South African ANC Risks Investment With Attack on Anglo
South Africa’s ruling party attacked some of the country’s largest companies this week as it sought to defend its record in government, straining its relationship with business and threatening investment.
Gwede Mantashe, secretary-general of the African National Congress, yesterday accused London-based Anglo American Plc (AAL) of theft, after its platinum unit announced plans to fire as many as 14,000 workers. The day before, the party described a new advertising campaign by the nation’s second-largest lender First National Bank that calls on the youth to unite against “greed, mistrust and anger” as “insulting.”
With elections scheduled next year, President Jacob Zuma is struggling to reduce a 25.5 percent unemployment rate and contain anger over a lack of housing and basic services. A souring of relations between business and the ANC threatens to deter the investment Zuma needs to meet a goal of creating 11 million jobs and slashing the jobless rate to 6 percent by 2030.
“The wider ANC will find bashing big business to be fertile ground in reinforcing its support base,” in the run-up to the vote, Jolyon Ford, a political analyst at Oxford Analytica in Oxford, U.K., said in an e-mailed response to questions. “This is unfortunate since to retain support the ANC needs growth and job creation, and for this it needs big business on board.”
The ANC has ruled Africa’s largest economy since the first- all race elections in 1994, and currently controls almost two- thirds of the seats in Parliament. Since September, Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have downgraded the nation’s debt, citing deteriorating social stability as a contributing factor.
South Africa had a record 173 protests over the lack of housing and basic services, according to Johannesburg-based research group Municipal IQ. In the past three days, township residents in Sasolburg, about 70 kilometers (43 miles) south of Johannesburg, have stoned cars, looted shops and blocked roads with burning tires to protest plans to redraw the area’s municipal boundaries. Two people died and three policemen were injured during clashes with as many as 5,000 residents, according to police.
“The fact that violence can escalate over an issue that seems so small shows the underlying social tensions and risks that the rating agencies highlight and keep the rating bias to the downside,” Peter Attard Montalto, an economist at Nomura International Plc in London, said in an e-mailed note to clients yesterday.
The rand has slumped 5.5 percent against the dollar since the beginning of the year, the worst performer of 16 major currencies monitored by Bloomberg. It was trading at 8.97 a dollar as of 4:45 p.m. in Johannesburg.
The cost of protecting South African debt against non- payment using credit default swaps over five years has climbed 24 basis points in the period to 164, the highest in two months.
South Africa has been wracked by violent strikers since August, when police opened fire on thousands of protesters at Lonmin Plc (LMI)’s Marikana platinum mine, killing 34 of them in the deadliest police action since the end of apartheid. That prompted credit-rating downgrades and led Eurasia Group to include South Africa on its list of the top 10 potentially risky geopolitical areas in 2013.
“Populism, spearheaded by the ruling ANC party, is on the rise,” New York-based Eurasia said on Jan. 7. “Coming retrenchments in mining will almost certainly spur another bout of labor unrest, which has the potential to spread into other sectors as well, and taken together all these factors increase the risk of further credit downgrades.”
Anglo American Platinum Ltd. (AMS), the world’s largest producer of the metal which is controlled by Anglo American, announced its planned job cuts on Jan. 15, saying they were necessary to restore profitability.
Mines Minister Susan Shabangu rebuked the companies last week and threatened to revoke some their mining licenses, while Mantashe said yesterday the government needs to take greater control of mines. Finance Minister Pravin Gordhan said in an interview on SAfm radio today the company’s acted “less than satisfactorily.”
Anglo and Amplats “have stolen our money,” Mantashe said in an interview on Johannesburg-based SAfm radio. “They are a British company now. They have a responsibility to talk to South Africa on the operations.”
Peter Leon, head of Africa mining and energy projects at law firm Webber Wentzel in Johannesburg, said on Jan. 18 the government will face “formidable regulatory hurdles” if carries out a threat to revoke licenses. Anglo American, which was founded in Johannesburg in 1917, moved its headquarters to London in 1999.
FNB, the bank owned by Johannesburg-based FirstRand Ltd. (FSR), came under attack from the ruling party this week for an advertising campaign featuring school children discussing their hopes and concerns for the country, some of which are critical of Zuma.
The FNB marketing campaign is an “undisguised political statement that makes random and untested accusations against our government,” the ANC said. FNB denied the allegation.
The ruling party’s handling of the two incidents did little to dispel negative perceptions of South Africa, according to Mzukisi Qobo, a politics lecturer at the University of Pretoria.
“This sends a very wrong message to business in South Africa that they should stay away from politics and should not point out deficiencies of government,” he said in a phone interview yesterday. “It also sends a wrong message outside of South Africa. It paints the ruling party as intolerant and as taking a position that is hostile to business. There are long- term implications of this kind of messaging.”
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