Some positive signals improve outlook

Investors and other South Africa watchers should feel a lot more comfortable about the country following a number of recent domestic developments. Not only has the ruling African National Congress (ANC) taken strong action against its hitherto uncontrollable Youth League leader Julius Malema, the main proponent of a populist demand for nationalisation and seizure of property, but a number of other concurrent developments of note have also taken place.

Zuma recaptures initiative

While the outcome of the disciplinary hearing of Malema and other ANC Youth League (ANCYL) leaders – with Malema being suspended for 5 years – probably will not end internal factionalism and power struggles in the ANC, it is  likely to bring a considerable calming of the waters, restoring President Jacob Zuma and the ANC’s top leadership’s position of strength and control. That alone is a good sign.

Following months of being accused of not showing leadership and avoiding difficult decisions, Zuma as reported last week with a number of bold moves (including a commission of inquiry  and changes in key appointments) grabbed back the initiative.

While there may arguably have been other factors that also played a role in Zuma’s moves,  the sum total of it all is that he finds himself in the strongest possible political and moral position within the ANC just as the party goes into its celebratory centenary year which culminates in the elective national conference.

Manuel’s bold new plan

At the same time – and almost lost in the hype surrounding Malema – National Planning Minister Trevor Manuel unveiled his bold new National Development Plan (NDP) last week. The plan focuses strongly on reducing poverty and inequality and creating jobs, but at the same time is business and investment friendly.

It encourages business investment with a view to creating 11-million new jobs and eradicating poverty by 2030. As part of the recipe to achieve this it proposes things such as relaxing some labour regulations to encourage companies to employ people more easily and to introduce lower entry-level wages to boost youth employment.

While the document does not lose sight of South Africa’s massive social and developmental challenges, it does offer a positive counter-balance to the New Growth Path (NGP) unveiled by the more socialist-leaning, labour-aligned Economic Development Minister, Ebrahim Patel, last year.

As such Manuel’s NDP takes the edge off some of the less well-received aspects of Patel’s NGP in that it offers a more business-friendly, pragmatic and broad-based approach to SA’s various challenges.

However, Manuel was quick to point out that it is not a competing programme, but rather a long-term extension of the proposals contained in the NGP. In the past the two ministries have been played off against each other as being rivals fighting for policy dominance in the Zuma government, a charge both ministers have been careful to disprove.

While it is likely to meet with some resistance from labour unions affiliated to the ANC-aligned Congress of SA Trade Unions (Cosatu), other labour formations, such as the non-aligned Federation of Unions of South Africa (Fedusa), the second largest labour federation in SA, as well as business leaders and investors have and are likely to react positively to Manuel’s NDP.

Anti-nationalisation signals

Following the damage caused by Malema’s wild demands for nationalisation of mines and other key economic assets and for seizing white-owned land without compensation, leaders across the governing alliance have been at pains lately to undo the damage and facilitate a return of confidence in SA.

Firstly, the judgment in the hearings of Malema and other Youth League leaders pointed out the harm done to SA’s image with statements and activities of Malema and others that were charged, both in economic and diplomatic terms.

At the launch of Manuel’s NDP, both Manuel and the National Planning Commission’s deputy chairman, Cyril Ramaphosa, referred to the damaging effect of the nationalisation debate and emphasised the importance of establishing clarity in property rights.

This positive signal from senior political leaders in the ruling fold was reinforced last week when the president of the Cosatu-affiliated National Union of Mineworkers (NUM), Senzeni Zokwana, warned that the nationalisation debate was causing confusion and nervousness and was causing loss of investment. He said he hoped the findings of the current ANC research into nationalisation and related models in other countries, expected to be released in a report later this year, will bring certainty.

With these remarks Zokwana joined Mark Cutifani, chief executive of Johannesburg-based AngloGold Ashanti, the world’s third-biggest gold miner, who recently told the Mining for Change Seminar 2011 that the use of “nationalisation” as a concept without clarity was scaring off investors.

And at Fedusa’s recent national congress Leon Louw of the Free Market Foundation said nationalisation had failed everywhere else, while Fedusa’s deputy president, Koos Bezuidenhout called for "more research, more debate and more people" to get involved in reaching a common position.

The sum total of these developments is that those closely watching political developments in South Africa and how they impact on the economy and on the investment sphere, should be encouraged to see the emergence of much stronger cautioning against wild demands for nationalisation and flouting of property rights and, most importantly, that these are also coming from within the governing alliance.

Gordhan reassures investors

Meanwhile Finance Minister Pravin Gordhan also added further content to this positive message to investors and markets, promising greater legal certainty for foreign direct investors in South Africa within the next year. Gordhan told the annual general meeting of Business Unity SA that within a year there would be a clear legal framework within which FDI can operate, adding that this would "give foreign investors a clear and consistent picture within which to work".

Although not making any direct comment, Gordhan’s remarks are believed to have been made in light of confusion created by the government's recent response to US retail giant Walmart's R16.5-billion takeover of local retailer Massmart.

All in all then this has been the most positive period in a very long time for investors and others watching South Africa as far as reassurance of government policy, creating certainty for investors, and undoing the damage caused by wild populist rhetoric is concerned.