• Ralph Mupita. Picture: SUPPLIED

  • Michael Spicer. Picture: BUSINESS DAY

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Editorial: Zuma, CEOs and the sound of silence

Quiet diplomacy
Kristin Lindow and Zuzana Brixiova. Picture: FREDDY MAVUNDA

Credit ratings: On the bright side

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WHAT IT MEANS: Gag order applies to government too. Business demands faster reforms.

Watching the rapprochement between government and business is like watching the opposite sexes at a school dance. They regard each other warily from opposite sides of the dance floor until the first few get together in the middle and start to dance, badly, while the onlookers criticise them from the sidelines.

Right now, the CEOs who’ve stepped into government’s awkward embrace — people like Old Mutual Emerging Markets CEO Ralph Mupita, Nedbank CEO Mike Brown, Discovery CEO Adrian Gore and Standard Bank CEO Sim Tshabalala — are being criticised by those outside the circle for being "co-opted" by the state.

In terms of the Presidential CEO Initiative, several business/government working groups were established in February to expedite reforms to boost the level of investment and confidence in the economy.

The immediate imperative was to avoid a sovereign ratings downgrade by presenting a united front to the investment community. By adding private-sector conviction to the message being told by national treasury — that SA was reforming and growth would soon accelerate — the country was spared downgrades in May and June.

Since then, business has worked behind closed doors to develop two important joint initiatives: a R1.5bn small business fund and a R50bn youth employment scheme that will put 1m young people through paid one-year internships.

The progress made by business stands in contrast to the deafening political noise that has characterised the past few months: the rekindling of the Hawks’ plans to arrest finance minister Pravin Gordhan, the assault on the treasury and Reserve Bank’s independence, new shenanigans at the SA Revenue Service and the deterioration of the state-owned enterprise (SOE) sector.

The latter has occurred despite the fact that business was supposed to be working with government to improve SOE governance to ready the sector for greater private participation.

Government’s failure to uphold its end of the bargain has increased the risk that SA’s credit rating will be downgraded and fuelled criticism that business’s quiet diplomacy has backfired.

No-one has been more vocal than former ANC heavyweight Sipho Pityana, the chairman of AngloGold Ashanti. As he sees it, business leaders are risking their reputations in promoting SA as an investment destination when the reform project with government has no prospect of success.

He has urged business organisations to unite and called for President Jacob Zuma’s removal, arguing that, under Zuma, government is incapable of genuine reform.

"Who would have thought that at a time of crisis like today, we as business leaders are incapable of doing what business leaders under apartheid were able to do: break ranks with the state and say it like it is," Pityana said inBusiness Times.

The former head of Business Leadership SA (BLSA), Michael Spicer, agrees: "If business had taken this attitude in the late 1980s we would have toned down and abandoned public criticism of apartheid and sought to devise projects working with PW Botha and his cabinet. We would have inevitably been co-opted into some sort of pseudo reform programme."

Spicer and Pityana’s worst fears seemed confirmed last week when business acquiesced to a gag order from Zuma at a meeting of the Presidential CEO Initiative just as ratings agency Moody’s arrived in the country.

In a statement issued after the meeting the presidency said: "The meeting appeals to all in our country to refrain from making public utterances that promote a negative narrative about the country."

Business Unity SA president Jabu Mabuza was quick to confirm that business would keep any disagreements behind closed doors, referring presumably to the slanging match that had erupted between Pityana and the Black Business Council after the latter publicly endorsed Zuma.

Mupita provides a different interpretation. He says the appeal to desist from fuelling a negative narrative applies equally to government, which acknowledged at the meeting its part in generating negative political noise.

"Business told the president that the noise around the Hawks’ investigation isn’t helpful," says Mupita, "The negative narrative is about the noise around institutions and includes [mineral resources minister Mosebenzi] Zwane and the Hawks’ investigation."

BLSA took a bolder stance. Ignoring the gag order, it urged government not only to deliver on its economic promises but also to curb state action that threatens national treasury and the financial sector.

