Bluffing powerful SA corporation and their extractive strategy cripple the economy
PRETORIA – At an event that took place sometime late in 2019, former president Thabo Mbeki gave a response on the policy choices and lessons learned while he was the South African head of state. He said that when it comes to mistakes made, they (his administration) learned that a policy that works in another jurisdiction may not necessarily work very well in another.
The so-called ‘cut and paste’ of policy decisions is a bad idea.
He then cited an example of a question raised by the two American members of his International Advisory Council on the Economy on the real reasons why South African corporations “hold such large volumes of assets as cash.”
Also known as cash hoarding, Mbeki reasoned that this practice was not in line with international business standards – “this was abnormally high…” he added.
He continued to say that the members continuously expressed this concern each time the advisory council met but the South African government kept on ducking it to avoid embarrassment. He explains that the reason for maintaining high liquidity was that these large corporations were uncertain about the future of the country. The companies operated from a premise that the transition from apartheid to democracy was too good to be true.
They were, therefore, more than convinced that “sooner or later something was going to explode.” Mbeki went on to say that he had been told that the country was back in the same phenomenon. His view is that he doesn’t blame the corporations for wanting to take their assets out of South Africa.
It is, however, not clear which policy exactly Mbeki was referring to that created uncertainty on the part of the business community. These companies basically abuse their unfair advantage by charging exorbitant prices and thus healthy profits in an environment where they are allowed to destroy competition and dictate terms. But only to declare the hand that feeds them as “risky”. At worst, these companies also engage in illegal activities – not a single one of them has ever been punished for money laundering and illicit capital flows. This is mind-boggling, to put it mildly.
The main issue is Corporate South Africa continues to have an easy ride in this since the African National Congress (ANC) continues to give companies a kid-glove treatment. Also, the majority of the companies that claim to be concerned about “risk” operated under the apartheid system without a single complaint. In fact, many of them were cushioned by the racist state.
Furthermore, Michael Merchant states, “South Africa’s history is one of rapacious profit-taking by corporate elites at the expense of South African people and its environment.” A case can thus be made that South African companies are big cry babies based on the advantageous position they always had, and even now twenty-five years in democracy continue to enjoy this privilege.
Companies such as South African Breweries and Cape wineries benefited handsomely from laws that gave them unfettered access to the black population market, through for example the notorious ‘dop system’. From this, they made billions of dollars.
Others also enjoyed protection from the state which ensured that no black person competed with a white business interest at all levels of the economy. Most of these companies aren’t even South African anymore after taking off with millions around 2000. It is thus unclear what Mbeki is talking about when he says the sentiment of companies is low. Has it ever been high after 1994, is the question?
What Mbeki is not talking about is the strong bond that the ANC and Corporate South Africa built from the early days right through the post-1994 period. Sociologist Roger Southall argues that since the ANC failed to topple the political establishment.
It, by extension, means it also couldn’t overturn the economic order that underpinned that political system. As a result, according to Southall, the ANC presented itself “as a partner with which large scale capital could play.” So, Mbeki’s presentation failed to highlight this but he elected to portray Corporate South Africa as vulnerable to political vagaries.
It is therefore necessary to understand the nature of the relationship between the ANC and past and new white companies before anyone can claim that the companies’ motive for seating on large cash reserves is due to risk. The argument is that they were permitted to do so because the ANC understood from day one that these companies wanted to join the globalization bandwagon. Analyst Xolani Dube reasons that the ANC played a role in the internationalization of apartheid capital across Africa and the world. The practice of large cash is therefore not a function of a risky environment.
Another political analyst Clyde Ramalaine in his January 2018 piece: ‘Investment from Davos… why not just catch a taxi to Franschek?’ maintains that “the truth is despite all the business-friendly overtures the Mbeki administration against the wishes of some us engineered and equally sustained by the [Jacob] Zuma administration; white South African capitalist remains a strange bunch in the world of capitalists – who do not trust the same geographic spaces they build their wealth from.”
Some of these companies pledged billions of rands in the last two investment summits respectively held in 2018 and 2019, and President Cyril Ramaphosa even said that they must be treated as heroes. He said, “We should treat our entrepreneurs as heroes and move away from what we have been fed, where we treated our business people like enemies, called them white monopoly capital and all that. That must end today. Let us see our business people as heroes.” If their promise is to be believed, where do they think the money would be invested?
It is thus my contention that Mbeki and the ANC emasculated capital in South Africa more than ever before. Their behaviour is, therefore, self-absorbed in perpetual extraction of as much value from the relationship they share with the ruling party, particularly with the ANC political elite who are beneficiaries in these business arrangements. The businesses sulk in spoiled like fashion when they can’t get what they want. They literally hold South Africa hostage by refusing to reinvest their capital in the economy. Hence, low growing, high unemployment, lack of transformation, automation, etc.
Following the 1994 elections, the ANC-led government under ex-president Nelson Mandela handed over the key economic portfolios to former apartheid decision-makers. Derek Keys and another verkrampte Chris Stals were retained as finance minister and South African Reserve Bank (SARB) governor, respectively.
The two men worked tirelessly in taking the country’s macroeconomic policy to an undesired direction. Key amongst those was the decision to scrap the Currency and Exchanges Act of 1933 and the adoption by the SARB of the “flexible exchange controls” – to facilitate capital flights out of South Africa. They also continued with the privatization policy of state-owned enterprises commenced by the Nats in the 1980s as well as South Africa’s accession to the World Trade Organization (WTO) as a developed nation.
