinking capital into South Africa — and, to be fair, other emerging markets — in the middle of 2013 was not something their investors, many of them international, deemed to be a good enough strategy. This was except for retailers and mall developers who had already done so years earlier at the height of developed market crises such as the European sovereign debt impasse, which threatened the very future of the euro.

South African mining, perhaps most disposed to the regulatory paperwork of the state, was not really interested in sinking more shafts in the country in any case. Low metal prices had suppressed appetite, and poor labour relations prompted jittery investors to pressure CEOs into seeking growth opportunities outside the country and the continent. It’s understandable that Sibanye Gold, supposedly the

“national champion”, would buy an American platinum mine.

I write the midpoint of 2013, because it was then that the US Federal

Reserve signalled to the world that the era of cheap money, quantitative easing, was at an end, setting off what is commonly termed the “taper tantrum”. From that moment everything was repriced, the more savvy investors had a closer inspection of emerging-market risk and events such as the Marikana tragedy of a year earlier bore greater weight.

If South Africa’s major corporates were on an investment strike, it’s this change in sentiment that really cemented it. I can just imagine that for black business, the situation was much worse. And that’s even for those who at the dawn of the Jacob Zuma presidency had tried to cosy themselves up to the seat of power in the Union Buildings, or rather Nkandla. In the early years of Zuma’s administration it was becoming rather clear that building a black industrialist class through spending by major state-owned enterprises was mere sloganeering.

The private sector, which still had a booming stock market to count on, ensured that it kept its head above water by focusing on cost-cutting or as it has been termed, an MBA-inspired management style. Earnings rose, not on nuts and bolts growth of the real economy, but by keeping costs low. It would ride the storm of low growth and negative sentiment on EM markets until conditions improved, not for one second attending to the political developments on the ground. The likes of global consultancy firm McKinsey, auditors KPMG and PR firm Bell Pottinger played to the new rules of corporate SA. And seeming to do so too were blue-chip giants such as Naspers, exposed this week, and Gold Fields.

In their boardrooms, I am pretty sure it was all blown off as an ugly truth of operating in Zuma’s country, clearly inspired by Angola. But that was until that fateful December evening. Only then did they realise just how invested they were in the proper functioning of the country. CEO initiatives were created in haste to deal with a delinquent president, more than any rating downgrade threat.

I now wonder what state we would have been in if corporate SA had not been divorced from the politics of the land all along. If it had raised red flags much earlier, instead of profiting from the greed of the morally bankrupt, would the cancer have spread so far and wide?

The raid on the Treasury definitely woke them and all of us to the rot. From here on, whoever takes over Luthuli House and the Union Buildings in 18 months, I can only hope corporate SA remains engaged with the structural issues of this country, such as transformation. It’s been proven that left on its own the state can’t. And that’s even if an unpopular candidate wins this month, which is a real possibility.

If it had raised flags earlier would the cancer have spread so far?