What — Other Than a US$649 Billion Policy Decision — Was Really At Stake at the DA’s Federal Congress?

South Africa’s official opposition party, the Democratic Alliance (DA), is hosting its virtual Federal Congress at the end of October.  It’ll select either John Steenhuisen or Mbali Ntuli as its next leader.  The theme of this meeting (as well as its statement of intent for South Africa) is “Real Hope.  Real Change.  Now.”  But while seemingly a tantalisingly free-market offer, the party’s new economic redress policy position has socio-political ramifications investors should be wary of.

 

The Financial Times was pulled into the fray after publishing an article on Ntuli’s tacit criticisms of the party’s departure from race-based policy.  The South African Institute of Race Relation’s Dr. Anthea Jeffery wrote a letter criticising the article’s implicit assumption that the DA’s decision against affirmative action legislation, Black Economic Empowerment (BEE), would alienate black voters, echoing what she’s elsewhere written: ‘Ms Ntuli is simplistic in assuming that black voters will not support a white DA leader, or that they want the DA to keep copying the failed black economic empowerment policies of the African National Congress.’  What Jefferey omits is what the true alternative to BEE is.  

 

She says, ‘Even the South African Communist Party, which helped devise BEE, has condemned its adverse effects’, but according to political economist Moeletsi Mbeki (who’s the brother of former president, Thabo Mbeki), the real formulator of BEE was business out to protect its interests from the policies of the then-incoming ANC-led government.  Among these is a piece of legislation that Jefferey elsewhere also condemns, which allows for property expropriation without compensation and increases the state’s proximity to US$649 billion in private South African wealth.  Another is asset prescription, which allows government-related entities access to US$250 million’s worth of pension funds.  In which country has a communist party ever traded in a piece of legislation for something less regulated?

 

BEE not only makes sense from the social perspective in Ntuli’s analysis of voter concerns, it’s also the lesser of the only two evils that investors interested in South Africa would contend with.  Broader society’s role in protecting and ensuring a robust return on investment hinges on whether and how policies afford the black majority, previously excluded from meaningful economic participation by apartheid and prior legislation, equitable access to opportunity.  Ntuli’s bid to become party leader is partially informed by the need to address voter appetite for post-apartheid economic redress.  

 

Ntuli has written to the party Federal Chairperson, former party leader Helen Zille, expressing concerns that unless the outcomes of the party’s recent policy conference are tabled for review at the imminent Federal Congress, an impression will develop that the policy conference was a rubber-stamping exercise, less the result of honest deliberation than internal factional squabbles.  Those squabbles, in turn, cloak the influence of businesses that, for the short-term gain of capital with which to leave the country, would rip apart the already fragile web of policies containing black people’s frustration at 350 years’ economic marginalisation.  Removing BEE would be removing a buffer to the risk of civil war. 

 

The third-largest political party, the far-left Economic Freedom Fighters, has in its seven years enjoyed 6.35% and 10.79% of the voters’ confidence in two successive general elections.  Its populist leader, Julius Malema, is not above pandering to the explicitly race-based frustrations of the voting black majority.  This growth rate tells us what’s politically sellable in South Africa: race-based economic redress.  Without this, the black voting majority does not hold the party it does vote into power because there’s less at stake for it.  Jeffery is correct that jobs are this demographic’s first priority, but what they’re too “sophisticated” (to borrow her term) to miss is that the availability of good jobs is inseparable  from the legacy of, and in many ways still reflects, race-based job reservation.   

 

BEE was business’s way of reintegrating South Africa into the global business and investor community without leaving the black majority behind.  It also pre-empted “solutions” like nationalisation and expropriation without compensation.  It allows businesses to choose whether to comply and access the benefits of BEE (or not) and even how they’ll comply.  

 

If South Africa were to remove this piece of legislation, as the DA has now made clear that it would, a vacuum would remain behind to be filled with investor-hostile policies.   But there was a time when the DA advocated for cleaning BEE implementation so it could achieve equitable economic access, and with that, the civil stability that’s a prerequisite for development and returns on investment.  

 

The leader who emerges from the Federal Congress will be an indication of how committed  the DA still is to smart, sustainable policy development.