When Mbeki took over the reins as president in 1999, he, along with Trevor Manuel and Tito Mboweni (or the Three TMs) simply reinforced the mess the former apartheid decision-makers had already started. The new economic policy regime facilitated a mass exodus of SA corporations to foreign countries, primarily to London and NY stock exchanges.
The godfather of South African business Anglo-American, South African Breweries, Dimension Data and Old Mutual left the place they had exploited for over a century to settle abroad. And much more recently in July 2019 former apartheid-mouthpiece, Naspers packed its bags for Amsterdam.
These businesses took along with the trillions of dollars. This was in addition to much of the money that had already departed from our shores during the dark days of apartheid with the help of international banks such as Deutschebank, Citigroup and HSBC. Therefore, the classical definition of the “risk” which is often given as a reason for retaining high cash reserves is not only questionable but the persistence of this practice must be laid at the door of the ANC who remains a willful partner.
Despite the fact that the Mbeki administration knew about the problem a long time ago, it did absolutely nothing to deal with the situation. In fact, it can be argued that his administration was crucial in the execution of these laws. South Africa remains among a group of countries in the world without anti-cash hoarding laws. Although Organisation for Economic Cooperation and Development (OECD) countries do not have anti-cash hoarding laws, their central banks impose “negative interest rates on cash, whereby cash becomes expensive to keep in the banking systems.”
We already know that any proposal of this nature to the SARB will summarily be dismissed. Suggestions to change how the central bank operates are easily labelled as the arrival of the “barbarians at the gate of SARB” as we learned from governor Lesetja Kganyago. The ANC continues to blow hot and cold on its adopted resolution regarding the SARB during the 54th elective conference.
One source claims, “In South Africa, bank cash reserves – above those of the Reserve Bank – total approximately R1-trillion. The Reserve Bank reported a lesser figure – R700-billion in corporate deposits in South African banks (by August 2015). About R549-billion has been sitting on the balance sheets of corporations since 2006. This accounts for about 20 percent of the country’s gross domestic product going unused.”
The Congress of South African Trade Unions (COSATU) also added, “The South African big business sector confessed last year  that they were sitting on top of R600bn that there were not prepared to invest into our economy because of political and policy uncertainty. In 2014, the South African Reserve Bank actually puts this figure at over R1.4tn.” This figure could be now over R3tn.
An Intellidex study titled ‘The Myth of Corporate Cash Hoarding’ which was commissioned by Business Leadership South Africa (BLSA) in 2017 refuted the claim that South African corporations hoard cash. The study examined the balance sheets of the largest industrial and mining companies listed on the JSE. It uncovered that cash balances have fluctuated between 6.4 percent and 10.2 percent over a period of ten years, and that the figure was 7.8 percent in 2017. The report concluded, “This is considerably less than other countries, where cash balances of large companies are usually over 10 percent.”
However, it appears that the study was ‘politicized’ in that it sought to do some damage control and to calm growing displeasure with the conduct of companies. No one cares to admit that cash hoarding, and subsequently withdrawals from South Africa, started in the late 1990s This trend still sees the companies including Anglo American, Sasol and Sibanye, amongst others, making their initial capital in South Africa the but only to use it to expand externally, and then drop South Africa as a priority in the process.
Sibanye is joining a long list of companies that left the country. Following a string of acquisitions which include Lonmin, a new company is going to be listed in the US as well. This has become the new normal in usual occurrence and doesn’t come as a surprise at all.
What is undeniable, despite those who refuse to admit, that South Africa has a big problem. In fact, it doesn’t matter who becomes president because these companies’ ongoing extractive strategy dictates that money must be taken out of the country at all cost.
Hence, the reason for their push for flexible exchange controls in the 1990s. Mbeki also failed to concede that economic policy mistakes made the country to depend on foreign direct investment (FDI) and the very same companies that left are now called international investors. This is daylight robbery, to say the least.
COSATU points out that FDI “reinforces external dependency because investors are unable or not interested in transforming the domestic economies.” Greenfield investments should be prioritised over portfolio investment and acquisitions.
Present economic efforts, including the revival of the advisory council and the drive to attract U$D100bn in new investment into South Africa over a five-year period (to 2023), are hallmarks of a country that seriously needs to some serious introspection.
The economy struggles to pass even a paltry 3 percent, unemployment is stubborn at around 30 percent and inequality is synonymous with South Africa’s inability to create a new economic order. Yet South African companies in luxury of cash hoarding because they do not trust the 1994 political deal dubbed a ‘miracle’ that produced their enormous wealth.
In conclusion, the South African companies remain non-committed to the fullness of a democratization project from day one. The ANC, on the other hand, appears consciously duped into thinking that these companies were keen to build a new South Africa.
Hence, the ANC embraced a questionable doctrine of capital as a partner for its economic development drive which continues to fail dismally and instead it led to the creation of a parasitic, rent-seeking black petit bourgeoisie created via the so-called empowerment policies and deepened corruption.
Si ya yi banga le economy!
Siyabonga Hadebe is an independent commentator on socio-economic, politics and global matters based in Pretoria.