South Africa’s ruling African National Congress has jilted its long-standing labor union allies and is courting business leaders to help it rescue an economy teetering on the brink of a recession and a downgrade of the nation’s credit rating to junk.
Union leaders were conspicuous by their absence at meetings convened since late January by President Jacob Zuma and Finance Minister Pravin Gordhan with chief executive officers to discuss ways to shore up investor confidence and revive growth. Zuma then drew the unions’ ire when he announced plans in his February 11 state-of-the-nation address to trim state spending and review several laws to make it easier to do business. Gordhan met again on Monday with CEOs to discuss how to stimulate the economy.
Business and government “are certainly talking in a very real and candid way,” Ralph Mupita, chief executive officer of insurer Old Mutual Plc’s emerging markets business, said by phone on Monday. “We are very heartened by what we heard in the state-of-the-nation address.”
Since it took power with Nelson Mandela’s presidency in 1994, the ANC has been torn between trying to appease investors and unions, while giving the black majority that was discriminated against under apartheid a bigger stake in the economy and better access to health, education and welfare grants. Business leaders have long complained that the resultant policy mix has eroded the nation’s competitiveness, pushed up costs and fomented uncertainty.
Disenchantment among executives with Zuma’s stewardship of Africa’s most industrialized economy peaked in December last year, when he named little-known lawmaker David van Rooyen as his finance minister and drove the rand to a record low.
After business leaders met with senior ANC officials, the president backtracked four days later and appointed Gordhan to the post, which he had held from 2009 to 2014. While it’s too soon to tell whether companies will secure major policy concessions in return for investing more and creating jobs, the CEOs’ recent dialogue with the government has been the most constructive in years, according to Cas Coovadia, head of the Banking Association of South Africa, whose members include Standard Bank Group Ltd. and the local unit of Barclays Plc.
“Developments forced us to focus our mind,” he said. “If we keep the momentum and force each other to be accountable, it can work.”
The government’s embrace of business comes just months before the country is due to due to hold local government elections and has angered its biggest ally, the 1.8 million- member Congress of South African Trade Unions.
Backing from the union federation has underpinned the ANC’s dominance of South African politics since 1994, and a rift could undermine its efforts to retain control of several towns, including Pretoria, the capital, in local elections scheduled to be held between May and August.
“We think big business is using the economic downturn as an excuse to erode some of the progress and policies adopted by the ANC,” Cosatu spokesman Sizwe Pamla said by phone. “We are very concerned about the meetings between the president and business. Most of the proposals coming out of there we actually oppose. Government will find itself on a collision course with its own constituency.”
The ANC’s aim is to mitigate the impact of slowing economic growth, said party spokesman Zizi Kodwa, who declined to comment on the meetings between business and the government.
Recent regulatory measures that have antagonized companies include draft laws that will enable the state to expropriate property without paying market-related compensation and force all private security companies to be locally controlled. Mining companies have also accused the government of unfairly changing rules that compel them to sell stakes to black investors.
Policy uncertainty meant South African companies hoarded record amounts of cash last year instead of investing, according to Stanlib Asset Management, the country’s third-largest domestic mutual fund manager.
Moody’s Investors Services cut the outlook on South Africa’s Baa2 credit rating, the second-lowest investment grade, to negative in December, citing concerns about slowing growth and rising government debt. Standard & Poor’s, which ranks the nation’s debt one level below Moody’s, also changed its outlook to negative, indicating a possible downgrade to junk.
Gordhan is set to provide details of the government’s plans to shore up the economy when he delivers his budget address on Feb. 24.
Yet if the Zuma administration is to carry out meaningful reform, it needs the unions, according to Gary van Staden, a political analyst at NKC Independent Economists, which is based in Paarl, near Cape Town.
“It’s a difficult and dangerous thing to start talking to one party and leave the other one out,” he said by phone.
Engagement with the unions will probably begin after the budget, according to Old Mutual’s Mupita, who’s playing a lead role in formulating business’ proposals to fix the economy.
“The ideas are there, now it’s about implementation,” he said. “There is going to be pain that business has to take, such as on taxes. But business understands that sacrifice is required to get us to the place where there isn’t a sovereign-rating downgrade.”