South African Laws Adopted Before Election May Hurt Business

Photographer: Gianluigi Guercia/AFP/Getty Images

A man holds an African National Congress flag as South African ruling party African National Congress supporters gather to listen to President Jacob Zuma delivering a speech during an Election campaign rally at Umasizakhe stadium in the Eastern Cape city of Graaf-Reinet on April 10, 2014. Close

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Photographer: Gianluigi Guercia/AFP/Getty Images

A man holds an African National Congress flag as South African ruling party African National Congress supporters gather to listen to President Jacob Zuma delivering a speech during an Election campaign rally at Umasizakhe stadium in the Eastern Cape city of Graaf-Reinet on April 10, 2014.

South African lawmakers have pushed through legislation in Parliament before next month’s election that business organizations say threatens to stifle investment, economic growth and job creation.

With opinion polls indicating the ruling African National Congress, which holds almost two-thirds of the seats in the National Assembly, will see its support drop in the May 7 election, the party is seeking to expand the state’s role in the economy and spread more wealth to black citizens. Among the laws awaiting President Jacob Zuma’s signature are those that give the state the right to a free stake in all new energy ventures and forcing private security companies to be at least 51 percent owned by locals.

“We believe they are too heavy-handed with this legislation and are now risking encroaching on our right to business,” Neren Rau, chief executive officer of the South African Chamber of Commerce & Industry, which has more than 20,000 members, said by phone from Johannesburg on April 11. The government is “making the business environment and the regulatory environment more complex and more difficult to understand and operate in.”

Other recently adopted or proposed legislative changes include: extending the deadline to 2018 from 1998 for claims to be lodged on land seized under apartheid rule; requiring company boards to comprise of 50 percent women; tripling the fines for companies failing to meet racial employment targets; and tightening the criteria needed to secure contracts with the state.

‘Radical Measures’

Last week, the Rural Development and Land Reform Ministry proposed giving the state the right to force some farmers to sell it half their land, which would be distributed to workers. Farmers’ organizations said the measure would flout property rights and compromise food security.

“These radical measures are coming at an unprecedented pace,” Anthea Jeffery, head of policy research at the South African Institute of Race Relations, a Johannesburg-based research institution, said in an e-mailed note on March 26. “In combination, they seem calculated to choke off investment, reduce economic growth and worsen unemployment.”

Moloto Mothapo, a spokesman for the ANC in Parliament, referred calls for comment to Enoch Godongwana, head of the party’s economics committee, whose mobile phone didn’t connect or revert to voicemail.

Growth Target

A survey of 9,019 people conducted by Indian polling company C-Voter shows the ANC may win 62 percent of the vote, Johannesburg-based New Age newspaper reported on April 11. The Economic Freedom Fighters, which was formed last year by former ANC Youth League President Julius Malema and seeks to nationalize mines and expropriate land to give to the poor, may win 6 percent, according to the survey.

Five years ago, the ruling party won 65.9 percent of the ballots, compared with 16.7 percent for its nearest rival, the Democratic Alliance.

“The set of reform bills should be interpreted in the context of the upcoming general elections,” Robert Besseling, Africa analyst at IHS Country Risk, said in an e-mailed note on April 10. “The ANC is likely to face greater pressure from its left wing and an emerging radical left opposition to accelerate the redistribution of wealth.”

While the economy is rebounding from last year’s strikes in mining and manufacturing, growth is still not fast enough to cut unemployment. The central bank is forecasting expansion of 2.6 percent this year, which is less than half the annual pace of 5.4 percent the government says is needed to cut the jobless rate to 6 percent by 2030 from 24 percent currently.

Economic Plan

The rand fell 0.4 percent against the dollar to 10.5568 as of 5:11 p.m. in Johannesburg, extending its loss in the past six months to 5.5 percent.

There are “serious incongruities” between the new laws and the National Development Plan, the government’s economic blueprint that seeks to make it easier and cheaper to do business, said Raymond Parsons, a policy adviser to Business Unity South Africa, a lobby group whose members include the Chamber of Mines, which represents companies including Anglo American Platinum (AMS) Ltd.

“Once the election is over, there must be a sense of urgency, no complacency and a consistent message about the realization of the NDP’s goals to strengthen business confidence,” he said in an e-mailed response to questions on April 11.

Attitude Shift

Zuma, 72, who took office in May 2009 and is standing for a second term, denies there are inconsistencies in policy and says the government is improving the business environment by revamping the transport and education systems.

“The state has taken bold steps to diversify the economy and build our industrial base with a greater emphasis on labor-absorbing employment,” he said in a March 19 speech in Johannesburg. “Our country promotes innovation and success.”

Tim Harris, a Democratic Alliance lawmaker and spokesman on finance, said there has been a definite shift in the government’s attitude toward business as the ANC seeks to curry favor among its labor union allies ahead of the elections.

“We need a bold response to jobs and growth and we are actually going in the other direction,” Harris said by phone from Cape Town on April 11. “We have seen much interventionist and ill-conceived legislation, none of which will have a positive effect on either jobs or growth.”

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net Ana Monteiro

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