The price of secrecy
Johannesburg - As many African countries push for greater
transparency, South Africa's controversial state secrets bill has unnerved
investors who worry the continent's top economy may try to hide widespread
corruption, driving up the cost of business.
Parliament last week passed a bill that allows any
government agency to apply to have information "valuable" to the
state protected. The bill also criminalises the possession and distribution of
Critics say the bill will make it easier for the ANC to
conceal graft, at time when there is growing concern about cronyism within the
For investors - already spooked by talk of nationalisation
by the ANC's radical youth wing, and mixed messages from Pretoria about foreign
investment - the bill is a sobering reminder of the cost of doing business in Africa's
"It's another nail in the coffin. It's extremely
disappointing that it goes against the trend of what every other country in the
continent is doing," said Daniel Broby, chief investment officer of
London-based emerging markets asset manager Silk Invest.
"The fourth estate is important in keeping checks and
balances in any democracy, as is the judiciary. Both of those are areas we have
looked to in the past to shore up the South African economy, and to provide a
backbone against the sort of political discourse that takes place."
The bill, which still needs to pass some procedural hurdles
before becoming law, also allows for the protection of commercial information
that "would cause financial loss or competitive or reputational injury to
the organisation or individual concerned".
Opponents worry government officials would use that to hide
involvement in questionable deals, such as in the multi-billion rand arms deal
currently under investigation, where several officials have been convicted of
"The biggest single challenge in South Africa is
corruption. We have to contain corruption or the economy will unravel,"
said Koos Bekker, CEO of Naspers [JSE:NPN], Africa's biggest media company.
"This particular protection of information bill allows
the classification of information which will make it very difficult to point
Cost of corruption
Corruption comes with a cost: Transparency International
reckons that investing in a "relatively corrupt" country compared to
an uncorrupt one can be 20% more costly.
South Africa ranked 64 out of 183 countries in Transparency
International's 2011 corruption perceptions index, slipping 10 places from the
previous year and ranking the country in seventh place in sub-Saharan Africa.
"The bad thing is the message that this type of
legislation sends to investors. If you think about countries that have healthy,
effective, functioning societies, they tend to be open, not closed," said
Adrian Saville, chief investment officer of Cannon Asset Managers in
While investors are willing to put money in markets
perceived as being more corrupt or opaque, such as China or Angola, they expect
higher returns for their risk.
With an economic growth rate of 3.1% expected in 2011 and an
unemployment rate of about 25%, South Africa can ill afford to chase away
Johannesburg's benchmark Top 40 - (Tradeable) [JSE:J200]
index briefly weakened on news of the bill's passage. Traders and fund managers
said a bigger worry was the long-term impact.
"It just adds uncertainty to a landscape that already
is looking pretty nervous. It compounds the concerns expressed by
Moody's," said Devin Shutte of brokerage Newstrading.
Moody's in November cut its outlook on South Africa to
"negative" from "stable", citing concern that political
pressure could lead to a further deterioration in public finances.
The agency singled out the ANC's "unwillingness to
definitively reject demands from certain segments of the political spectrum for
more activist policy interventions".
The powerful ANC Youth League has repeatedly called for the
nationalisation of mines and banks.
While youth league leader Julius Malema was recently dealt a
five-year suspension from the party for sowing discord, the ANC has yet to
clarify its position on nationalisation. Malema has appealed the decision by a
party disciplinary committee.
South Africa has also sent mixed messages about its
willingness to accept foreign capital. The government has appealed a decision
by its own regulator allowing US retailer Walmart to buy a majority stake in
local firm Massmart Holdings [JSE:MSM].
"At the moment, the world is searching for yield and
some exciting growth opportunities. The only place they can see that is in
emerging markets, so they tend to disregard a lot of the risks that are there,
because emerging markets are the flavour of the month," said Nic
Norman-Smith of Lentus Asset Management.
"It's not like it's going to stop people from
investing, or have a massive withdrawal of capital in a heartbeat, but it
certainly is another risk factor."
The liberties of a people never were, nor ever will be, secure, when the transactions of their rulers may be concealed from them.
- Patrick Henry, American colonial revolutionary