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Markets more worried about unions than politicians.

The market seems to have been more optimistic about the Zuma administration than political commentators and the media. At the same time, there are signs of fear over the role of trade unions in the country. Piet Coetzer explores possible reasons for this state of affairs.

How great is the risk to the South African economy and its investors of the new political administration that came into place on 22 April under the leadership of President Jacob Zuma – particularly in light of the signs of a much more prominent role for the ANC’s communist and trade union partners?

While many traditional and respected political analysts and the media seem to be highly pessimistic, the markets seem to read the signs differently and generally have reacted positively to the election results, Zuma’s inauguration speech and his first State of the Nation address in the new parliament.

There was, however, one exception to the market reaction – the attempt by trade union federation Cosatu to block Telkom’s sale of its shares in Vodacom to the United Kingdom’s Vodafone for R22.5 billion. Cosatu’s attempt to block the deal, as well as Telkom’s listing on the Johannesburg Stock Exchange (JSE), caused considerable initial jitters in the markets.

Some commentators and the media claimed that the Cosatu bid at blocking the deal and listing, combined with the confusing role played by the Independent Communications Authority (ICASA), left the country’s reputation as a business-friendly economy in tatters.

After Judge John Murphy of the Gauteng High Court dismissed Cosatu’s blocking application on 25 May, the markets quickly settled down again.

The business community’s mood was well summarised in a statement by Business Unity South Africa (BUSA) after the State of the Nation speech on 3 June: “BUSA welcomes the broad thrust of President Zuma’s address to Parliament… The speech is seen as being positive and forward-looking about the socio-economic challenges facing South Africa in tough global and domestic economic circumstances.

“The President’s address has struck the right balance between continuity and change in policy,” read a statement by the organisation.

The reasons why the markets and business community seem to read the political risks involved in the change of administration as being more positive than how political commentators and the media conceive, is probably not based on mere ‘wishful thinking’.

It is most probably anchored in the constant exposure of the markets and its players to the role of cycles in socio-economic dynamics and the longer term memory that is cultivated by such exposure.

The markets, more than is the case in many other spheres of life, understand that marketing talk or political campaign talk is often considerably tempered by the pressures and realities of ‘the real world’.

To what extent reality and perception can often differ was illustrated by former President FW de Klerk at a Cape Town Press Club function late last year, when he was asked what he thinks could be expected of a Zuma administration.

He reminded his audience that when he became president, there was a general expectation, based on perceptions at the time, that he would take the country to the right.

What he did not say, but which was part of the reality of that time, was that the perception of him being right-leaning was substantially created by those who campaigned for then Minister of Constitutional Development Chris Heunis, who was his main opponent to succeed PW Botha as president.

Likewise, it should be remembered that many of the perceptions around President Zuma were, and are still, being fuelled by his political opponents. Contrary to many of these perceptions, it is also true that he played a major role in defusing the conflict and often bloody confrontation that existed in KwaZulu-Natal in the early and mid-1990s.

If this ‘history’ is taken into account, there is reason to be less cynical about Zuma’s bridge-building attempts to diverse sections of the South African community.

However, the markets – in reaction to the Cosatu/Telkom episode – illustrated that, unlike in the case of ‘mere words’, it would swiftly react to practical deeds. The markets’ concerns were brought well under words by Judge Murphy when, in rejecting the Cosatu application, said if it was allowed to prevent the listing, it could have triggered a contagious sell-off of shares in other sectors as foreign investors lost their faith in South Africa as a sound investment destination.

It is on this front, combined with further considerable loss of jobs due to the recessionary circumstances, that the greatest risk factors to the South African economy are to be found.

Cosatu has not only threatened further legal action, but indicated that if it does not get its way via formal structures, it would launch boycott action.

On another front, protest action was launched from trade union circles to try to pressurise the Reserve Bank on matters of policy.

In fact, there is ample indication that South Africa may be moving towards a period of high tension between the ANC-led government and its trade union alliance partners.

In late May, ANC secretary-general Gwede Mantashe warned trade unions against public attempts to push the government to give in to demands. “You are projecting the Zuma leadership as weak and indebted to various constituencies,” he said, and added that some unions were creating the impressing that the “ANC must react instinctively to demands.”

At the recent national congress of the National Union of Mineworkers (Numsa), Cosatu’s general-secretary Zwelinzima Vavi claimed that the ANC’s election victory was made possible by the work done on its behalf by the trade unions at grassroots level.

