The day after the U.S. Presidential election last November, the satirical weekly The Onion led with the headline “Black Man Gets Nation’s Worst Job”. The July 12 lead article in the South African non-satirical weekly, The Mail & Guardian, makes it clear that Barack Obama has no reason to envy South African President Jacob Zuma.
A senior member of President Zuma’s Executive Council recently threw cold water on demands to nationalize the country’s mining industry. “Our key strategic agenda at the moment is to maintain the infrastructure development and grow the economy to create decent jobs,” the executive member said. “Nationalization is definitely not on the agenda.”
This came less than a week after ANC Youth League President Julius Malema called on President Zuma to fast-track implementation of the so-called Freedom Charter, which calls for transfer of the nation’s mineral wealth to the people.
Mr. Malema, famous for his incendiary comments, is perhaps best known for having said:
We are ready to die for Zuma…Not only that, we are prepared to take up arms and kill for Zuma.
Since then, he has criticized the Zuma administration incessantly for failing to enact the radical agenda embraced by many ANC rank and file members.
Mzolisi Diliza, boss of the South African Chamber of Mines, which represents the mining companies, has said that in the current economic crisis the government is unlikely to consider calls to nationalize key economic assets, pointing out that the mining industry alone is worth more than R2-trillion ($250 billion).
Though Mr. Diliza represents powerful economic interests, and happens to be right, his statement may not reflect majority opinion.
David Masonda, Chairman of the Young Communist League (the Communists are part of the ruling ANC coalition, along with COSATU, the Congress of South African Trade Unions), has attacked the ANC’s approach to nationalization of the mining industry, saying:
The Mineral and Petroleum Resources Development Act is not nationalization. It is essentially a tool to transfer mining equity from the white elite to the black elite by the state elite.
There is a lot of truth to this statement. The ANC’s Black Empowerment policies have enriched a small number of well-connected black businessmen and political figures, while doing little to improve the lot of poor, mainly black, South Africans.
But Mr. Masonda then veers sharply leftward:
This is the most appropriate time to nationalize the mines and banks. This will ensure that the state does not depend solely on the whims of private individuals to generate funds for its industrial strategy and social programs such as free education…Our mines must be transferred back to us without any compensation. Business has no moral authority whatsoever to claim a cent for transferring what belongs to the people. And if they refuse to hand over these mines, they must be forced to do so.
When asked if calls for nationalization would chase investors away, Chairman Masonda said,
Investment for what and for whom? Investors must invest on our own terms and we must have control over the dividends of our work and resources.
These criticisms must sting Mr. Zuma, whose campaign theme song was “Bring Me My Machine Gun,” and who initially based his presidential campaign on opposition to the previous ANC government’s accommodation of business interests and failure to provide jobs and housing for the masses.
But Jacob Zuma, for all his legal problems, corruption allegations, and populist rhetoric, is nothing if not a shrewd politician. Later in his campaign he sounded much more conciliatory towards the business community, and after his election he named a Cabinet that promised no radical shift from existing economic and social policies.
There is no saying what Mr. Zuma truly believes, but he seems to have realized it would be both political and economic suicide to follow the prescriptions of his communist and syndicalist allies.
The real question is whether – and for how long – the center can hold. I don’t see South Africa following Zimbabwe’s path to self-destruction. A lot can change in the next 10 years, but I would be astounded if Mr. Zuma, even if he serves two full terms as President, trying to amend the Constitution to allow himself a third term, and even more astonished if he were able to muster enough votes to do so. Nationalization of mines, banks, or any other important sector is highly unlikely.
Government introduced a bill in 2002, proposing to impose mineral royalties for the first time, but seven years later royalties legislation is still being debated in Parliament and discussed with the Chamber of Mines. It is almost certain that any law ultimately passed will be something both sides can live with.
South Africa, which has an open and dynamic financial sector and a diversified industrial and service economy far less dependent on mining than 20 years ago, saw GDP growth fall from over 5% in 2007 to 3.1% in 2008. This year’s forecast growth is 1.1%, but the economy is expected to rebound to around 3.5% in 2010.
Not great, and not enough to turn South Africa from a middling-poor country into a nearly rich one, but not bad in the current circumstances.
My best guess is that South Africa will continue to be the financial and economic hub for most of Africa that rule of law will prevail, and that business and government will continue to work things out in a reasonably amicable and satisfactory way. Much like Obama’s America, come to think of it.
It may be far from optimal, but it’s probably not bad enough to scare away investors in any significant way.
Disclosure: I don’t directly own shares in any South African companies but I do own shares in the T. Rowe Price Africa and Middle East Fund (MUTF:TRAMX) and in Market Vectors Africa Index ETF (NYSEARCA:AFK).