Nkandla report will impact foreign investment

Mar 21 2014 15:47
Johannesburg - The Nkandla report will likely be unfavourably viewed by potential foreign direct investors, warned Peter Attard Montalto, emerging markets economist at Nomura.

For foreign direct investment (FDI) the report may entrench existing perceptions about corruption, he said.

In his view the overall impact of the Nkandla scandal itself must be separated from the impact of the report itself.

"Overall, this is not how it should work and would not work in many other emerging market countries," said Montalto.

"This is why we think this report will be unfavourably viewed, particularly by potential FDI investors on the conditions for doing business in SA – though in reality corruption is actually not a major factor affecting such investment in the vast majority of cases."

He said there are other things to be concerned about, such as the real policy direction after recent legislative activity.

Public Protector Thuli Madonsela found that the escalating costs had received tacit approval from President Jacob Zuma.

She found that civil servants, politicians and others used public money to increase their standing in his eyes.

Madonsela found that Zuma and his family had benefited from the additional works and that the diversion of funds was maladministration.

She has ordered Zuma to pay back the misappropriate funds, which may amount to some R20mn.

"Importantly, she did not find clear evidence that Zuma had misled parliament in his previous testimony," said Montalto.

The real issue
To him the real issue, however, has more been the reaction of the government and the ANC in the last two years.

"The cover ups, the use of apartheid-era legislation to suppress debate and attempts at preventing publication of pictures, delays in responding to the Public Protector and now, after the result, a 'nothing to see here' attitude as the ANC has closed ranks with Zuma," said Montalto.

Of interest to the markets

He thinks that short term there is little to affect the market in the Nkandla report.

In the longer run, however, there are questions regarding the election and Zuma’s power within the ANC, which Montalto describes as "interesting".

"The key is that we think Zuma’s position in the ANC has not been weakened significantly by this and he has come through similar scandals and corruptions cases in the past," said Montalto.
"We think into the 2019 election and the emergence of a Numsa/Vavi-led workers party to the left of the ANC, will be strengthened by this report and Zuma’s standing."

Equally, Montalto thinks it will secure Numsa’s position in what he calls "its ongoing (slow) breakaway from Cosatu".

"Beyond the limited impact of the issues above we cannot see any additional effects on policy that could influence markets," said Montalto.

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