Politics Starts to Unsettle Investors

Home , Angie Motshekga, Julius Malema

School test Poor education is seen as a main reason for unemployment, says SOUTH AFRICA Simon Mundy Page 3 FINANCIAL TIMES SPECIAL REPORT | Friday November 4 2011 www.ft.com/southafrica2011 | twitter.com/ftreports

Inside Banking the poor Thousands of retailers have taken on the Politics starts to unsettle investors additional role of banker Page 2 Andrew England Banking The big four are convinced they will escape considers the the worst of the global fallout but some see country’s reputation trouble ahead Page 2 as the continent’s The economy Poor powerhouse performance has been blamed on events hen the lead- elsewhere but internal ers of China, dynamics have also been India, Russia at play Page 2 and Brazil Wgathered this year for the Guest column The third Brics’ summit, South most pernicious aspects Africa was welcomed as the of the Protection of newest member of the elite Information Bill have been group of fast growing chipped away Page 3 emerging markets. The country lags behind Unemployment Jacob its peers in terms of the size Zuma has identified job of its population and econ- creation as a priority but omy, as well as its growth the country’s jobless rate rate, which has been slug- is among the highest in gish. the world Page 3 But the decision pointed Mining A debate over to the shifting world order, nationalisation has added with increased south-south to frustrations for an trade and reaffirmed South industry that should have Africa’s position as a politi- been enjoying happier cal and economic power- times Page 4 house on its home continent. Investment hub Jacob Zuma, the presi- Walmart deal is seen as a dent, used the occasion to Elite club: India’s Manmohan Singh, Russia’s Dmitry Medvedev, China’s Hu Jintao and Brazil’s Dilma Rousseff, invite Jacob Zuma (far right) to their emerging markets party AFP vote of confidence in the laud his country – also a country’s potential as a G20 member – as one that year, down from 3.4 per (Cosatu), part of the govern- deficiencies, its infrastruc- government departments, continue to build up “If South Africa uses this springboard to the rest of leads Africa in “terms of cent, while predicting 3.4 ing alliance, said: “There is ture is still by far Africa’s was seen by the business and the party’s support [global] recession to build the continent Page 4 mineral and industrial out- per cent for 2012, revised a poisoned atmosphere of most developed. community to tarnish declines. infrastructure capacity, it put, electricity generation, down from 4.1 per cent. divisions and fast forming South Africa is also cred- South Africa’s image as an Nazmeera Moola, director means you come out of it in The JSE Jeremy Grant infrastructure, sophisti- That is healthier than cliques and cabals, pigeon- ited with high standards of investor-friendly destina- at Macquarie First South, an environment where they talks to cated financial markets and many developed economies, holing of unsuspecting indi- corporate governance and tion. says: “What you are start- could actually get to 5 per Russell service industries”. but falls well short of the viduals, innuendo, gossip, high-quality regulation of There is also a sense that ing to see, especially from cent growth. “But it’s a Loubser, He said it was natural rate the country needs to back-stabbing, character its financial services. politics is playing a greater a foreign investor’s perspec- question of using the oppor- (right) the JSE’s chief that the country’s partners tackle high unemployment, assassination, political and While the $2.4bn Walmart role in investors’ decisions tive, is that politics in tunity.” The problem, she executive would look at South Africa an important theme of Mr even physical assassina- deal highlighted positives than previously, amid South Africa matters. says, is “the political envi- Page 4 as a springboard into the Zuma’s administration as tions.” for the country, loud resist- concerns that the ANC Whereas for years it didn’t, ronment is so messed up region and a source of guid- social pressures mount. Mr Vavi has been equally ance to the transaction could slide down a populist in the past year it has that no one is making deci- ance on economic develop- The country lost about forthright in his condemna- from unions and three route, as social problems become an issue.” sions on critical variables”. ment opportunities. 1m jobs as a result of the tion of corruption, amid the Even if analysts ques- 2008/2009 economic crisis, perception that cronyism, tioned South Africa’s right and the 25 per cent unem- patronage and graft are on to be in the Brics grouping ployment almost doubles the increase. on economic and demo- for the young. Mr Zuma dismissed two graphic grounds, its admis- Mr Zuma has pledged to cabinet ministers and sus- sion to the club was consid- create 5m jobs by 2020, but pended the police chief last ered a diplomatic success the target looks increas- month, after they were for the president. ingly unrealistic. The finan- alleged to have been But if Mr Zuma reflects cial sector, by far Africa’s involved in scandals relat- on the year, he could strug- largest, most developed and ing to misconduct and the gle to find similar positives. best regulated, emerged misuse of public funds. His African National Con- from the 2008 crisis rela- But the worry is that the gress party dominated local tively unscathed, but banks messy political environ- elections in May, but its and the private sector ment is unlikely to improve support fell in all but one of remain cautious. until at least the end of the nation’s nine provinces. Furthermore, domestic next year, or even beyond Mr Zuma’s own position constraints are impinging until the next national elec- has also become the subject on growth prospects, with tions in 2014. of increasing scrutiny, amid electricity capacity limita- Prince Mashele, executive speculation that he could tions and rail bottlenecks director of the Centre for face a leadership challenge blamed by businessmen for Politics and Research, says: when the ANC holds its “The old ANC, the digni- five-yearly elective confer- fied, cohesive ANC – if you ence in December 2012. Nearly half the were to ask ‘Does it exist Julius Malema, mean- population lives today?’, I would certainly while, the leader of the say it doesn’t and that has ANC’s Youth League and below the poverty serious implications for the one of the country’s highest line and inequalities state. profile politicians, has “When there’s internal courted controversy, reiter- still blight post instability in the ANC as a ating his calls for the expro- ruling party, the effect is priation of white-owned apartheid gains instability in the state.” land and the nationalisation The result, he says, is of mines – exacerbating a holding back industry’s something akin to a confed- mood of investor uncer- potential, particularly in eration of ministries, with tainty in the mining indus- the mining sector. “each minister doing what try, one of the country’s Analysts say poor quality they like”. most important sectors, education, low skills and It is a situation the coun- which has underperformed inflexible labour laws are try can ill-afford, with its global peers through the hurting job-creation efforts, nearly half the population commodity boom. with unions, which are part living below the poverty The subject of a party dis- of the governing alliance, line and gaping inequalities ciplinary hearing that could enjoying a powerful role. continuing to blight gains see him suspended or An agreement between the country has made since expelled, Mr Malema