Alarm bells ringing

2014-05-09 00:00

THREE radical proposals that were made by the government shortly before the elections could have a very negative impact on the economy.

A bill to expropriate at least 51% of foreign-owned security service companies in South Africa was pushed through by the ANC majority of the portfolio committee on police just before the election.

This was in spite of letters from international embassies, the DA and other opposition parties, as well as the security industry, condemning the expropriation clause.

The reintroduction of nationalisation into our political lexicon, and the seeming haste with which the ruling party wants this bill enacted into law, is likely to have a disastrous impact on investor confidence, both local and international, and may even weaken the rand from an already parlous value against other major global currencies.

The government has argued that the nationalisation of ADT, Chubb and G4 Security, all foreign-owned and three of the biggest security firms in South Africa, is in the interests of national security, as private security members far exceed the number of police officers in the country.

The move has also been punted as an opportunity for job creation — the government seems to believe, incorrectly, that by hiring more security guards, the business will become more efficient. Instead, the move will ultimately result in a loss of jobs.

This bill sets an unwelcome precedent for business owners.

A related matter was a proposal that the state be given the right to a free stake in all new energy ventures.

Also recently published were regulations to enforce the Employment Equity Amendment Bill, which appeared in Parliament last October.

Legal experts, accountants and opposition parties have labelled this bill as social engineering in a blunt form, as it will give black Africans an advantage over coloured and Indians in professional, top-management and other senior positions.

It also makes non-compliance more onerous for companies.

The ANC has indicated that it may amend its initial position on the national demographic bias of the proposals, but President Jacob Zuma promising at an election rally to strengthen employment-equity legislation even further does not inspire confidence.

Also rocking the boat among farmers shortly before the election was a plan by the Rural Development and Land Reform Ministry that the government should have a right to force farmers to sell half their land, and give the expropriated half to farm workers.

It is unlikely that the government has enough money to pay out large-scale farmers even an approximate value of half their land.

The proposal is probably not possible to implement practically, and it will in all likelihood have the effect of nullifying further investment in the farming sector, which essentially puts the food on our tables.

As the world becomes resource hungry, international investment in agriculture is rocketing, but my feeling is we have probably already missed that boat due to existing jitters over land reform, among other things.

Part of the ANC’s mantra through the election has been that Zuma’s second term should be one characterised by a much more rapid implementation of policies to grow the economy and address the existing social inequalities.

That is all good and well. But one can only hope that these three policy proposals are election red herrings, and don’t form part of that plan.

International investors have this year become wary of political uncertainty in many emerging markets, such as in Nigeria and in Asia, and of the weaker growth in former darling investment markets, such as in China and India.

The platinum strike in South Africa will have shaken international investors to the core, for sure.

For them, exiting the rand and South Africa’s equity market, never mind the dribble of direct foreign investment flowing into the country, will become very easy to justify under a threat of nationalisation.

• Edward West is the business editor at The Witness.

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