in brief in the news By Marcia Klein
XXXXXXXXXXXXX ECONOMY
Zuma’s sentence: too small a step
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Photo: Gallo/Getty Images
Major issues bearing down on SA’s economy overshadow the recent triumph of the rule of law.
he 29 June Constitutional Court ruling that former president is an important test in that regard. Jacob Zuma must serve 15 months in prison for failing to Sasfin deputy chairman David Shapiro says markets are up because appear before the Zondo commission is unlikely to provide an commodity prices are higher and there is no indication that the Zuma impetus for improved investor sentiment. decision has swayed sentiment. “Over time, one might see investor The judgement represents one small step up a mountain of reaction to accumulated decisions, should they take place, that might corruption and malfeasance and is unlikely to change sentiment start to swing the pendulum, but we have so many issues to get about investment in a country which has a junk credit through before then,” he says, adding that reliable power supply rating, mushrooming debt, failing public institutions and the roll-out of vaccines were immediate issues. and no security of supply of basic services such However, what will make a difference to investor as electricity and water, investment industry sentiment is if Zuma does not go to jail, Shapiro sources say. says, and ratings agencies and investors will react There are, however, several other if they see there are different rules for Zuma and reasons why investor sentiment towards other elites to ordinary South Africans. Shapiro South Africa has recently improved. This points out that while markets have improved, includes the recovery in the global and indicating better sentiment, volumes are low local economy and the commodity boom, and most of the activity is around Naspers* which resulted in a significant increase and Prosus. “Markets are very quiet at the in exports and higher company earnings, moment, and when you track volumes, they which are translating into improved trade are very low, reflecting the lack of interest and figures and better tax revenue, which may scope in our market.” help the country’s fiscal position. Additionally, Protea Capital Management CEO Jean the cheap valuations of JSE-listed companies Pierre Verster says: “At this stage, I don’t believe relative to global peers have resulted in positive that the Constitutional Court judgement means investor sentiment, and to some extent, increased much for investment. Broadly speaking, investors would investment in local companies. want to see that judgements are sound in law and are Former president Jacob Zuma But, given the fact that the judgement only covers applied and or executed on by law enforcement agencies.” Pictured at a previous court appearance Zuma’s contempt of court, and none of the vast array Sygnia CEO David Hufton says: “The Constitutional of potential criminal charges which need to be laid Court holding a former president accountable for his against many companies and individuals with regard actions or, at this time, inaction, is key to preserving our to years of widescale corruption and theft, the apex trust in SA’s democracy”. He says this sends “a loud signal court’s judgement is too small a step forward to warrant any change in that no one is above the law, which is an important and positive factor investor sentiment in itself. that influences decisions made by companies around the world when While the judgement may send a message about the strength and investing abroad. The alternative would be especially detrimental independence of our courts, the plethora of examples of government’s to our already fragile case for attracting long-term foreign direct weakness and lack of political will to stop corruption, irregular investment.” expenditure and the irregular award of business by state entities This investment has been drifting back, for other reasons. As Old continue to undermine any uptick in investor sentiment. Mutual Wealth investment strategists Izak Odendaal and Dave Mohr Daniel Silke, director at Political Futures Consulting, says the points out in their recent investment note, the commodity-driven judgement is important for SA’s image that the rule of law is seen export surge is reflected in near-record exports of R163bn in May, to run its proper course and is not threatened in any way, “so the while tax revenue increased 41% in April and May. They said SA assets effect of the Zuma issue is not just a domestic political issue – it are also still cheap compared to their global counterparts. This makes goes to the issue of confidence in SA in terms of its ability to pursue a them “more optimistic about return prospects from local investments constitutional framework and keep the rule of law”. than has been the case for the past few years”. However, Silke says that SA “starts from a rather low base, However, they also pointed to recent news that Rio Tinto unfortunately, and there are such low expectations for issues such suspended operations at its mineral sands business in Richards as state capture to be resolved and such frustration with processes, Bay due to ongoing violence, including the murder of the operation’s making it unclear whether this ruling will make much difference to the general manager, and news that coal miner Exxaro could not ramp up outside world”. foreign sales volumes, despite higher prices, “because of Transnet’s Silke says SA desperately needs to restore its good name. It is not limited and unreliable rail capacity”. just about prosecuting those involved in malfeasance, or whether The Zuma judgement is too small a step, albeit in the right Zuma goes to jail or whether the Gupta family is caught. “It is really direction. ■ about injecting confidence in SA as being a functional state in terms editorial@finweek.co.za of the ambit of the Constitution and protecting investor rights,” so this * finweek is a publication of Media24, a subsidiary of Naspers. @finweek
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finweek 23 July 2021
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