In the middle of November 2017 The Economist magazine published the most important editorial it had written in years. That week’s cover screamed “The Next Capitalist Revolution”. Capitalism, it said, had become stodgy and unpopular among young people.
“Today's capitalism does have a real problem,” the editorial said. “Life has become too comfortable for some firms in the old economy ... a revolution is needed — one that unleashes competition, forcing down abnormally high profits today and ensuring that innovation can thrive tomorrow.”
One beneficiary of this new liberal thought leadership is a decidedly un-liberal South African — trade, industry & competition minister Ebrahim Patel. Determinedly left wing and a trade unionist to his core, Patel was the very last appointment into a new ministry, in Jacob Zuma’s first cabinet. He became economic development minister, taking control of the competition authorities and the Industrial Development Corporation (IDC) from then trade & industry minister Rob Davies. He is now in Davies’ old job, with the bits he took in 2009 back in place.
Patel is now by far the senior economic policymaker in the country. Driven and capable, he has effortlessly outrun numerous finance ministers and has been able deftly to align his complex ideological agenda with the rather easy nationalisms of both Zuma and President Cyril Ramaphosa. He does it through the competition authorities, just as The Economist editorial advised. “A competition revolution would do much,” it said, “to restore the public's faith in capitalism.”
It was perfect for Patel. Merely to survive, both Zuma and Ramaphosa need to show their party that BEE is succeeding. What Patel wants is to protect jobs and squeeze bosses for pay. If he keeps his presidents politically secure, he gets to indulge himself ...
He was the minister who wrenched concessions out of Walmart a decade ago when it paid R16.5bn for Massmart. He scored no retrenchments for two years, preference for previously retrenched staff, a promise not to challenge the dominant union for three years and a R100m investment into local suppliers for Massmart’s fresh foods business. Ten years later, it is getting out of those.
This year his Competition Commission rejected a deal for a local private equity firm to buy the Burger King franchise from Grand Parade Investments, a black empowerment holding company, entirely because it would reduce the black shareholding in Burger King to zero and even though it would make Grand Parade’s many black shareholders richer. This is pure Ramaphosa. Transformation is a thing. It can be bought. The optics are everything.
But blocking the deal was an extraordinary moment. It turned the notion of broad-based empowerment on its head. Had Patel’s power become such that he could now decide on the colour of a shareholder? Naturally, there was a fuss.
It has since been resolved. Patel won. Ramaphosa not so much. The deal can go ahead and the lack of black shareholding somehow doesn’t now matter, his Competition Commission says, provided R500m is invested in expanding the number of Burger King outlets, a further 1,250 jobs are “created” and employee benefits and wages increase overall by R120m. Amazingly, the private equity firm concerned, ECP, has agreed to this. You have to feel for the Burger King business — any private equiteer facing that mountain of costs is going to get very nasty indeed.
At the Competition Commission there are no qualms. The commissioner, Tembinkosi Bonakele, told Business Day his agency was going to become more, not less, aggressive about transformation. Except that the story hides some important things. With every flex of Patel’s policy muscle, unemployment in SA has grown. If not because of it then certainly despite it.
In August Massmart announced it was selling off noncore assets, including the ones that were supposed to attract new local suppliers. It was, said Massmart CEO Mitch Slape, “another step in the group’s portfolio optimisation process and will ... free up management time to enable increased focus on leveraging Massmart’s core merchandise and market strengths”. In other words, we’ve paid the Patel premium, now can we please get on with it and run our business? ECP will follow in a few years.
The problem about The Next Capitalist Revolution in SA is that being run by a trade unionist with little regard for any kind of capitalism is going to involve some unusual decisions. As Patel also pursues his “localisation” policies and cuts many profitable local businesses off from their traditionally-imported raw materials, pressure builds. And not just in the jobs numbers.
Over at the IDC, which is funding the 300 or so “black industrialists” Patel is shepherding through a mix of import and export protectionist controls, you get a glimpse of the cost of trying to hammer a square peg economy into a round-holed political dream — the IDC not only reported a R3.8bn loss in 2020, it also had to report a whopping R31.3bn loss in fair value on its equity instruments.
That will come back as the stock market recovers from the Covid hit, but who would have thought remodelling capitalism in the new SA would depend quite so much on the continuing success of the listed companies of the old one? The “more aggressive” Patel gets with the old economy the more he risks damaging the dividend flow to the IDC that keeps his new industrial fledglings alive. It must be very annoying.
• Bruce is a former editor of Business Day and the Financial Mail.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.