Karl Marx observed in his 1851 essay “The Eighteenth Brumaire of Louis Napoleon” that “Hegel says somewhere that all great events and personalities in world history reappear in one fashion or another. He forgot to add: the first time as tragedy, the second as farce.”
I couldn’t help but be reminded of this while reading of the decision by trade, industry & competition minister Ebrahim Patel to retire after the election.
The tragedy of the former trade unionist and true believer’s appointment by Jacob Zuma as minister of economic development in 2009 played out in the height of the state capture years. It’s a close race determining what was more destructive to SA’s growth over that period, state capture or Patel’s approach to the economy.
By all accounts, Patel was corrupted only by his myopic ideological belief in communist central planning. Hard-working to a fault and someone who will walk away proud not to feature in the Zondo commission’s findings given the pressures of such a profoundly corrupt party culture (about the only redeeming feature of his tenure). Overwhelmingly though, he was blind to the needs of a modern, open, sophisticated economy.
In the early 2010s, he quickly set about reshaping competition policy through negotiating far-reaching public interest commitments from companies in large mergers — public interest conditions applied so capriciously that if you ask any dealmaker what the single greatest risk is to execute a transaction in SA and without hesitation this area of our labyrinthine legal and regulatory system is first on the list.
It all started with the Walmart deal in 2010, when the US retail behemoth made an offer to acquire 51% of Massmart for R16.5bn. Massmart’s entire market cap by the close on Friday was just more than R12bn, valuing that 51% stake at R6bn, showing what a terrible deal this was for Walmart shareholders. Yet, the Americans were forced to jump through all sorts of hoops on retrenchment and establishing a R100m supplier development fund.
Imposing conditions
That was the first transaction in which Patel formally intervened and sought conditions beyond just a guarantee of no retrenchments. At least the Competition Appeal Court in that case insisted on evidence of harm to local supply chains as a basis for imposing conditions.
In his second coming as minister of trade, industry & competition, his legacy enters its farce period. Remember when we thought it couldn’t get worse than that arch red, Rob Davies? Patel ably filled his predecessor’s baggy pants and shoes and then some.
He hit on the idea that he could burgle almost any big deal because he could cause delays, and started suggesting business avoid it by agreeing with him on a “framework agreement” outside the Competition Commission process, which AB InBev and others did, regrettably.
The problem with Patel, as someone who never actually started a business, raised risk capital and put it all on the line, is that he never saw mergers as a big risk for business or something to be grateful for when SA competes on the global stage as an investment destination.
So, instead of raising merger-specific competition or public interest concerns, he has relentlessly abused the merger review process to extract commitments (often to shore up his disastrous master plans). For example, almost all local clothing retail mergers have been subject to the condition that the companies increase local procurement (but of course he hasn’t done anything at all about imports by Shein).
The problem with Patel, as someone who never actually started a business, raised risk capital and put it all on the line, is that he never saw mergers as a big risk for business or something to be grateful for when SA competes on the global stage as an investment destination — just an opportunity to extract rents from shareholders.
He never considered that the money to fund conditions must actually come from somewhere — money spent on his supplier funds and capex is not then spent by business on strategic projects that actually grow the business.
Parting shindig
He allowed (encouraged) the commission to publish its public interest guidelines to shore up his election reporting efforts, without considering that these deeply undermine the independence and credibility of the competition authorities in the eyes of the global investment community.
One need only look at his department’s parting employee share ownership shindig, complete with an address by the president and a video. The mind boggles. Pure ANC electioneering, of course, at taxpayers’ expense.
All of it is made possible by the commission, whose chief function is now hijacking mergers to obtain more shares for “workers” and extracting maximum rents from big companies in market inquiries that can then be claimed as “savings”. (In a presentation to parliament, the commission thinks the online platform market inquiry has “saved” R1.16bn.) Robin Hood economics.
The irony is that every time the commission finds a way to force SA businesses to pay more (to small suppliers, to black-owned customers, to workers), it increases their costs, and these increases have to be funded.
Research from Investec shows that for the eight years to February, foreign investors dumped just more than R1-trillion worth of our stocks, evidence of a relentless erosion of confidence in SA.
The question now for business and this blood-drained economy is whether another Marxist vampire will sink its teeth in after Patel or we’ll finally have a citizen of the 21st century in charge. I’m hearing that Tshediso Matona, a long-time government mandarin and economist by training, stands a good chance. If he makes it, it will be the first time in more than 15 years that we don’t have a communist at the heart of the economy. That’s already a win.
As Cosatu wrote in a tribute to Patel without any sense of irony, “This is a good story, and one that has been made possible by the ANC.”
• Avery, a financial journalist and broadcaster, produces BDTV’s ‘Business Watch’. Contact him at Badger@businesslive.co.za.
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