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Zuma Fails in Mandela Steps Amid Investor Doubts

October 01, 2012

Zuma Fails in Mandela Steps as Confidence in South Africa Wanes

Six weeks of labor unrest at Lonmin have left at least 46 people dead in a nation that produces about 75 percent of the world’s platinum and is Africa’s largest gold producer. Photographer: Rodger Bosch/AFP via Getty Images

After 16 years of toiling in Anglo American Platinum Ltd. (AMS)’s sweltering Bleskop platinum mine shafts, Giyo says he’s had enough of taking home 5,000 rand ($600) a month and living in a tin shack.

The father of six last month joined an illegal strike by mineworkers demanding minimum monthly pay of 12,000 rand. Giyo doesn’t just fault his employers for his plight. He also blames his impoverished existence on South Africa’s ruling African National Congress. Eighteen years after Nelson Mandela led South Africa out of apartheid, President Jacob Zuma now governs a nation with the worst employer-labor relations in the world.

Such disenchantment runs deep among the nation’s 500,000 mineworkers, whose labor action has cost platinum and gold mining companies more than 4.5 billion rand in lost production this year. The discord reached an apex when police opened fire on striking workers at a Lonmin Plc (LMI) mine on Aug. 16, killing 34 in the most deadly police action in post-apartheid South Africa. That event may spell the waning of the black majority’s faith in the ANC as leaders try to dispel perceptions they’re a political elite pandering to big business for their own interests.

“If the violence goes on like this people will march away from that party,” Giyo, who refused to give his first name for fear of reprisals, said at a worker hostel near the mine, about 100 miles northwest of Johannesburg. “People need somebody who will not only care about themselves, but also care for other people. If you love somebody, he is also supposed to love you, so your relationship can go forward.”

Strikes Spreading

Six weeks of labor unrest at Lonmin have left at least 46 people dead in a nation that produces about 75 percent of the world’s platinum and is Africa’s largest gold producer. AngloGold Ashanti Ltd. (AU:US), the world’s third-largest gold miner, halted output at all its South African mines on Sept. 25, while strikes have shut operations owned by Anglo American Platinum, Gold Fields Ltd. (GFI:US) and Coal of Africa Ltd. (CZA)

The ANC has been the bedrock of the nation since the end of apartheid in 1994, winning more than 60 percent support in every election it has contested. It currently controls almost two- thirds of the seats in parliament, while the Democratic Alliance, the main opposition party, has 17 percent.

At the same time, some of the ANC’s stalwarts bear little resemblance to those they fought to represent. Cyril Ramaphosa, founder of the National Union of Mineworkers and a former ANC secretary-general, is one the country’s wealthiest black businessmen. Tokyo Sexwale, who was jailed on Robben Island with Mandela, has taken advantage of laws designed to give blacks a greater stake in the economy to amass a fortune worth 1.95 billion rand, according to the Johannesburg-based Sunday Times.

Legitimacy Decline?

“What we’re seeing is the decline of the legitimacy of the party system, the trade union system, which is leading to withdrawal, apathy, violence,” Robert Schrire, a politics professor at the University of Cape Town, said in a phone interview. “There is no longer a legitimate structure that can resolve problems. The vital missing cog is the absence of a viable alternative.”

While the government has deployed the army and extra police to restore stability in the mines, hostility toward the ruling party and its labor union allies is undermining investor sentiment.

Moody’s Investors Service cut South Africa’s credit rating one level, to Baa1, on Sept. 27, citing the government’s inability to deal with economic and political challenges. It, Fitch Ratings and Standard & Poor lowered their outlook on South African government debt between November 2011 and March this year to negative, in part because of rising political risk.

Mining Stocks

Mining stocks have suffered as well. Impala Platinum Holdings Plc (IMP) is down 17 percent this year and Anglo American Platinum 21 percent, while Lonmin has fallen 39 percent and Gold Fields 13 percent. The benchmark FTSE/JSE Africa All Share Index (JALSH) is up 13 percent.

“If the social tensions do increase and there is more power in the hands of the workers, that would be a big concern for us,” said Kevin Daly, who helps manage $9.5 billion in emerging-market debt at London-based Aberdeen Asset Management, in a phone interview. He isn’t selling yet, he said.

The extra yield investors demand to hold the nation’s dollar debt rather than U.S. Treasuries has risen 11 basis points since the Aug. 16 shootings, compared with a seven basis- point drop for the average of emerging-market debt. The cost of insuring the debt using credit default swaps over five years has risen 15 basis points to 149, versus a 29 basis-point decline for the Markit iTraxx SovX index of emerging-market nations.

Three Centuries

Zuma, who has led the ANC since 2007, says his party’s delivery record is unparalleled in the developing world and 18 years hasn’t been long enough to undo the damage caused by three centuries of colonial and apartheid rule.

“You can’t say ANC policies have failed,” he said in an Aug. 22 interview with Bloomberg Television in Cape Town. “It is just that people don’t talk about what it has achieved. What people fail to appreciate is the degree, the depth of the problems. You are dealing with a country that has two worlds in one. There were people who were not catered for as citizens of this country, who we are now trying to cater for.”

ANC Treasurer Mathews Phosa rejected the idea that the ANC hasn’t done enough to improve the lives of black South Africans.

“There was apartheid here, we had nothing,” Phosa said by phone on Sept. 27. “We have built it all up from scratch. Everyone has made a lot of money since 1994, not just people in the ANC.”

