In December last year, at their elective conference, the National Union of Mineworkers (Numsa) released a report which stated that “real fixed capital formation” (Gross fixed capital formation – which refers to the net increase in physical assets (investment minus disposals) within the measurement period, fell steadily since 2012, which can be attributed to a decline in private sector investment.
MLUNGISI MTSHALI argues that the private sector and the investment community have never had confidence in SA’s democratically-elected government and have been reluctant to invest even when the economy was booming.
On 10 September 2004, the then President Thabo Mbeki lashed out at Tony Trahar, who was at the time the Anglo American’s chief executive officer, on his remarks about the persistent political risk in the country which led to Anglo American listing at the London Stock Exchange.
“The reality is that business people in our country have never had it so good,” Mbeki said at the time. “It has therefore been difficult to understand why important business people would continue to hold and communicate negative views about our country.”
Mbeki also questioned Anglo’s decision, and that of several other South African companies, who had sought a London or New York listing right when our economy was growing at above 4.5%. “What information does [Anglo] have, that say that there is a persisting political risk in our country, on which Anglo American must base its decisions about its future?”, Mbeki asked.
Mbeki’s frustration had been born out of the prevailing reality that South Africa’s economic growth, for every single year from 1999, exceeded the three per cent average growth rate and by 2004, the economy was growing by over 4.5 per cent every year, up to 2007. This was the first time in South Africa’s history that we had four successive years of growth above 4.5 per cent.
And yet, a year before 2003, Mbeki had also lambasted Sasol of “bad-mouthing” Black Economic Empowerment (BEE), South Africa’s attempt to redress its racially skewed economy. Mbeki’s attack came after Sasol labelled BEE as a potential risk factor in a routine filing to the New York Stock Exchange.
This frustration was not only a Mbeki frustration but of the entire government that had done everything to put in place the best infrastructure and business friendly policies for an unprecedented growth trajectory in the country. Five years earlier, around 1999, the then Finance Minister Trevor Manuel had also been perturbed , expressing his frustration that ‘Sometimes us in government, wonder whether our business people, our own people, believe enough in our country”.
Even trade federation union COSATU had rebuked business at the time, saying, ‘Local business has been slow in investing in South Africa, embarking on an investment strike, and when foreign investors see this they are also reluctant to invest following the cue of local business’.
All these surprising business sentiments and investment boycotts were happening when government had clear business friendly policies, lower taxes, a reduced budget deficit, steady removal of trade controls, privatization of state companies and a drop in inflation. The government had been able to even roll back labour laws in order to prevent labour discrimination in the work place. Government had not introduced basic net income for those left destitute by liberal policies and made the firing and hiring of workers flexible.
Author Mark Gevisser, well-known for penning former President Thabo Mbeki’s autobiography, cited that even the very promise of investing in an arms deal were alluring indeed – an amount in the region of R104 billion pledged in investment, creating an estimated 65 000 jobs. Put it on a balance sheet, and how could you say no – particularly given the investment strike South Africa seemed to be facing everywhere else, and the subsequent macroeconomic crisis?
Long before government established industry-specific charters that generally mandated that 25 per cent black ownership be achieved, business was already seeing the very idea of a black government a risk to their business interests. The white business class, it was supposed, will never be friendly to the new South Africa.
Over the years, these sentiments have only gotten worse and the mischievous thing today is that the very same business is telling us of the good times that the country had before 2007. Today, we are supposed to believe business when it tells us that government is putting the economy through the worst turmoil through bad decisions and uncertainty. This however has been their song for 23 years. At the time business was producing multi-millionaires and record profits, those profits were shipped offshore instead of being invested in the country and today business people and their paid experts are creating history from a whole cloth, – that of a business community which invested in the country prior to 2007, business that is now reluctant because of economic uncertainty. Who is fooling who?
It is now September 2017 and SA’s corporate sector is sitting on more than R1 trillion in cash reserves. Yet fixed investment is barely growing and firms continue to shift their investments and operations abroad.
New research by the University of Johannesburg’s Centre for Competition Regulation & Economic Development (CCRED) shows that the cash reserves of the JSE’s top 50 companies (excluding dual-or multilisted entities) rose to R1.4 trillion last year from R242bn in 2005.
The oxymoron of companies making money in South Africa and then sitting on their profits citing that its risky to invest is an abuse of the country’s business friendly policies and its people. The lack of investment, however, doesn’t mean private companies are not profitable. In two recent reports of the International Monetary Fund (IMF) analyzing emerging market economies, South Africa’s corporations had higher profits than other comparable countries.
“Four years later, in 2012, South Africa’s financiers were more profitable than any others, aside from Brazilian and Argentine banks, while for non-financial corporations, only Indonesia and India had more profitable firms,” Numsa’s report said.
What are today’s version of excuses?
It is said that those who control capital allocation see little attraction in geographies where returns are low and the risk of loss is high and in this regard, South Africa fits the profile. This was not true then, it is not true now.
Today we are told that investors are put off from investing in a stagnating economy. This is also compounded by further delays in passing business regulations and the then impasse between President Jacob Zuma and the then Finance Minister Pravin Gordhan as compounding investors unease. We have been looking at excuses for 23 years and we can always find more.
The conclusion that can be made out of this business obfuscation and gamesmanship is that not only has South African business never believed in a black government but they have never wanted it to succeed. They were surprised then, and reluctantly participated because there was money to be made. Today, with obvious government mistakes, they have been buoyed in their long held views of political risks. We have been fooled too long.
Something has to give!
Mlungisi Mtshali is a social activist and politics commentator