is seen clothing factory owners and the end of apartheid in 1994. as the public face of those that industry’s union to The past three years have plotting against the presi- allow employers to reduce seen an increase in protests dent. minimum wages by 30 per by township residents His case has illustrated cent for new entrants angered at the poor delivery the factionalism plaguing showed compromise is pos- of services. the ANC, with people sible and might set a prece- Still, when Mr Zuma within and outside the dent for other sectors. spoke of South Africa’s party describing it as being The broader concern is potential as the springboard in crisis. that the country is bur- for investors to enter The pace of economic dened with weak leadership Africa, he was pointing to growth has disappointed and is drifting, as social and advantages economists and after a bright start in the economic pressures mount. business leaders agree the first quarter. Global eco- Critics say Mr Zuma is inde- country can capitalise on. nomic concerns and a wave cisive, seeking to appease As an example, Walmart of strikes, have caused factions in his party and used the acquisition of a downward revisions of stave off any challenge to South African company, growth in gross domestic his position. The conse- Massmart, to become the product for this year and quence is a sense of politi- first mass retailer to enter next. cal malaise. Africa. In his midterm budget In a speech last month, The country’s corporate statement, Pravin Gordhan, Zwelinzima Vavi, general sector is the largest and the finance minister, fore- secretary of Congress of most sophisticated on the cast 3.1 per cent growth this South African Trade Unions continent, and in spite of

Power struggles blight the ANC

nary. It should be a jubilant Politics milestone that reflects the history of a movement that Andrew England has spawned leaders such on a sense of crisis as Nelson Mandela, Oliver Tambo and Walter Sisulu. Julius Malema: controversial in the ruling party But the January 8 cele- brations look set to be over- about whether Jacob Zuma, shadowed by a sense of cri- the president, will face a The African National Con- sis within the party, which challenge to his position. gress, a movement that led is increasingly divided and And 2011 is ending with a the struggle against apart- in danger of seeing its disciplinary hearing against heid and which has enjoyed broad support slip as it Julius Malema, the leader 17 years of virtually uncon- struggles to tackle poverty of the ANC’s Youth League, tested rule since winning a and create jobs. who has been embroiled in landslide at South Africa’s This year, the ANC has controversies that, for first democratic election in been blighted by power many, represent the state of 1994, will begin the new struggles that have trig- year celebrating its cente- gered mounting speculation Continued on Page 2 2 ★ FINANCIAL TIMES FRIDAY NOVEMBER 4 2011 South Africa Lessons on saving when you go to the shop Power as Tembisa – who have taken on advanced economy, an esti- they required. But ultimately, new customers. About 5m of its mercially viable and clients struggles New customers the additional role of banker for mated 12m are unbanked people by focusing on the service, you 7m retail account holders in move along the product chain. the poor. in South Africa. find you have many more South Africa earn less than The hope is that it will begin to Andrew England She is part of an initiative by World Bank experts say simi- options available, including R8,000 a month. Many of them return a profit by 2014 or 2015, blight reports on efforts to Standard Bank, Africa’s largest lar programmes of “agency shopkeepers.” are described as “sweepers” – officials say. bank by assets, to connect with banking” – leveraging off retail- Armed with the tools of her clients who withdraw their “There’s no difference do business in rural some of the millions of South ers – have proved successful in new trade – her mobile phone money as soon as it is paid in, between these products and the parts of the country Africans who do not have bank Latin America, helping break and a point-of-sale device – Ms thus generating little business conventional products in the the ANC accounts by teaming up with down geographic and social bar- Puseletso can open new for the bank. bank and [we] do it in a compet- grocers, bottle shops and others riers that put poorer people off accounts, accept deposits and While an account at a tradi- itive way. We are doing this Continued from Page 1 Elisabeth Puseletso looks out to set up “bank shops”. banking. tional branch costs Standard because we want to beat the through the steel grill of her Since formally launching the In Malawi and Kenya banks, ‘We need to R245 a month to operate, those competition,” Mr Tshabalala the party. Once an important tavern in Tembisa township and scheme last year, Standard has have also used mobile vehicles focus on in the shop banks cost R55 as says. “There’s a trend of South supporter of Mr Zuma, Mr flashes a smile that reveals gold opened more than 8,000 “bank in a bid to do business in rural services the bank piggybacks on the African banks finding that they Malema is now considered the teeth before offering her shops” with a target 10,000 by areas as competition heats up rather than retailers’ infrastructure. have no alternative but to public face of those plotting thoughts on the traditional con- the end of the year, which com- and new technology helps trans- institutions’ – The shop owner, meanwhile, respond to the forces that are against the president and has cept of banking in her sprawling pares with 743 branches and form African banking. Samuel makes commission on transac- impinging on them – and those attracted reams of media cover- neighbourhood. 6,900 ATMs it has in South Without improved access to Maimbo tions and can benefit from the forces are to find ways of mak- age for his calls for the national- “Before they [people in the Africa. finance, the continent will not increased trade attracted by the ing more people enter the bank- isation of mines and the expro- township] just ate their money – The initiative follows on from achieve the growth levels it provide withdrawals. Opening banking services. ing system.” priation of white-owned land. just spent it every day because the success of mobile banking in needs to develop, says Samuel an account is free and the fees “The beauty of all that is that Ms Puseletso says she has His disciplinary hearing, they could not hide it,” she Africa where infrastructure bar- Maimbo, a finance expert at the are substantially cheaper than we meet the national impera- already noticed behavioural ostensibly for bringing the ANC says. “Most of them did not riers, poverty and poor educa- World Bank. “We need to focus the high rates conventional tive, we meet the societal changes. “Now they understand into disrepute, began in Septem- understand using banks before tion mean the continent is the on services rather than institu- branches charge, with a mini- demand … giving people access they can bank R50 or R100 and ber and is reaching its conclu- because they thought banks world’s most unbanked. tions,” he says. mum R10 fee for withdrawals to banking at a price acceptable at the end of the month they sion. were for people who have Just 20 per cent of African “In the past, many countries and deposits. to them,” says Sim Tshabalala, have money,” she says. “When The 30-year-old faces possible money.” families have bank accounts, had specific rules about what a For Standard Bank, the initia- deputy group chief executive at they come to us, we explain and