A Politician Threatens South African Stability – BusinessWeek

 The head of the ANC’s youth league is calling for widespread corporate nationalization

Julius Malema, the youth leader of South Africa’s ruling party, is known for his fiery rhetoric. On June 20, the firebrand burned even hotter than usual. “The real enemy is white monopoly capital,” Malema told more than 5,000 cheering delegates at a youth league conference in Johannesburg. “They are the ones we are fighting against. In whose hands is this wealth? In whites’!”

The June 20 speech is the latest move by the 30-year-old Malema to prod the ruling African National Congress into nationalizing the country’s major white-owned companies. Malema, who is now driven around in a white Range Rover and wears a Breitling watch, is focused especially on South Africa’s banks, as well as the mining concerns that contribute 8.8 percent of gross domestic product. Malema declined to be interviewed for this story.

Malema took seven years to finish high school after repeating two grades, according to a 2002 interview he gave to Independent Newspapers. He cut his teeth politically as a schoolboy protesting white segregationist rule in the 1990s, then rose through the ranks of the ANC’s youth league, which was founded by Nelson Mandela in 1944 and has long wielded a powerful influence over the party. The youth league provided critical support for Jacob Zuma when he ousted Thabo Mbeki as head of the ANC, enabling him to become President of the country 17 months later.

While the ANC’s elders have worked with the big companies, Malema has espoused views that resonate among the 50 percent of young black South Africans who are unemployed and whose living conditions have improved little in the 17 years since apartheid ended. Malema is so popular with the youth league’s rank and file that he ran unopposed for a second term as leader at its June conference. Malema is flexing his political muscle as the ANC prepares for party elections next year. While Zuma, 69, has said he is available for a second term as party president, Malema has warned that the youth league will ditch leaders who don’t heed its call for a “radical policy shift.” The ANC has distanced itself from Malema’s proposals, yet the party’s top officials have done little to call him to order.

It is getting harder to dismiss Malema as a sideshow in South African politics. Business Leadership South Africa, whose members run the largest companies, and the Chamber of Mines warned in late June that nationalization would be catastrophic for the economy. Both groups, which include Anglo American, the biggest investor in South African mining, and AngloGold Ashanti (AU), the country’s top gold producer, usually lobby behind closed doors.

“Large swaths of the South African population don’t know that this is very much a tried-and-tested route to disaster,” says Michael Spicer, chief executive officer of Business Leadership. There is “a cost in growth forgone, in investment forgone, and employment forgone. That’s an absolute observed reality.”

Such views hold little sway with Malema, who focuses instead on lingering apartheid-era inequalities. Whites account for only 9.2 percent of South Africa’s 50 million people, government data show. White South Africans own about 45 percent of the market capitalization of the Johannesburg Stock Exchange and 55 percent of the country’s land, according to the Institute for Race Relations.

“Foreign investors in South Africa ought to take these events seriously,” Sebastian Spio-Garbrah, Africa analyst at DaMina Advisors in New York, said in e-mailed comments. “Zuma is in the end likely to forge a halfway compromise between the government’s current, relatively orthodox policy positions and the more radical proposals proffered by the ANC youth league.”

The ANC, which won 66 percent of the vote in 2009 national elections, last year commissioned an independent study on the viability of nationalization. It plans to debate its findings next year. For now it is trying to reassure investors. “One of the things that people are beginning to learn is how well we are able to engage in robust debates on very sensitive matters, but come out with an outcome at the end of the day that spells stability,” Deputy Finance Minister Nhlanhla Nene told reporters on June 29.

The government meanwhile has established a state mining company that plans to extract strategic minerals such as coal and uranium. It is also setting up a state bank that will compete with lenders such as Standard Bank and Nedbank.

Stock investors are restless. “The risk associated with future investment in South African mining has increased considerably as seen from the outside world,” says David Brown, chief executive officer of Johannesburg-based Impala Platinum Holdings, the world’s No. 2 platinum producer. Shares of London-based Anglo American, which has major assets in South Africa, are up 19 percent in London trading in the past 12 months. Those of Rio Tinto (RIO), the world’s No. 2 miner, which has far less exposure to Africa’s biggest economy, are up 47 percent, according to Bloomberg data.

Malema may unravel Mandela’s legacy of a nonracial and inclusive society, Helen Zille, leader of the opposition Democratic Alliance, wrote recently. Mandela, who spent 27 years in jail for plotting the overthrow of apartheid, led South Africa from the brink of civil war to its first democratic elections in 1994 by advocating racial reconciliation. Malema’s “aim is to obliterate the historical compact we achieved in the mid-1990s,” Zille wrote in a June 29 opinion piece in Johannesburg’s Business Day newspaper. “He has single-handedly positioned the ANC as a racial nationalist party, exclusive, uncompromising, insatiable in its lust for power.”

The bottom line: South Africa’s bid for foreign investment is undermined by calls from within the ruling party for mines and banks to be nationalized.

A Politician Threatens South African Stability – BusinessWeek.

%d bloggers like this: