The Unlikely Event Of Nationalisation
EFF, the brainchild of Julius Malema, has gained strength quickly since his unceremonious exit from the ruling party. The controversial former ANC Youth League president has pushed what some have called an extreme left-wing political agenda through his fledgling party, making a string of ambitious promises, targeted mostly at the lower end of the social spectrum. The most controversial of these, and most frightening to the business community, is the vow to nationalise major sectors of the economy (such as mining and banking), should he be voted in as president.
In its policy document on nationalisation, the party says: “Certainly, the nationalisation of minerals and metals might ignite international condemnation by global imperialists, institutionalised in the World Bank, International Monetary Fund, and, notably, the World Trade Organisation. “A broader mass movement should be mobilised in South Africa in defence of these massive economic reforms, because they constitute the core of our economic emancipation programme.
“Mass campaigns on what nationalisation (people and state ownership and control) of minerals, metals and other strategic sectors of the economy will entail, should be conducted to garner support from the people as a whole,” it says.
Were it to have its way, the EFF would establish a “state bank”, which would be accompanied by transformation of the financial sector. It would limit foreign ownership of what it considers strategic and monopoly sectors.
In the May 2014 National Elections, the newcomer won 6,35% out of a total of 1,168m votes, making it the third most popular political party after the ANC and the DA. The result was enough to secure parliamentary seats for 25 of its top leadership. Its strongest provinces were the North West, where it won 12,53% of the vote, Limpopo (10,27%), Gauteng (10,26%) and the Free State (7,89%).
While this is nowhere near enough to pose a threat to the ruling party, it performed far better than older rivals. The next most popular party was the Inkatha Freedom Party (IFP), which won 2,4%, less than half of the EFF’s support.
Agang, initially lauded as the answer to the ANC’s increasing culture of corruption and the DA’s elitist image, failed to crack the top 10. This was mostly due to a string of political blunders by its leader, Dr Mamphela Ramphele, as well as its lack of connection with ordinary citizens.
The result is a clear indication that extremist views are taking root in South Africa, where economic inequalities are rife and no clear government solution to the problem of unemployment is being seen.
Upon his release from prison in 1990, former President Nelson Mandela voiced his support for nationalisation, a fact which Malema takes full advantage of in his promotion of the state appropriation of important private assets in the economy. However, Mandela later made an about-face and abandoned the policy as a way forward for South Africa, preferring to focus on nation-building and selling South Africa as an attraction for foreign investment.
Dawie Roodt, chief economist and director at the Efficient Group, says despite the EFF’s success and apparent growth in popularity, it won’t have much influence on national economic policy.
“First, it’s important to look at the leadership of the EFF,” he says. “It exists only because of the charisma of one individual (Julius Malema), rather than an idea. If that individual were not around, I don’t think the organisation would continue to exist.
“There is also doubt around the quality of the leadership. If [Malema] did what he allegedly did, he could easily turn on his current colleagues.”
Roodt says now that the EFF is in parliament, it has no chance of gaining the support it will need from the ruling party, the ANC, which won 62,15% of the national vote and 249 seats in parliament. It seems Malema has made more enemies than friends in the ANC.
“I think the EFF has reached its peak,” Roodt says. “It will be very entertaining in parliament, but I don’t think it will have much impact on actual policy.”
Shortly after his induction, Malema’s seat in parliament came under threat when a looming tax debt of R18m meant his stay could be a short one (were a sequestration order to be filed against him), further eroding his party’s influence. However, he dodged the bullet at the end of March when the South African Revenue Service accepted an offer of compromise he made to pay the outstanding debt over time.
Roodt also sees holes in the party’s ideology, which is unashamedly founded on Marxist views and targets a disgruntled working class. He says: “Any political movement should have some sort of ideology and most people would say EFF has one, but its economic policy is all over the place.
“The first paragraph of the EFF’s manifesto sounds like Stalin’s or Mao’s work, and what happened after those guys implemented their policies was that lots of people died of starvation,” he says.
Under certain circumstances, nationalisation may make sense. Many countries around the world have nationalised parts of their economies to varying degrees of success, including the UK and the US.
In the UK, the recent global economic crisis led to banks such as Northern Rock and Bradford & Bingley (mortgage book only) being nationalised. Last year the UK’s Network Rail became a public entity when the government took over the company’s financial debt.
Previously, in 2008, the Royal Bank of Scotland and the newly merged HBOS-Lloyds were partly nationalised, with the government taking 60% of RBS (later increased to 80%) and 40% of HBOS-Lloyds.
The global markets crisis of 2008 led to government bailouts of US financial institutions such as the Federal Home Loan Mortgage Corporation, Citigroup and General Motors. These are considered by some to be, at least part, nationalisation.
Also, in 2001, the September 11 attacks led to the government nationalising the Transport Security Administration. While these countries’ financial systems were in severe distress, South Africa has come out of the global economic crisis mostly unscathed, largely due to the resilience of the local banking system
and more stringent lending rules than in the rest of the world. However, the banking industry has been criticised in various areas, including excessive fees, lack of transparency in bank charges and poor levels of transformation. The EFF, as well as left-leaning
constituents, have used this to drive the policy of nationalisation. However, CEO of the South African Chamber of Commerce and Industry, Neren Rau, says the banking industry has nothing to worry about for the moment. “It’s a bit too early for us to assess the situation from our members’ perspective,” he says. “But we don’t feel we have anything to fear. The ANC has already said that nationalisation is off the table.
“The EFF is too small an entity to have influence, so we don’t think it’s an issue. However, what we are concerned about is the increasing amount of interventionism in the mining industry,” he says.
Proposed amendments to the Mineral and Petroleum Resources Act will see the government taking a stake in the mining industry, starting from 20% and projected to increase to as much as 50%.
In the private security industry, government wants a controlling stake in foreign-owned firms. The Private Security Amendment Bill wants to cap foreign ownership at 49%.
Rau also cites the Ministry of Health’s plans to curtail the abuse of alcohol in the country through the banning or strict regulation of liquor advertising, which could restrict the country’s ability to grow market share.
“These are the issues we are currently engaging government on,” he says. “In the banking industry, however, it’s just a question of keeping up with global best practices, such as Basel (compliance regulation), but there are no interventions expected, such as in the other industries,” he says.
Most banks, including the South African Reserve Bank, would not comment on the issue of nationalisation, as they considered this “speculation” at the moment. Nedbank chief executive Mike Brown, however, believes nationalisation is highly unlikely to happen.
“The South African government has reiterated the point that nationalisation is not their policy,” he says. “Globally it has been shown that an efficient independent banking system is crucial for ongoing growth of an economy.”
He says the South African banking system showed its robustness during the recent financial crisis, and any moves to nationalise banks will halt inward investment and resultant growth.
Brown feels history has shown that the debate around nationalisation has a negative effect on investment into a country, and South Africa is no different.
“While we acknowledge that the EFF has a number of seats in parliament, we don’t anticipate this will result in the change of government policy,” he says. “The broad-based BEE deal that Nedbank implemented in August 2005 was arguably one of the most successful BEE deals ever concluded, with R6,7bn of value going to more than 47 000 beneficiaries.”