suspension or expulsion from The stout, no-nonsense 42- according to the African Devel- branch had to look like, how tive has the dual intentions of Standard. they start to understand the party and the hearing’s out- year-old is one of thousands of opment Bank. And in spite of much concrete, how many win- reducing costs of servicing low- But the challenge is to ensure because they live with us every come could be crucial in Mr retailers – all in townships such boasting the continent’s most dows and what level of security income clients and attracting the programme becomes com- day.” Zuma’s attempts to run for a second term. The result of these various factors has been a party looking in increasing ill-health. The ANC holds its policy conference in June next year, followed by its five-yearly elective congress Set to escape in December. Both meetings are likely to be dominated by internal wrangles, with observers already seeing the worst echoes of the party’s 2007 conference at which Mr Zuma’s supporters joined forces to oust Thabo Mbeki, then president, in a rare show of public dissent. of the fallout That paved the way for Mr Zuma to win the presidency in 2009, but only after he had sur- increase their unsecured lend- vived corruption charges. Banking ing books aggressively – unse- He has since faced accusa- cured loans rose 61 per cent in tions that he merely seeks to Simon Mundy reports the year to June. This “defi- appease the disparate factions on a sector that is sure nitely” raises the prospect of a that joined forces to back him to new rash of bad loans, Mr oust Mr Mbeki, at the expense of of its management Kruger concedes. steering the country in a clear and prudence Default rates have not yet direction. reached dangerous levels. But Kgalema Motlanthe, the dep- with household debt near record uty president, recently told the As economic uncertainty sparks levels at almost 80 per cent of FT that the ANC was “stable” fears for the health of the global annual income, analysts say but acknowledged that there financial system, South African that any bank looking to had been a change in political bankers are expecting to escape increase its consumer lending and mental attitude among the worst of the fallout. Pressed may enter dangerous ground. members as the movement has on their ability to withstand Investment bankers have also enjoyed the trappings of power, economic shocks, they cite a had a tougher time since the referring to some people putting conservative management cul- recession. Broadly flush with self-interest first, above the ture, prudent regulation and cash, corporations are showing party or state. limited exposure to the US and little appetite for capital raising “That is a problem,” he said. European banking systems. while merger and acquisition “And it’s not just the new peo- “I don’t believe there’s cause activity is muted. ple, even the older people. There for concern,” says Mike Brown, Recent months have seen are changed circumstances chief executive of Nedbank, the some signs of a recovery in because the material conditions country’s fourth-biggest bank by lending to corporations, but are what shape the conscious- market capitalisation. “We came weak demand means overall ness.” through the last crisis well – no credit growth remains tentative. Prince Mashele, executive banks failed, no banks required This has underlined the director of the Centre for Poli- any government guarantees. importance of expansion in the And all of our banks now have rest of Africa, which pro- Kgalema significantly higher capital lev- vides less than a tenth of the Motlanthe, els.” banks’ income. Growing invest- deputy The banks still suffered dur- ment in telecoms, natural president, ing the 2008-9 recession, with a resources and infrastructure is says the painful spike in bad consumer presenting lucrative opportuni- ANC has debts. At Standard Bank, the ties in trade and project finance. struggled country’s biggest lender, bad As sustained growth fuels the loans more than doubled in 2008 emergence of a new middle Mass action: members of the ANC’s Youth League stage a protest march demanding economic freedom Getty tics and Research, says the to R11.3bn ($1.5bn). But default class, millions are set to enter Malema saga epitomises the rates have since improved sig- the formal banking market. problems in South Africa – nificantly, and while the debate This potential has attracted chaos in the ANC: growing frus- in Europe centres on how big a the attention of larger foreign tration among many in the capital injection will be needed groups, which view investment ‘Strike season’ puts black majority over the failure to rescue its banks, South Afri- in South African banks as a way to improve services and hasten can banks are wondering to participate in the expected economic transformation and whether to return spare cash to benefits. Analysts expect a for- rising corruption and cronyism. shareholders or plough it into eign bank to swoop on Ned- Mr Mashele believes the ANC expansion. bank once markets stabilise, – since its birth in 1912 a broad The “big four” – Standard despite an abortive approach by pressure on performance church of differing views – has HSBC last year. Barclays is struggled to adapt from the rev- placing increasing emphasis on per cent. Economists have Reserve Bank, as inflationary a R25bn “competitiveness olutionary party battling apart- ‘I don’t believe its partnership with Absa, in The economy revised downwards their growth pressures have been on the rise, support package” over six years heid with a clear enemy in its there is cause which it bought a 60 per cent forecasts for the year, from while growth prospects have to help boost industrial sights to a governing move- for concern’ – stake in 2005. Chinese corpora- The investment climate about 3.5 to 3 per cent. dimmed. development and accelerate job ment. Mick Brown, tions have viewed Standard has been damaged by The poor performance is Credited for its prudent creation. “So this theory that because chief executive Bank as an “in-house bank”, partly the result of the negative monetary policy, the central But the treasury’s target of the ANC is old it is strong is a of Nedbank since Industrial and Commercial policy uncertainty, global outlook and external bank traditionally aims to keep hitting 7 per cent growth to fallacy,” he says. “What killed Bank of China bought a 20 per says Andrew England shocks. These included the rise inflation within a band of 3 to 6 reduce unemployment looks the ANC is the question of the Bank, Absa, FirstRand and cent stake in 2007, Mr Kruger in oil prices as the Arab spring per cent. It rose to 5.7 per cent increasingly remote. “The pri- relationship between ruling Nedbank – posted like-for-like says. spread across the Middle East, in September and is expected to vate sector is in very good party and state power and the net profit increases of between South African banks’ expan- hen Jacob Zuma, and the Japanese earthquake, breach the 6 per cent ceiling in financial shape, but it’s not resources that emanate from 10 and 26 per cent in the first sion in the continent, however, the president, which affected the delivery of the fourth quarter and peak in deploying that money,” Mr that.” half of this year. Substantial has not always been smooth. delivered his goods to South Africa, particu- first quarter of 2012 at about 6.2 Lings says. Next year “is going In spite of its problems, the retained earnings since the FirstRand’s acquisition of a annual state of the larly for its auto industry. per cent. to be equally as tough – it is ANC is still the dominant force financial crisis mean they now Zambian