Zuma Family Favoritism Imperils ANC Post as Black Empowerment Goes Sour

The involvement of South African President Jacob Zuma’s family in a series of controversial business deals has fueled anger among labor unions, whose support helped propel Zuma to power last year, at a time when one in four South Africans is unemployed.

Sixteen years after the end of apartheid, South Africa remains one of the world’s most unequal societies, according to the CIA World Factbook, while members of the ruling African National Congress and their relatives have bought stakes in businesses sold to comply with black empowerment laws.

Union leaders say the ANC hierarchy benefits from state contracts and subsidized share purchases and are demanding wage increases to compensate. They plan to challenge the results of the empowerment policies at a party conference starting on Sept. 20, as does the party’s youth league. The moves are a rebuke to Zuma, whose son has participated in the share distributions.

“You can’t be seen to be enriching yourselves personally at the expense of the South African people,” Vuyiswa Tulelo, the ANC Youth League’s secretary-general, said in an interview. “We will go and raise these issues with the leadership.”

South Africa is heading toward becoming a “predator state” controlled by “hyenas” bent on accumulating wealth, Zwelinzima Vavi, general secretary of the Congress of South African Trade Unions, said on Aug. 26 in Johannesburg. He was supporting a strike over pay by as many as 1.3 million government workers that was suspended last week.

Untouched

“The reality 16 years down the line is that we’ve hardly touched the structural crisis we’re facing,” Vavi told reporters in Johannesburg today.

The empowerment rules come from a 2004 law compelling miners to transfer 26 percent of their assets to non-whites within a decade and calling on other industries to do the same. Most of the transfers consist of share sales or the sale of stakes in individual mines.

Some politicians, including housing minister Tokyo Sexwale, have benefitted. A company controlled by Sexwale owns shares in Gold Fields Ltd., South Africa’s second-biggest gold producer, Northam Platinum Ltd. and diamond miner Trans Hex Group Ltd., according to company statements.

No Special Benefit

“I don’t think the company has had any special benefits,” said Marion Brower, a spokeswoman for Northam Platinum. “Apart from the normal benefits that empowerment brings with it we did not receive any other benefits from Mr. Sexwale’s political position” and he wasn’t a member of the cabinet at the time, said Gold Fields spokesman Sven Lunsche.

Both companies are in Johannesburg. Greg van Heerden, company secretary at Cape Town-based Trans Hex, declined to comment immediately.

Bridgette Radebe, the wife of Justice Minister Jeff Radebe, has bought assets from or formed ventures with Paris-based Total SA, Johannesburg-based Impala Platinum Holdings Ltd. and a South African unit of Tokyo-based Mitsubishi Corp., according to company statements.

Bridgette Radebe was a successful mining operator before the empowerment law was passed, she said in a Sept. 9 interview, adding that it hasn’t succeeded in benefitting the majority.

“The real distribution, it’s not really happening as it should,” she said. “People are frustrated because they’re not benefitting, but a small group is winning out.”

Business Deal

Steelmaker ArcelorMittal South Africa Ltd. last month sold a $1.3 billion stake to black investors, including Zuma’s 28- year-old son, Duduzane. At the same time it bought out his business partners to secure disputed mining rights. Zuma’s nephew, Khulubuse Zuma, teamed up with Zondwa Mandela, the grandson of former President Nelson Mandela, to take over a gold mine in October and then failed to pay thousands of workers.

“It is my democratic right as a South African to be involved in business,” Duduzane Zuma said in a Sept. 12 statement. “This same right also goes to any children or family member of people who hold high office in government or even in business.” He also said he had never done business with the government. Khulubuse Zuma declined to comment.

“Controversy is not the same thing as corruption,” Nonkululeko Nyembezi-Heita, Chief Executive Officer of ArcelorMittal’s South Africa unit, told lawmakers in Cape Town on Aug. 13 about the deal with Duduzane. “We certainly did not go out and pick political players.” The company is based in Vanderbijlpark, South Africa.

‘Sham’

The laws are a “sham,” Jeremy Cronin, deputy general secretary of the South African Communist Party, some of whose leaders serve as office holders in both the government and the ANC, told a conference Sept. 7. More needs to be done to foster growth and create jobs, he said.

About 22 percent of the population survive on less than 283 rand ($40) a month, according to government data. The country’s so-called Gini index, which measures income concentrations, is the second-highest in the world after Namibia.

“Every time you dig behind this you find very direct links to very senior people in government,” Leon Esterhuizen, an analyst at RBC Capital Markets, said by phone from London. Zuma “doesn’t seem to be doing anything about it.”

Zuma, 68, has defended the involvement of his family in business.

“This is persecuting people unfairly simply because they share a surname,” he said in an interview published by Johannesburg’s Sunday Times on Sept. 5. Zizi Kodwa, Zuma’s spokesman, said the president won’t comment further.

Turning Investors Away

Investors say the disputes may turn capital away from an industry that supplies four-fifths of the world’s platinum.

“Politics are creeping into South African mining,” Ian Henderson, who manages $7 billion at JPMorgan Chase & Co., said from London on Sept. 8. “We worry about politics. We worry about corporate governance. We worry about undue influence.”

Companies may instead turn to Latin America to start new mines, he said.

“Empowerment ownership is an absolute requirement,” Mark Cutifani, the CEO of South Africa’s biggest gold producer, AngloGold Ashanti Ltd., said in a Sept. 8 speech at a Johannesburg business school. “But if that exceeds the need for security of tenure and certainty for investors, then we will never achieve empowerment, because we won’t have an industry.”

The president retains some support within the party.

“There are no camps breaking off,” said Enoch Godongwana, the deputy public enterprises minister, in a Sept. 9 interview. He helped write the ANC’s economic policy submission for the conference.

This month’s conference, known as the National General Council, is the biggest party gathering ahead of a 2012 meeting where the ANC leaders will be chosen. Zuma’s term as national president runs till 2014.

“The September National General Council will be a real test of Zuma’s strength,” said Anne Fruehauf, a London-based analyst at Eurasia Group. “Some of the statements that will be made will be made with a threat in mind of withdrawing support for Zuma in 2012.”

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net.

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