Bashing business for votes

By J.O’S. | JOHANNESBURG

New legislation may save the ANC votes but will chase away foreign investment

AS THE May 7th elections draw closer, the ruling African National Congress (ANC) seems increasingly troubled by a challenge to its left flank from the Economic Freedom Fighters (EFF). The latter party is led by Julius Malema, a former head of the ANC’s youth league, who favours nationalisation of businesses and farms without compensation. The ANC will win the election. But fear of losing votes to EFF has had a worrisome effect on recent legislation related to business.

Two of the most worrisome bills, on how the mining and private security industries are to be governed, were rushed through parliament before its recess. Neither bill has yet reached the statute book, but in their current form they are sure to chase away foreign investors. If the ongoing strike (eight weeks and counting) in the country’s platinum mines has not yet put them off, these bills would be likely to finish the job.

Start with the mining bill. One of its clauses says the state will take a 20% stake in any new petroleum venture. Another allows the state to purchase a larger stake at “an agreed price” or through an output-sharing deal. Any business thinking of prospecting for shale oil in South Africa would think twice about doing so. If the venture proved profitable, the state could end up owning the lot. The bill also classifies minerals as “strategic”, which means they can be directed away from their most profitable use as ministers see fit. For instance, coal destined for export could instead be diverted to Eskom, the state-owned electricity company, which is struggling to keep the lights on. The criteria that will govern such decisions are not clear.

There are similar concerns around the security bill. New regulations were surely needed to govern an industry that has expanded rapidly in the past decade. There are now almost twice as many security guards in South Africa as regular police officers. But the bill also requires at least 51% of the ownership and control of security firms to be exercised by South African citizens. The investments of two British security firms, G4S and ADT, ought to be protected by a bilateral trade treaty. The trouble is, South Africa is also junking such treaties, to the consternation of its trading partners.

These two business-bashing bills are part of an ominous trend. The South African Institute for Race Relations has just published a report on all business-related legislation since the start of 2013. It concludes that a common thread through all the bills is that “they weaken property rights, reduce private-sector autonomy, threaten business with draconian penalties, and undermine investor confidence.”

There is another commonality. The amendments regarding ownership were inserted into both the mineral and security bills quite late in the day. An early draft of the mineral bill capped the state’s potential stake at 50%. The local-ownership clause was slipped into the security bill only as it made its way through the committee stage of parliament. The timing suggests that the elections in general, and the EFF’s call for nationalisation in particular, had a corrosive influence on their drafting.