bank was vetoed in Wnation address in February, he But internal dynamics have Foreign outflows from bonds clear that South Africa is going in politics and is likely to have “a huge amount of excess October by the country’s new pledged that 2011 would be “a also been at play, including a and equities have also contrib- to stagnate unless we create remain so. During local elec- capital” when viewed in light of government. Nedbank has car- year of job creation”. “strike season” that saw hun- uted to volatility of the rand, jobs, there’s no real way round tions in May, the party lost sup- the Basel III requirements set ried out due diligence on several With unemployment running dreds of thousands of mine, which has traded in a range of that”. port in all but one of the nine last year, says Rob Nagel, a acquisition targets, but has been at about 25 per cent – a figure energy, petroleum, metal and R6.58 to R8.25 to the dollar this Mr Zuma has pledged to cre- provinces, while the main oppo- portfolio manager at Cadiz unable to find “the right strate- that doubles for South Africans paper workers down tools to year, depreciating sharply in ate 5m jobs by 2020 and the gov- sition, the Democratic Alliance, Asset Management. gic fit”, Mr Brown says. Some aged 15 to 24 – the president was demand higher wages. recent weeks. ernment had adopted a “new increased its support across the Nonetheless, bankers are analysts warn that the pros- addressing one of the biggest The investment climate has A weakening of the currency growth path” identifying infra- nation. awaiting their regulator’s inter- pects for African banking may challenges facing the country. also been damaged by a sense of could benefit exporters, who structure, mining and agricul- But the DA, led by Helen Zille, pretation of the Basel III accord, be overhyped. Yet, by the middle of the year, policy uncertainty in the coun- have repeatedly complained ture “value chains”, the green a former journalist, still only expected in the next few “There isn’t enough revenue it was disclosed that the number that its strength has been economy, manufacturing and garnered about 24 per cent of months, with some apprehen- to offset the higher cost bases,” of people out of work had hurting their competitiveness, tourism as priority areas. votes against the ANC’s 63 per sion. While they comfortably Mr Brown concedes. “I don’t increased, as Africa’s largest ‘It is clear that but it adds another risk to infla- But the plan has done little to cent. Analysts believe the exceed its requirements for core think there will be significant economy has struggled with the South Africa is going tionary pressures. lift confidence amid complaints ANC’s support will slowly tier one capital ratios at group returns in the short term, but if slow pace of its recovery from The Reserve Bank has kept of policy uncertainty. decline, but the opposition is level – FirstRand leads the pack you wait, investments will be the economic crisis. to stagnate unless we its repurchase rate unchanged not yet seen to pose genuine with a ratio of 15 per cent, unaffordable.” “This year has been disap- create jobs. There’s no at 5.5 per cent throughout the competition. against the 6 per cent Basel III There are new markets in pointing and our bounceback year – its lowest level in The DA suffers from being minimum – the reform will force South Africa, too. Executives at from the 2008 crisis has been real way round that’ 30 years. The monetary policy Contributors perceived as a party of the higher capital levels in some the big banks admit that they muted,” says Andre Roux, co- committee discussed a cut at its Andrew England white minority – a card ANC parts of their businesses. More paid insufficient attention to the head of fixed income at last meeting in September, but Southern Africa Bureau Chief officials regularly play. A fac- significantly, it will force country’s poor in the decade Investec. try, which has been exacerbated decided to keep it on hold. tion of Mbeki supporters broke changes to established funding after apartheid. This opened an Part of the reason, he says, by a debate over the nationalisa- But some analysts have sug- Simon Mundy away from the ANC after 2007, structures. opportunity for Capitec, founded was the nature of growth before tion of mines, fuelled largely by gested there could be a cut at Companies Reporter forming the Congress of the Peo- “The mortgage market tends in 2000, which has gathered 5m the global economic crisis, Julius Malema, the radical some point in the future, as ple (Cope), but it is weak and to be funded by shorter-term customers with flexible, low-cost which was driven mainly by leader of the African National growth concerns outweigh the Jeremy Grant suffering from its own divisions. Editor, FT Trading Room institutional deposits, so there products, and is threatening the financial services, consumer Congress’s Youth League. inflationary pressures. Many black voters retain an is a mismatch in terms of liquid- customer base of its bigger spending, and construction, a Kevin Lings, chief economist In his midterm budget state- Stephanie Gray emotional attachment to the ity and funding,” says Ben rivals. sector boosted by a housing at Stanlib, says: “The strike ment, Pravin Gordhan, the Commissioning Editor ANC because of its role in Kruger, deputy chief executive Helped by innovations such as shortage and preparing infra- activity and the damage to man- finance minister, forecast 3.1 per defeating apartheid. of Standard Bank. “[Basel III] mobile phone banking, they structure for the 2010 football ufacturing has definitely been a cent growth this year, down Steven Bird And for all the talk of leader- clearly will require much longer have joined the chase for the World Cup. big contributor to the slowdown from 3.4 per cent, while predict- Designer ship challenges, Mr Zuma, a dated deposits,” pushing up low-earning customer. Prospects Those sectors have since gone in GDP in the second quarter ing growth of 3.4 per cent for proven political survivor and banks’ funding costs, he adds. in the underserved African mar- flat, with banks and businesses and has fed into downward 2012, revised down from 4.1 per Andy Mears wily operator, could navigate Picture Editor Meanwhile, some see cause for ket remain unclear, says adopting a cautious approach revisions.” cent. his way through next year’s alarm in a number of emerging Stephen de Stadler, head of and the construction sector in “I suspect there could be a Mr Gordhan said the budget conferences as it is unclear that For advertising details, contact: trends. A bleak outlook for the Fitch Ratings’ operations in the doldrums. further downward revision, deficit will be 5.5 per cent of there is enough unity among his Mark Carwardine property market means Ned- Africa and the Middle East. The year began relatively because we’ve got a lot of cost GDP this year, against a opponents to dislodge him. Phone +44 020 7873 4880 bank is “comfortable to be los- “Just as the mobile operators well, with gross domestic prod- pressure hurting our consumer treasury forecast of 5.3 per cent The big question will be Fax +44 020 7873 3204 ing market share” in mortgages, underestimated the value of uct growth of 4.5 per cent in the activity and the consumer is not in February, with tax revenue whether the ANC can get its Email: [email protected] Mr Brown says. mobile phones in Africa, the first quarter, but that was fol- taking credit to compensate.” of R13bn below the treasury’s house in order to more effec- or your usual representative Sluggish demand for home same thing could be relevant for lowed by an anaemic perform- It is an environment that is estimate. tively tackle social and eco- loans has pushed banks to the banks,” he says. ance in the second quarter of 1.3 causing difficulties for the He also announced last month nomic pressures. FINANCIAL TIMES FRIDAY NOVEMBER 4 2011 ★ 3 South Africa