Zuma’s spokesman, Mac Maharaj, referred questions to government spokesman Harold Maloka, who by phone on Sept. 28 requested e-mailed questions and didn’t respond to them.

Middle Class

During the ANC’s rule, the black middle class has expanded as people benefited from affirmative action employment policies, government contracts and legislation that compels companies to sell stakes to black investors. The number of black South Africans earning an average of 7,000 rand a month or more climbed by a third to 3 million in the three years through 2008, according to a study by the University of Cape Town’s Unilever Institute of Strategic Marketing.

Blacks earned on average 9,790 rand a year in 2008, almost double the amount in 1993, according to research by the Paris- based Organization for Economic Cooperation and Development. While white incomes increased 62 percent in the period, they earned more than eight times what black counterparts received.

The labor strife is compounding a jobs crisis in Africa’s largest economy. One quarter of the workforce is unemployed and almost a third of the population of 50.6 million receives welfare grants.

Lowest Rank

South Africa is ranked the lowest of 144 countries on the World Economic Forum’s index that measures cooperation in labor- employer relations. It has the second-most rigid hiring-and- firing practices, according to the survey of business executives conducted by the Geneva-based forum.

Lonmin ended its strike by giving workers pay increases of as much as 22 percent, an industry record, raising expectations of similar settlements among striking platinum miners at larger rivals Anglo American Platinum and Impala Platinum.

“What’s happened has been a tragic event,” Simon Scott, Lonmin’s acting chief executive officer, told reporters in Johannesburg on Sept. 20. “There’s been a lot of concern by shareholders through this period, particularly international shareholders who often find it difficult to contextualize what’s happened.”

The discovery of gold and diamonds in South Africa in the 1800s underpinned the country’s industrialization and the mining industry still accounts for 8.8 percent of gross domestic product and about two-thirds of exports. Citigroup Inc. (C:US) estimated in 2010 that South Africa had the world’s richest mineral deposits, worth $3.5 trillion.

More Protests

Protests aren’t confined to the mining industry. Poor, mainly black, township residents staged 113 protests against a lack of housing, sanitation and other services in the first seven months of this year, more than in any other year since monitoring began in 2004, according to Municipal IQ, an independent local government research group in Johannesburg.

About 10 million people, or a fifth of the population, lack proper housing, 18 percent don’t have proper sanitation and 24 percent are without electricity, government data shows.

“When you live in a shack with no electricity or running water you feel dirty, you feel naked, you lose self-esteem,” Malesa Mohlala, 24, a resident of Tembisa township near Johannesburg, said in an interview as he hawked the writings of Argentine revolutionary Che Guevara to unionists at a conference. “I’m very angry with the ANC.”

Known Devil

Mohlala says he will still vote for the ANC because there’s no viable opposition and at least the party is “the devil you know.” The ANC played a leading role in ending white segregationist rule, garnering loyalty from black South Africans, who make up 79 percent of the population. The ANC’s dominance is reinforced by its alliance with the 2.2-million- member Congress of South African Trade Unions, the biggest labor grouping.

The number of households with formal accommodation almost doubled to 11 million in 2010 from 5.8 million in 1996, while those with access to electricity increased to 11.9 million from 5.2 million over the same period, the Johannesburg-based South African Institute of Race Relations said in a Sept. 11 report.

Even so, income inequality has widened since 1994, while 35 percent of the population still lives on less than $51 a month. The Gini coefficient, a measure of inequality in which a reading of zero means society is totally equal, worsened to 0.63 in 2009 compared with 0.59 in 1993, according to the World Bank.

Widening Gap

Corruption is also undercutting the ANC’s credibility. Prosecutors dropped a graft case against Zuma less than a month before he was elected president in 2009, while Schabir Shaik, his former financial adviser, was convicted of trying to secure a bribe for him in 2005. Since 2010, Zuma has fired two police chiefs after they were implicated in graft. He also removed Public Works Minister Gwen Mahlangu-Nkabinde in October 2011 for failing to cooperate in a corruption probe.

Ramaphosa, 59, is chairman of MTN Group Ltd. (MTN), Africa’s biggest mobile-phone company, and a non-executive director of Lonmin. He owns listed shares worth more than 3 billion rand, according a survey published on Sept. 16 by the Sunday Times.

Sexwale, 59, who was picked by Zuma to be housing minister in 2009, founded Mvelaphanda Holdings Ltd. 14 years ago. It went on to spawn companies with stakes in gold and platinum producers and the nation’s biggest Sunday newspaper.

Sexwale spokesman Xolani Xundu said in a text message on Sept. 28 that he may respond later. Ramaphosa was unavailable for interviews, Maureen Mphatsoe, spokeswoman for his Johannesburg-based investment company, Shanduka Group, said in an e-mail yesterday.

“What you’ve seen in Libya, what you’ve seen in Egypt, with ordinary people leading themselves, it’s possible it can happen here,” Thobile Ntola, president of the South African Democratic Teachers Union, said in an interview in Johannesburg. “It’s a very dangerous situation and if leaders are not dealing with these questions it’s a ticking time bomb for all of us.”

To contact the reporters on this story: Franz Wild in Johannesburg at fwild@bloomberg.net Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net


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Companies Mentioned

  • AU
    (AngloGold Ashanti Ltd)
    • $13.15 USD
    • 0.32
    • 2.43%
  • GFI
    (Gold Fields Ltd)
    • $4.22 USD
    • 0.14
    • 3.32%
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