If the billionaires of Wall Street and Silicon Valley can mismanage the economy the way the present American administration is mismanaging the United States economy, spare a thought for the former refugees and Robben Island prisoners trying to manage the South African economy.
In his Daily Friend article last week, “The perfect storm destroying business confidence”, Jonathan Katzenellenbogen chronicles why multinational corporations are upping sticks and leaving South Africa. He goes into some detail on how the South African economy has got into a tailspin as a result of ill-advised policies of the African National Congress (ANC) government.
This article, while educational, is however one-sided in that it does not address the collusion of sections of big business with the ANC government during the last 30 years in undermining the economy of South Africa.
From the middle of the 1980s big business started preparing for the exit of the apartheid regime and its replacement by a democratic, predominantly African-led government. Big business came up with two primary strategies.
Strategy #1 was to move the primary listing and head offices of some of its companies to the London Stock Exchange. Strategy #2 was to co-opt the leaders of the anti-apartheid struggle through what has come to be known as Black Economic Empowerment (BEE).
Soon after South Africa held its first democratic elections in 1994 a steady stream of leading South African companies moved from South Africa to London. Among these were Anglo American Corporation, South African Breweries, Dimension Data, Billiton and Old Mutual.
The front runner in the implementation of the BEE strategy was Sanlam and its specially created subsidiary, Sankorp. The implementation of BEE was driven by Marinus Daling, Sanlam Chairman, and Attie du Plessis, Sankop Executive Director.
In 1993 Sanlam created a black-owned company called New African Investments Limited (NAIL) whose leading shareholders were Dr Ntatho Motlana, Advocate Dikgang Moseneke, Ambassador Franklin Sonn, Dr Sam Motsuenyane, President Cyril Ramaphosa, Jonty Sandler, Zwelakhe Sisulu and Saki Macozoma, among other leaders of the liberation struggle.
Minority shareholding structure
A subsidiary of Sanlam’s, Metropolitan Life (MetLife), which was listed on its own at the Johannesburg Stock Exchange (JSE), created a minority shareholding structure whose shares were sold to NAIL. Since the black shareholders of NAIL had no money with which to buy the minority shares, Sanlam arranged with the state-owned Industrial Development Corporation (IDC) to lend money to NAIL to pay for its shares in MetLife.
As the loans from IDC were underwritten by MetLife, it meant NAIL shareholders became instant millionaires without taking any risks. Money for jam, a BEE practitioner called it.
What was the purpose of this convoluted financial transaction?
It was to buy the partnership of the African leaders of the incoming democratic government, so they became allies of big business and not interfere with its modus operandi. This meant that there would be no nationalisation of the economy as called for in the following section of the Freedom Charter:
- The national wealth of our country, the heritage of South Africans, shall be restored to the people;
- The mineral wealth beneath the soil, the Banks and monopoly industry shall be transferred to the ownership of the people as a whole.
Leaders of the new democratic government have indeed kept to their part of the bargain.
South African big businesses that felt insecure under a democratic government were permitted to move their listing to London. The businesses that choose to remain entered into share transfer deals that benefited members of the new ruling elite.
This was a win-win formula for sections of big business as well as for the new ruling elite who proceeded to top up their free BEE shareholdings with fabulous salaries in the public sector and a bit of corruption through what came to be colourfully known as State Capture.
Unholy alliance
But who were the casualties of the unholy alliance? It was firstly the vast majority of the people of South Africa who are today locked in poverty and unemployment. Secondly it was the economy of South Africa, which has been stagnating for many years, stuck in the doldrums due to lack of investment.
Black Economic Empowerment, while it has enriched a few, has caused enormous damage to the social fabric of the country. It has excluded Indians and Coloureds in many activities of the state and the private sector. It has been the major driver of corruption in democratic South Africa. It created a class of black middlemen who became runners for white and foreign business. They are popularly known as tenderpreneurs.
Did the new political leaders of South Africa know what damage BEE would do to the country when it was sold to them by big business?
Did they know what damage would be caused to the economy by allowing South Africa’s premier companies to migrate to London?
A few years ago an Australian mining company, BHP, swallowed up a South African mining company, Billiton, that had migrated to the London Stock Exchange. When BHP Billiton tried to move its primary listing from Sydney to London it was vetoed by the Australian government; BHP Billiton only has a secondary listing in London.
What did the Australian government know that the South African government did not know when allowing South African companies to move their primary listings to the London Stock Exchange?
Hollowing out
The Australians knew that it would lead to the hollowing out of their stock exchange as happened to the JSE and to the loss of many skills with migration to London of the head offices of South African London-listed companies. 44 Main Street, Marshalltown Johannesburg, once the head office of Anglo and therefore the premier business address in Africa, is today described as “a mixed-use public space for youth, culture, and arts, with a focus on skills development and community events”.
In Anglo’s recent merger with a Canadian company, Teck Resources, Canadians have demanded that the head office of the merged company be moved to Vancouver. They have also demanded that the merged company invests C$ 4.5 billion over five years in Canada. South Africa gets nothing despite the Public Investment Corporation (PIC) being the single largest shareholder in Anglo.
Canadian Industry Minister Melanie Joly said: “It’s my responsibility to make sure that foreign direct investment supports our national economic and security interests and are of net benefit to Canada.”
All that her South African counterpart, David Masondo, PIC Chair and Deputy Finance Minister of South Africa, said was: “The two companies have made commitments to both the South Africa and Canadian jurisdictions regarding investments that will have a positive impact for those societies.” He mentioned no investment numbers.
The Canadian minister proceeded to explain that foreign take-overs of mining companies in Canada were closely scrutinised by the Canadian government to ensure that employment and investment opportunities from the proposed deals were made in Canada. The opposite happens in South Africa.
Beneficiated in China
Recently a Chinese company bought control of Samancor, one of the leading chrome mining companies in the country. Since then, more than 70% of chrome ore mined in South Africa is being beneficiated in China.
This has led to the closure of 10 ferro-chrome smelters during the last four years resulting in the loss of 1,800 jobs, according to Merafe-Glencore joint venture.
What all this tells us is that the new political elite have been making economic decisions from a position of ignorance that have led to massive damage to the country’s economy.
[Image: toodlingstudio from Pixabay]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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