Mission employable Opportunity knocks Early on a hot morning in the Nicholas Motaung, 24, on a A system that fails the young impoverished township of break from cleaning a local clinic. Diepsloot, a dozen figures in “If I keep working here and orange overalls tend a field of marketing myself, I think I’ll find beetroot, cabbage and lettuce, a permanent job.” Education the silence broken only by the The goal of “making people clink of hoes and shovels. For more employable” is central to Simon Mundy looks most, it is the first regular work the CWP, says Caroline O’Reilly, at schools that that they have done for years. a director of Teba Development, The labourers are among one of two agencies that oversee are failing the 97,000 people employed under the programme at a national country’s young the Community Work level. Programme, set up by charitable The CWP’s organisers hope to groups in 2009. In July, the attract the attention of corporate he chattering rises as government identified the CWP social responsibility schemes. Old Mavis Machaba turns to as an important part of the fight Mutual, the insurance group, has leave the classroom, against unemployment, and been sending teams to train only to subside immedi- promised to give it sufficient participants in managing their Tately at her instruction to funding to reach 1m participants finances, but has not yet been “remember your self-discipline”. by 2014. joined by other large companies. Ms Machaba, who has spent Partly because of its weak Ms O’Reilly emphasises that 11 years teaching at Johannes- education system, South Africa’s the projects should not be seen burg Girls’ Preparatory School unemployment rate is among the as offering longterm in the troubled district of Hill- highest in the world. Jacob Zuma employment, and must work in brow, holds high hopes for her has identified job creation as a tandem with permanent job class of 10-year-olds who say priority, but the economy has creation by both the private and they want to become doctors, shed jobs since he became public sectors. “It’s not a job; it’s lawyers and police officers. president in 2009, particularly a safety net,” Ms O’Reilly says. JGPS, a former whites-only among younger people. Nonetheless, a lack of school, is better equipped than This year, the government permanent opportunities means the weakest schools in South launched a R9bn “jobs fund”, that some of those on the Africa, which routinely rank aimed at creating 150,000 work projects expect to be involved near the bottom of international places over three years. with them for years. Few in league tables. While the pupils However, some government South Africa predict a rapid are now nearly all black, the policies – such as a wage improvement in the country’s school benefits from the library subsidy for unemployed youths – damagingly high youth and other facilities built under High hopes: Mavis Machaba’s class of 10yearolds say they want to become doctors, lawyers and police officers Dave Mayers have been opposed by the unemployment rate of about 50 the apartheid regime. influential trade unions, which per cent – a “ticking time Yet even here, the wider prob- says, describing a renewed which have been rolled out over had about 250 teacher training inflation-busting 7.5 per cent voice concern for the job bomb”, according to Kgalema lems dragging down standards focus in Ms Motshekga’s depart- the past four years. Students colleges, which has now shrunk wage rise. security of existing workers. Motlanthe, deputy president. are conspicuous. Parents, many ment after years of incoherent with good grades are offered to about 23 higher education Mugwena Maluleke, general Government support for the Yet the low level of wages on schooled under the restrictive leadership. scholarships to train as teach- institutions. Quite clearly, the secretary of Sadtu, rejects accu- CWP will allow it to expand the offer puts many urban youths off apartheid-era “Bantu education” Last year, Ms Motshekga ers on the condition that they higher education system cannot sations that his union concen- reach of its projects, which offer the CWP, and most of the system, are often unable to help, abandoned a controversial “out- spend a set period teaching in a supply the number of teachers trates on teachers’ rights while workers eight days’ work a workers at Diepsloot – while meaning homework is fre- comes-based” system that was needy area. If they decline to do required, because the number is neglecting those of schoolchil- month, for a modest stipend of grateful for any extra income – quently undone, Ms Machaba criticised for its overly complex so, they must pay back the cost just enormous.” dren. R60 ($7.60) a day. Those who complain that the daily wage says. curriculum and heavy adminis- of their training. A study this year by the Cen- “For quality public education, perform well can be promoted to should be higher. If Ms Machaba’s 37 pupils con- trative burden. The pass rate in Michael Samuel, dean of the tre for Development and Enter- you need quality teachers, moti- a fulltime role, offering about Ms O’Reilly defends the low form to the national average, 24 the “matric”, or high school education faculty at the Univer- prise found that South Africa vated to deliver that public R1,800 a month. wage. “The more you raise the will drop out before completing graduation exam, rose last year needed 25,000 teachers a year, good,” he says. “We’re fighting The focus is on work that allowance, the fewer people you high school. Just eight will pass after seven years of decline – but was producing only 9,000. to professionalise. Most of our benefits poor communities: can employ in the projects,” she the high school graduation although at only 67.8 per cent, The poor quality Yet a more deep-rooted problem schools don’t have cleaners, so assisting teachers in crowded says. exam, two or three of them with it is still regarded as too low. education system is is the strength of the trade the teachers have to clean the schools, producing food for the Dennis Dykes, chief economist grades good enough to enter One widely cited factor unions, which weaken the schools themselves.” needy, or delivering drugs to at Nedbank, says that the CWP university. Between the ages of behind the weak system is the seen as the main accountability of teachers, says Mr Maluleke says the educa- HIV/Aids sufferers. will help to address the “key 16 and 24, more than half will be government’s decision in the factor behind a Ann Bernstein, head of the tion budget is largely swallowed The workers at Diepsloot, problem” of unemployed people unemployed. 1990s to close teacher training CDE. by “political administration” at north of Johannesburg, speak of who have no experience of the The poor-quality system is colleges in the belief that all stubbornly high Ms Bernstein’s research various levels of government. a sense of renewed pride, both workplace. seen as the main factor behind a teachers should be trained at found that many teachers, par- Ms Motshekga has pledged to in themselves and in their However, he criticises the stubbornly high unemployment universities. unemployment rate ticularly in rural areas, were introduce a performance evalu- community. The township sprang government for doing too little to rate of 25.7 per cent that rises to The universities have been regularly failing to turn up for ation system next year to make up in the late 1990s, as poor boost job creation in the private more than 50 per cent among unable to produce enough sity of KwaZulu-Natal, says the work, in part because they managers more accountable. people sought work in the sector. “It’s not addressing the young people, a problem that teachers to meet demand, scheme has become “quite a believed they would be pro- But despite signs of progress, prosperous nearby suburb of overall business environment and contributes to high crime rates. partly because many graduates prestigious thing. The quality tected by the South African there are also indications of Fourways, and is now one of the creating confidence and stability Angie Motshekga, basic edu- choose to pursue other profes- has got better each year in Democratic Teachers’ Union. decaying standards in regional most impoverished urban areas within that sector,” he says. cation minister, has described sions. The problem is com- terms of the number of more Sadtu was criticised last year, government, Mr Prew says. in the country. CWP projects in “And until they do that, you’re the situation as a “crisis”. This pounded by the limited training committed students coming after it participated in a month- “An organisation like mine Diepsloot, employ about 900 not going to see strong is an encouraging sign, says of many older teachers. into the programme”. long public sector strike. Stu- won’t get contracts with some people. employment growth.” Martin Prew, director of the There are hopes that the But the state has not done dents preparing for their high departments, because we’re not “If I didn’t do this, I wouldn’t Centre for Education Policy number and calibre of new enough to increase capacity at school exams were reduced to prepared to pay a bribe – I don’t be doing anything,” says Simon Mundy Development. teachers will be boosted by university education depart- teaching each other until remember that ever being the “She’s calling it what it is,” he “service contract bursaries”, ments, Prof Samuel adds. “We the government conceded an case before.” Campaign against ‘secrecy bill’ wins concessions

consideration by the welcome escape for hegemony of the ruling Guest column government and the ruling citizens. party. MONDLI MAKHANYA party were chilling Whereas most Gwede Mantashe, ANC warning signs of the newspapers are published secretary-general, even In August 2010, as South growing hostility towards in English and Afrikaans, made a clarion call to ANC Africa was basking in the the media in powerful a recent phenomenon has members during this year’s afterglow of the Soccer sections of the ANC. been an explosion in Zulu municipal election World Cup, the country’s South Africa had, in its language newspapers. Over campaign to treat the editors and journalists 17 years of democracy, the past decade the media as “the main gathered at the offices of developed a vibrant media circulation of established opposition”. the Avusa newspaper climate. Zulu language newspapers Blade Nzimande, group for an emotional As soon as apartheid has shot up while several minister of higher protest meeting. made way for a non-racial new titles have been education and Communist Under discussion were democracy in 1994, the established. Last year, even party boss, described the proposed media-hostile media did not hesitate to the 103-year-old Sunday media, which he regards measures being pushed use the new space to keep Times responded to this as unaccountable, through Parliament and the government on its toes. trend by starting a Zulu as “a serious threat to the ranks of the governing Investigative journalism is language edition. democracy”. As on African National Congress. thriving, with newspapers previous occasions when One was the Protection exposing corruption in the there were incursions on of Information Bill, dubbed new ANC administration. Opponents of the freedom of speech, the the Secrecy Bill by civil ANC leaders turn to the Protection of media fraternity appears to society and the media. The press to keep up to date be heading off these latest bill, which sought to create with the highly-charged Information Bill attacks. a new classification goings on in their party. have been chipping After intense regime, would have Opinion pages in mobilisation of support criminalised much of the newspapers are a festival away at its most domestically and investigative journalism of incisive commentary internationally, opponents conducted by media houses and analysis. pernicious aspects of the Secrecy Bill have and given wide ranging Radio stations are a succeeded in chipping classification powers to noisy place, with talk show News 24, one of the away at its most even junior state callers ranging from leaders in the online space, pernicious aspects. employees. extreme right to the has also started translating However, there remain Another measure was the radical left frothing at the its content into Zulu. several clauses which the Media Appeals Tribunal, a mouth every day. The very large fly in the ANC wants to ram through statutory body the ANC Cartoons lampooning ointment is the regular before Parliament rises in wanted to put in place of powerful politicians are interference by the December. the current self-regulatory published on a daily basis. authorities in the Should this happen, the mechanism. This is seen as Every morning at the functioning of the state-run battleground will most a bid by the government to traffic lights in South African Broadcasting likely move to the gain a level of control over Johannesburg and other Corporation, whose reach Constitutional Court. the print media. big cities you are into households is The Media Appeals As plans were being confronted with headlines unequalled and therefore Tribunal has been kicked drawn up to oppose the ranging from the down- strategically important for into touch but is likely to measures, little did the market Daily Sun’s ghost the ANC mandarins. rear its head again next gathered hacks realise that stories and tales of women In a one-party dominant year as the ANC prepares drama was unfolding in claiming they were society in which the for its elective congress. the very building in which impregnated by snakes to opposition is Fortunately, freedom of they were meeting. more serious fare weak and expression still has strong Nine heavily armed about politics and fragmented, the proponents in the ANC and policemen had arrived to the crisis in the media has these individuals have arrest Mzilikazi wa Afrika, eurozone. become has come out against positions an investigative reporter Celebrity become a most taken by their party. with the Sunday Times journalism, a critical pillar South Africans have also newspaper. relatively in the become accustomed to Mr wa Afrika and his new thing democratic having a free media and colleagues had the in this infrastructure. are fully aware of the previous week broken a highly This does not experiences of some of story about a highly politicised sit well with their neighbours. questionable deal to lease a country, some political So the prospects for building for the new police provides a heavyweights, its free and robust media headquarters. who see the continuing to be a pillar The charges against Mr Mondli power of the of the society look wa Afrika – of being party Makhanya: Fourth Estate decidedly good. It is an to the forgery of a ‘robust as a danger important part of the provincial governor’s letter media is to the country’s DNA. of resignation – were later part of revealed to have been DNA’ Mondli Makhanya is trumped up and dropped. chairman of the South The journalist’s arrest African National Editors’ and the restrictive Forum and group editor-in- measures under the chief at Avusa Media 4 ★ FINANCIAL TIMES FRIDAY NOVEMBER 4 2011 South Africa

