Melanie Verwoerd: The 'big 4' issues that scare investors
My day (and many late nights) job, involves amongst other things engaging with domestic and foreign asset managers.
It has been extraordinary to see how the post-Nasrec euphoria has disappeared over the last month or two. In fact, the depression and negativity seem worse than during the worst of the Zuma reign.
Although some of the negativity can be explained by the fall-out for emerging markets from global events, a lot is being blamed on political developments closer to home. It is true that there were unrealistic expectations by many investors post-Nasrec. Despite warnings by some analysts (me included) that a victory by a small margin would severely curtail what – and how fast – President Cyril Ramaphosa could implement change, many believed that the "new dawn" would bring about immediate and massive positive results.
Despite steady progress by Ramaphosa since his election, the disappointment is palpable among investors at the moment that more has not been done.
To make matters worse, the ANC has also brought four big policy issues to the fore. These issues are not new. They have been part of the national narrative for decades and are key in terms of political and economic stability of the country. However, as is always the case in an election year, these populist policy issues have developed a new sense of urgency.
The problem is that almost all of them are impossible to solve in the short term and by putting them on the table and not being able to have a clear time frame to resolve them huge uncertainty is created among investors, which makes any possibility of real change virtually nil. In the meantime, unrealistic expectations continue to grow among voters.
So, what are the biggest issues raised by investors at the moment?
The number one issue that has occupied the national debate since February has been the issue of land and expropriation without compensation. International investors I speak to are clear that they need certainty that fundamental property rights will remain protected. Until they are assured of that, they insist that they will not invest in South Africa. As one said to me: "We have seen it all before in eastern Europe and Zimbabwe. We have many other places to go where we don't have these concerns."
The next issue that investors have been raising and continue to raise is Eskom. Naturally, foreign investors are concerned about the extent of the financial troubles at Eskom and the burden it puts on the national fiscus. The continued problems with wage negotiations and the possibility of load shedding if a deal can't be reached have added to the already significant concerns.
The third issue is that of the Mining Charter. Although there seems to be agreement that the current draft is somewhat better than former minister Mosebenzi Zwane's attempt last year, the uncertainty remains a real worry and raises serious doubt about future investment into the sector.
The fourth concern from investors is the National Health Insurance. The big fear is that our world class private medical services will be sacrificed in an attempt to address the very serious need in the public sector. In particular, foreign companies keep reminding me that good healthcare is one of the top requirements when deciding where to locate. These companies emphasise that if (as they fear) the private health care system in our country is destroyed, existing companies will withdraw, and no new companies will locate here. They are also convinced that the country will suffer a massive brain drain of medical personnel and other skilled South Africans.
It is of course important to note that with all these policy initiatives, the governing party is trying to address very valid and important problems in our society. In the case of land and mining there is the issue of redistribution, i.e. correcting a historical wrong and thus ensuring that all of the people can share in the country's riches.
In the case of the NHI there is a moral obligation to improve the health services for those who can't access private care. In the case of Eskom it is to literally keep the lights on.
The problem is that with all these four issues, there is a sense of political urgency, but no clarity on the policy and/or how it will be funded.
As a renowned economist said to me this week: "South Africa can afford either Eskom or a National Health Insurance. Not both. So, take your pick."
While these big four issues remain uncertain money is not flowing and investment is not happening. As easy as it would be for politicians to shout "white monopoly capital" at this point it is important to remember that this will result in very little, if any, growth which always affects the poorest of the poor the worst.
Politicians will do what politicians do when they enter an election year. In this regard, I suspect that policy clarity as well as the implementation of many, if not all, of these issues will be delayed by the governing party until after the elections. The complicated nature of finding solutions that can satisfy both the majority of people as well as keeping the markets happy, make it extremely difficult to resolve any of these matters in nine to ten months.
The problem is that in the interim it will be virtually impossible for Ramaphosa to get any significant portion of the R1 trillion-plus from abroad. At the same time the expectations of the nation for economic prosperity will continue to grow at an ever-increasing rate. This in turn will make Ramaphosa vulnerable in his own party, which is really the big buffalo in the room and what scares investors the most.
- Melanie Verwoerd is a former ANC MP and South African Ambassador to Ireland.
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