Mupita says it is a misconception that business talks nicely to government. He feels business was frank with Zuma during the meeting.

As the co-chair, of the working group tasked with preventing further downgrades, Mupita says he told Zuma that SA is likely to be downgraded by December if it does not deliver concrete reforms in three areas.

S&P Global Ratings and Fitch Ratings both have SA’s foreign currency rating pegged on the bottom rung of the investment grade ladder. One more cut and SA will be junk rated.

The first area that requires action is SOE reform. While the announcement of a new SA Airways (SAA) board is a positive step, business told Zuma that Moody’s decision to place five SOEs on review for a possible downgrade highlights the urgency with which government needs to implement reforms addressing SOEs’ balance sheets and governance weaknesses.

The second area requiring progress is policy co-ordination and reform. "Ratings agencies will expect either economic growth or reforms to get growth back," say Mupita and Brown in their working group’s presentation to Zuma. "It is unlikely that rating agencies will exercise leniency in their rating again."

They call for a progress report on the much-delayed Mineral & Petroleum Resources Development Act and for further clarity on the mining charter.

Business also wants a progress report on plans for a national minimum wage, as well as on the labour market reforms being debated in the National Economic Development & Labour Council. The big question is whether secret strike balloting will be made mandatory so as to reduce labour’s propensity to strike.

Mupita concedes that it has been "frustrating" waiting eight months for progress in these areas but remains hopeful that Gordhan will announce key reforms in his midyear update on October 26.

The third area where movement is needed is on the crowding in of private capital to expedite development, especially of infrastructure. In the February national budget, government declared itself open to "co-investment" from the private sector in infrastructure. It was also keen to open the door to "minority equity participation" by private investors if it would improve the delivery or financial positions of SOEs.

At the time, Gordhan said government was willing to take a tougher look at all SOEs, including whether to close or merge some or reduce the pay and size of some boards with a view to raising their efficiency and ability to support economic growth.

"We need to remove the term ‘bailout’ from our vocabulary," Gordhan declared, raising expectations that he would move rapidly to bring recalcitrant SOEs to heel. However, this month he announced a new R5bn bailout for SAA — albeit under a new board with tighter conditionality.

Mupita believes that if government is able to make faster progress on SOE and labour-market reform and begin crowding in private capital it could shift SA onto a 2.5%-3% growth path.

"Have we made the progress we wanted? Unequivocally no!" says Mupita. But he still feels that business has made "tremendous strides" in being able to have constructive discussions with government and labour. To give up now would be to retreat into the stale, us-versus-them approach.

"We’ve had 20 years of this us-and-them approach," he says.

"If we polarise ourselves we diminish confidence and go back to our pre-1994 laagers. That’s extremely dangerous."

He disagrees that business has been compromised by partnering government, as well as with Pityana’s approach of demanding Zuma’s recall, arguing that it risks polarising the two sides while failing to address the fundamental problem — SA’s lack of growth.

Armchair critics should get in the boat and start bailing water before it sinks, says Mupita. This is what the CEOs have been doing in investing their time and committing funds to underwrite new initiatives that will help accelerate growth.

While welcoming the BLSA statement and conceding that the working groups have value, Spicer feels that business is "naive" in having put its sole focus on them. Business has failed to grasp that SA’s problems are political and require a political strategy, says Spicer, they are never going to be solved only by the generation of technical projects and plans.

The real issue is that outside of national treasury, government mostly lacks the political will to drive an economic reform programme. Judging from the extent of state capture already manifest, it doesn’t even have the will to maintain the sound, independent institutions necessary to prevent the economy from being downgraded to junk status.

On the contrary, while Zuma remains in power the attack on core institutions continues unabated.

"If Zuma remains, business will remain co-opted and reform [will be] stillborn," says Spicer. "Business will have paid a very high price and will have sleepwalked into it without giving any strategic thought to what it has done."