Exchange Aiming to build on success Bottlenecks When the Johannesburg Stock (7 per cent). That has been Exchange (JSE) hosted this achieved by the acquisition in year’s meeting of the World 2001 of South African Futures Federation of Exchanges, it was Exchange (Safex) and in 2009 more than a chance for the of the Bond Exchange South bourse to showcase South Africa. The Safex acquisition threaten Africa’s game reserves. brought the JSE a suite of About 40 stock exchange agricultural futures and equity chief executives spent a derivatives products. weekend at the Kapama River In 2009 the JSE struck a deal Lodge, an hour’s flight from with CME Group, operator of the commodities Johannesburg, combining wildlife Chicago Mercantile Exchange, spotting with brainstorming. The under which the JSE licenses meeting also marked the end of CME metals and commodity an era at the JSE. derivatives. Russell Loubser, its chief Although they are technically prospects executive for 15 years, will step CME products, they are settled down in January, handing over in rand, making it easier for to deputy Nicky NewtonKing, local investors to trade them. ber. “Given the facts and our groomed for the job since she Mr Loubser also sought to Mining position as one of the world’s joined the JSE eight years ago. improve relations with the South most significant mineral It is rare in the world of African securities regulator, Talk of nationalisation resource nations, one has to ask exchanges for a chief executive inviting a representative to sit in is not the only problem what has happened to South to be in place so long. But the on the JSE’s weekly Africa and its mining industry JSE was a special case, since management meeting. the sector is facing, over the past seven years,” it was in such bad shape when That appears to have helped. says Andrew England Mark Cutifani, chief executive Mr Loubser took over in In a “global competitiveness” of AngloGold Ashanti, told a apartheidtorn South Africa. report by the World Economic seminar last month. “How did “It was an oldstyle stock Forum, out this year, South hen the African we miss the commodities boom exchange. There was no money Africa was ranked first out of National Con- and why are we at risk of miss- in the bank, no assets, no 142 countries for its regulation gress’s Youth ing it again?” business plan, a terrible of securities exchanges. League laid out The decline is partly the reputation, insider trading, front Technology upgrades have Wplans to organise a march for result of the maturing nature of running [of the market], and also been important. Next year, “economic freedom mass the country’s gold mines, which settlement risk,” he says. “We the JSE will switch to using a action” last week, it was little are becoming deeper and more were last in the world on many faster trading system provided surprise that the Chamber of expensive to work, with produc- Ready for work: but the head of AngloGold Ashanti fears the country might miss another boom measures.” by the London Stock Exchange’s Mines was its first port of call. tion halving since 2001 to about Mr Loubser leaves the JSE in Millennium IT subsidiary. It will The league, led by Julius 192 tons a year. and taxes if we are to raise liv- down, the industry will con- on the latest boom, as global radically different shape. execute trades 400 times faster Malema, its militant president, But other factors have ham- ing standards.” tinue to struggle to reach its economic concerns cast doubt Humphrey Borkum, the than its outgoing system. has been the most vocal in call- pered the industry. “Energy The ANC has, however, potential, so long as infrastruc- on the durability of the cycle. chairman, says Mr Loubser has Less successful, however, has ing for the nationalisation of constraints, inadequate trans- directed a team to look into the ture constraints remain. On the positive side, South transformed it from “a small, been the JSE’s attempt to mines, ostensibly to share more port capacity and uncertainty in merits of nationalisation, which For bulk commodities, such as Africa has the advantage of a backwater local exchange to attract company listings from equitably the country’s mineral the regulatory environment is due to report its findings at coal and iron ore, rail capacity strong mining culture and is becoming a recognised and other African countries. wealth and tackle poverty. have held back progress,” said the party’s policy conference in has been a big bottleneck. In home to about 80 per cent of the respected international player”. The exchange in 2009 His statements have triggered Pravin Gordhan, the finance June 2012. Ian Cockerill, execu- coal, for example, the industry world’s proven platinum and One of the first initiatives Mr established an “African Board”, a debate that has added to a minister, last week. “In con- tive chairman of Petmin, a relies on the state-run Transnet manganese reserves. Loubser pushed was to capitalise on intensifying cloud of frustration hanging trast, mining production Johannesburg-based company, rail service to ferry coal to the The industry remains crucial demutualising the exchange, western investor interest in over an industry that should expanded by 30 per cent in Aus- port at Richards Bay for export. to the country’s economic which led to a stock market Africa, by making it easier to have been enjoying one of its tralia and 44 per cent in Brazil But while the port has a capac- health, accounting for about 8 listing in 2006. That decade saw gain access to stocks by a rosier chapters, as commodity between 2003 and 2010.” ‘We must declare ity of 91m tons a year, the rail per cent of gross domestic prod- a wave of stock exchange listing on the JSE as well as prices have soared over the past The nationalisation debate is repeatedly that the network could only cope with uct directly and 20 per cent indi- listings, as they sought external their own domestic bourse. decade. amplifying the industry’s woes, 63m tons last year. rectly – up to 50 per cent of funding and greater flexibility to But the project has run into Half the world’s top-20 mining even though senior officials nationalisation of the Roger Baxter, a former chief foreign earnings and jobs for expand product lines, as well as sensitivity in some African companies have operations in insist Mr Malema’s views do not mines is a bad idea’ economist at the Chamber of about 500,000 people, according the means to pursue mergers countries, which fear that if their South Africa, which has the represent government policy. Mines, says annual production to industry estimates. and acquisitions. large companies listed on the world’s fifth biggest mining sec- “We must declare repeatedly Trevor Manuel, of iron ore and manganese could Mr Baxter says the govern- Exchanges expanded beyond JSE, trading activity would leach tor by gross domestic product that nationalisation of the Planning minister double if the right infrastruc- ment has in recent years shown equities trading, as they sought away from their own exchanges. value, according to the Chamber mines is a seriously bad idea,” ture was in place – from about a greater willingness to address other sources of income. Mr Loubser admits that of Mines. Trevor Manuel, national plan- 53m tons and 7m tons respec- some of the sector’s difficulties. The JSE has been no progress with the board so far It is also well placed geo- ning minister, told a business says: “If you start to talk about tively. The main thing, however, will exception. It now derives