Cosatu also warned of a public strike unless the government fulfilled promises it made in a 2007 wage deal.

At the time of the Numsa protest outside the Reserve Bank in Pretoria, Cosatu’s Patrick Craven said workers were experiencing tough times during the global economic crisis and must stand up for their rights. The key mining industry has announced 24 000 job cuts.

“Cosatu cannot simply sit back and relax,” Craven said. He added that while Cosatu pledged it would work closely with Zuma’s government, it should defuse the “time bomb” over wages.

Vavi said the “biggest mistake we (trade unions) could make is to sit back and leave government alone to solve the problems.”

Although there may be some irony in the fact that Mantashe himself is an ex-Numsa secretary-general and became the first trade unionist to be appointed to the board of directors of a JSE-listed company, it is not without precedent in history.

The same applies to the trade unions’ demands regarding broad economic policy and the role of the Reserve Bank.

To try to understand the risks of and the factors involved in the present situation between the government and the trade unions in South Africa, much can be learned from the history of the same relationship in the United Kingdom.

As in present-day South Africa, the trade union movement in the UK derived much of its political clout from its involvement with political parties going back to the 1920s.

Its political power, however, received a major boost in 1940 when Winston Churchill formed his coalition government, which included the then Labour Party (LP). He appointed Ernest Bevin, the most powerful trade union figure of the time, as minister of Labour.

Labour nominees became the norm on national and local committees, and by 1941 they were engaged in almost daily consultations with the government.¹

While the LP, during the period 1934 to 1937, formulated a policy of centralised planning for the economy and for nationalisation, its prominent role in the war effort reinforced its belief in this approach.

As the war ended, the LP swept to power under Clement Attlee, capitalising on a national determination to “win the peace” and move Britain away from the old inequalities.²

The Trade Union Confederation (TUC) worked closely with the Attlee government, assisting it in the reconstruction of the economy. It was especially pleased with the government’s nationalisation programme, the National Health Service and other social reforms.

Concerns at present about the role of the Reserve Bank and its inflation targeting also seem to point to similarities in earlier developments in the UK. By the late 1950s, there was increasing tension between the TUC and the government, which was stepping up attempts to restrict wage rises. By the late 1960s, many supporters of the ‘post-war consensus’ had come to identify the trade unions as the principal cause of Britain’s economic decline.³ The conflict between the government (at the time represented by the LP) and the trade unions reached a crescendo with a massive strike wave in what became known as the “Winter of Discontent” in 1978/1979.

The LP lost the election of 1979, and between 1979 and 1997, the political power of the trade unions was largely broken – firstly by Prime Minister Margaret Thatcher and then kept at a distance by John Major.

For the Thatcher and Major governments, the trade unions were over-powerful distorters of the free market, maintaining wages at too high a level and thereby, in their view, increasing unemployment. The governments also rejected the Keynesian consensus of full employment and comprehensive welfare.

The unions went into steep decline. They lost their power, influence, millions of members and a large swathe of their rights.4

It does not take too much imagination to see the similarities in the underlying factors in the relationship between the present South African government and the trade union movement as represented by Cosatu.

There is no denying that in terms of factors such as organisatonal infrastructure and key experienced staff, Cosatu has contributed massively to the success of negotiation prior to, and the political campaigns since 1994 of the ANC.

There are, however, clear indicators that the government and trade unions may be headed towards a major showdown sometime in the future. How soon such a showdown may occur, and if and when the trade unions may overplay their hand, is impossible to predict.

But, as proved by the statements by role-players in the two camps at the time of the Numsa congress and protest at the Reserve Bank, they have different roles to play in the network of structures compromising a system of checks and balances needed for a healthy democracy.

The present economic turmoil may hasten a reassessment of the relationship between the government and the trade unions.

Numsa in February this year already gave notice of what could be expected from it.

On the eve of a critical meeting of the joint economic working group with then President Kgalema Motlanthe, it said that state bailouts of embattled industries should only happen on condition there were no retrenchments and that employers took bonus cuts.

The way the market reacted to the actions of Cosatu around the Telkom rationalisation and listing has clearly indicated that the relationship is recognised as a serious investment risk factor.

All indications are – and the lessons of history seem to tell – that these risk factors are going to be par for the South African investment scene for sometime to come.

References

1. www.citizendium.org

2. http://encarta.mns.com/encyclopedia

3. Parliamentary Affairs: www.pa.oxfordjournals.org

4. “Enemies within: Thatcher and the union”: newsvote.bbc.co.uk

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