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5 key questions on Zuma’s radical transformation plan

Cape Town – While President Jacob Zuma’s pledge to implement a policy of radical economic policy is not new, banks could see added pressure in 2017, Nomura emerging markets economist Peter Montalto said after a visit to South Africa and in reaction to Zuma's State of the Nation Address.

The strong message of radical economic transformation highlighted ownership and participation in the economy as well as the banking sector specifically, he said. “There was explicit reference to shifts in Competition Law and a new public consultation on land reform legislation that has been sent back to parliament,” he said.

Montalto said these measures raised five key questions.

1. What is different or new now?

“There is a broad outline of radical economic transformation since Polokwane and Mangaung elective conferences of the ANC, 10 and five years ago,” he explained. “This was rooted in the so-called National Democratic Revolution view of the ANC.

“While the ANC has achieved control of all arms of government and state-owned entities as part of this, it has not been able to build a capable and efficient state to drive this revolution.

“A large swathe of policy adopted in those elective conferences has not been implemented,” he said. “Put simply, the foundations of the ANC’s economic transformation view in its current iteration have not changed for 10 years yet (and) have seen little implementation.”

2. What new powers does the Competition Commission need now that it hasn’t had before?

The Competition Commission has very broad powers under its “public interest” clause, which allows it to look at almost anything that might be relevant to radical economic transformation, said Montalto.

“It’s not clear how this needs to be changed,” he said. “The key problem for the Competition Commission has been a significant lack of capacity in either competition investigations or public interest investigations.

"For the Competition Commission to effectively move through a banking sector public interest investigation would require a significant increase in resources and staff. In reality such a probe could take two to three years.”

3. How can land reform be accelerated?

The department has severe capacity constraints and while land reform claims have been further backdated, the ANC has been cautious up to now of shifting from “willing buyer willing seller” to “fair price compulsion”, explained Montalto.

“The proposed process for legalisation and consultation this year may indeed last a whole year – this is unlikely to be a fast-moving process.

"There should be some clarification of restrictions on foreign ownership of land which is being worked on by the government.”

4. How can the banks be pressured?

“The Finance Sector Charter Code was agreed some 15 years ago and came into force in 2004. It was a product of the Nedlac grouping of big business, big labour and big government.

“Pressuring banks through this route seems most likely given National Treasury as a blockage to more left-wing financial sector policy,” he said. “That said, the Nedlac process would likely be lengthy and any real movement this year unlikely.

“While implementation may be lacking this year, we should watch for any impact on the sentiment of banks from greater political pressures, which may curb risk appetite and so growth.

“Linked to this issue … is the roadblock to the Fica bill and a possible Competition Commission investigation into the banks.”

5. Could there be another set of BEE changes?

“It is only a year since the last set of changes and the process last time was long and complex with worries raised by industry resulting in several about-turns by the (Department of Trade and Industry) dti,” he said.

“While individual BEE issue areas like procurement can shift this year we think a wholesale review is unlikely.”

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