only has been “pedestrian”. graphically to take advantage of dinner two days before the nationalisation, it will frighten Another issue that affects the be whether words translate into 30 per cent of revenues from With global exchange the shift in demand from the league’s march. off international investors who entire sector is electricity, with action to prevent the mining cash equities trading. consolidation a hot topic in the Atlantic theatre to India and “There are no fiscal resources are already a bit wobbly.” Eskom, the state-owned utility, sector slipping further behind The rest is from risk past year, the question for a China. available through taxes or bor- Some have suggested the sec- struggling with limited capacity its competitors. management, clearing and bourse of the JSE’s relatively During the 2001-2008 commodi- rowing to pay for mines or tor brought the debate on itself while raising tariffs by 25 per “The underlying potential is settlement (17 per cent); back small size is whether it should ties boom, the world’s top 20 invest in them, even if govern- by not transforming itself cent, adding to cost pressures. huge and all parties have got office services (15 per cent); do a deal with a larger mining countries achieved an ment were to get these mines quickly enough in the post- Both Transnet and Eskom their role to play – public and equity derivatives (10 per cent); exchange. average mining growth rate of 5 gratis apartheid era. Yet as the argu- have expansion programmes in private sectors,” Mr Baxter and commodity derivatives per cent a year, while South “So our responsibility must be ments rage, the expropriation of place to address shortfalls, but says. “But it’s critical to start and interest rate products Jeremy Grant Africa’s sector shrank 1 per cent to remove obstacles to invest- mines is unlikely. not at the pace to assuage fears focusing on the underlying a year, according to the cham- ment. We need investment, jobs But even if the debate dies that the country will miss out bottlenecks.” Investment springboard found to have f laws

nectivity, a possible factor Gateway to Africa in the decision of companies such as Google and Simon Mundy on Bharti Airtel to establish the pros and cons bases there. Business figures say the of being there state needs to reduce red tape and pursue trade liber- alisation with other African When Walmart, the world’s states in order to fulfil its biggest retailer by sales, potential. Many also criti- last year offered $2.4bn for a cise the government for controlling stake in South allowing the continuation Africa’s Massmart, it lifted of a debate about mine hopes the country would be nationalisation, which they a big winner from growing say has created uncertainty investor interest in Africa about policy. as a whole. Yet even if South Africa The bid was “a vote of loses some of its allure for confidence in the strong foreign businesses, several growth potential of South of its companies are set to Africa and the continent”, make fat profits. said Grant Pattison, Mass- MTN dominates the tele- mart’s chief executive. coms market, with more The offer supported than 150m subscribers, claims that the country is Grant Pattison: ‘Walmart bid was a vote of confidence’ Getty including 40.5m in Nigeria. well placed for a role as a All of South Africa’s big gateway for investment in of Massmart – which is set arduous to move funds banks see a growing share Africa. to proceed despite a govern- across borders. Coupled of their earnings coming While its growth rates lag ment appeal to competition with strict customs rules, from elsewhere on the con- behind those of emerging authorities – reflects the the controls force Tata to tinent. Naspers, a media powerhouses such as Kenya potential boost to South send vehicles destined for group, has signed up 4.9m and Nigeria, South Africa Africa as foreign investors Mozambique – which bor- African households to its has the continent’s most chase high returns and ris- ders South Africa – directly MultiChoice digital televi- developed financial sector, ing disposable incomes in from India, denying the sion platform, adding its best infrastructure, and the countries to its north. company potential econo- nearly 1m new subscribers is among its most stable “Johannesburg is a great mies of scale. in the past year. democracies. Its companies place to meet people. All Such obstacles may Some of the most exciting have used their domestic the big boys are here,” says weaken South Africa’s posi- opportunities, however, are base as a springboard for Raman Dhawan, managing tion as a destination of in retail. McKinsey, the con- expansion across the rest of director of Tata Africa choice for corporate head- sulting firm, expects con- the continent. Holdings. The city’s foreign quarters, with Nairobi its sumer spending in sub- The subsequent contro- business community has Saharan Africa to more versy around the takeover, developed a critical mass than double to $1,400bn by however, illustrates the that is in itself an attrac- Walmart’s takeover 2020. Shopping malls are complications that can tion for investors keen for of Massmart met proliferating to serve its accompany such an invest- networking opportunities. growing middle class – yet ment. Tata Group’s African sub- opposition from few non-African retail The takeover met opposi- sidiary uses Johannesburg trade unions and groups have set up shop in tion from trade unions as a hub for its operations them on a significant scale. which condemned Wal- in 12 countries on the conti- three government This presents South Afri- mart’s perceived disregard nent. While it expects to can retailers with a one-off for workers’ rights; one open several other bases in ministers opportunity, says John Fra- union labelled the retailer Africa, Mr Dhawan says the ser, head of the interna- “one of the worst and most main African office is set to main rival, says Anushuya tional division at Wool- stubbornly anti-union com- remain in South Africa. Gounden, head of Deloitte’s worths. panies in the world”. Most of the world’s big- Africa desk. The emergence of a signif- The deal was also chal- gest car companies, includ- The country’s attractive- icant middle class is still at lenged by three government ing Volkswagen, Toyota ness for foreign executives an early stage, Mr Fraser ministers, who voiced con- and General Motors, have is boosted by the first-world admits. But South African cern that it could harm factories in South Africa – amenities on offer in its cit- companies are racing to competition and domestic and automotive exports to ies, she notes, but the gov- “participate in the begin- suppliers of produce. the rest of Africa could tri- ernment has been too slow ning”, often taking advan- By August, an exasper- ple in the next decade, to liberalise visa rules with tage of domestic relation- ated Mr Pattison was warn- according to the National other African states, mean- ships to do so, he adds. ing that other foreign inves- Association of Automobile ing that “it is much easier “There’s a recognition tors could be deterred “if Manufacturers. to travel from Nigeria to that now is the time – that every transaction that ever Yet there are frustrations, Kenya than to South we need to move and capi- happened required a busi- too. Exchange controls – a Africa”. talise on that opportunity ness to negotiate with the hangover from the apart- Fibre-optic cable links to [in Africa],” he concludes, government”. heid regime’s battle to stem Asia also give Nairobi “before we lose out to inter- Nonetheless, the takeover capital flight – can make it cheaper, faster internet con- national companies.”