Dangerous liaisons

INCREASING numbers of observers of South Africa’s unstoppable journey into the belly of the Brics formation are voicing concerns about what we have to give in return for the rich promises of market access into Brazil, Russia, India and China for South African-manufactured products, as well as access to development funding with less stringent conditions than those of the World Bank and the International Monetary Fund.

These institutions are often accused of being used by the West to influence economic and political policies of developing countries for neo-colonial, neo-imperial ends.  

Unlike “the West”, it is believed that China and Russia will never try to impose any conditions on their smaller partners. For example, there is no indication that China has ever made the isolation of the Tibetan spiritual leader, the Dalai Lama, a condition for its dealings with India, with which it enjoys thriving trade relations.

It was only the over-zealous South Africa that dropped its friendship with the Dalai Lama for fear of hurting China’s feelings. After having been given a warm reception by former president Nelson Mandela in 1996, despite Chinese protests, the Dalai Lama got a cold shoulder from president Thabo Mbeki - who got too busy with other things - when he visited again in 1999.

Things got worse when acting president Kgalema Motlanthe denied him a visa in 2009 and President Jacob Zuma repeated this in 2011 and 2014. Clearly, the twenty-first century cold-blooded realpolitik of geopolitics and alliances cannot be compared to the idealism of the Nelson Mandela years.

Impact on home soil

Back in February, I attended the announcement of trading results by Paul O’Flaherty, CEO of ArcelorMittal South Africa [JSE:ACL], in Cape Town. At the time, O’Flaherty outlined a basket of challenges facing South Africa’s biggest steelmaker.

This basket contained a slew of legacy issues that had to do, among others, with government’s unhappiness with ArcelorMittal SA’s failure commit to a black economic empowerment deal.

Discussions with a number of consortiums consisting of some politically connected heavy hitters, including one with the Gupta family and Zuma’s son Duduzane, failed to lead to any conclusions. O’Flaherty made it clear back then that the steelmaker was aware that this was a problem for government, and undertook to make it a priority going forward.

The first step, he said then, would be to achieve a level 6 rating through other BBB-EE measures by 2016. A BEE deal would receive attention thereafter, provided a suitable consortium was found.   

Other key challenges facing ArcelorMittal - which hasn’t made any profit in almost five years - are operational and trade related. The global over-supply of steel, compounded by the arrival of very cheap Chinese steel imports into the already sluggish local market, has not made things any easier for ArcelorMittal and other local steelmakers such as Evraz Highveld. 

Even the excitement expressed by some observers at the arrival of a CEO fresh from working as a chief financial officer at Eskom, one of government’s strategic state-owned companies, soon subsided. Observers had hoped that O’Flaherty’s fresh contact list of key government decision-makers and understanding of government processes would bring the steelmaker closer to government and out of trouble.

BEE bafflement

Neither that nor the recent visit by Lakshmi Mittal, who owns 46% of ArcelorMittal, seems sufficient for softening government’s resolve in the absence of clear commitment to BEE. Mittal reportedly threatened to withdraw his investment if government does not provide protection from Chinese steel dumping in the local market.    

Now, given the record of its timid relations vis-à-vis China thus far, what chances exist that government will look China in the face and impose an import tariff on steel products to protect a failing and suffering local steel industry? Can the more than 4 500 employees and contractors depending on ArcelorMittal for their livelihood hope for government protection against the Chinese onslaught, or will this industry constitute the proverbial eggs to be broken in the making of a bigger geopolitical omelette?   

Despite everything that is said about the obvious rapprochement consisting of a series of mating dances between South Africa and Russia, we shall not know until the deals are signed whether Russia will indeed be South Africa’s nuclear energy master.

If that happens, all we can hope for is that our political leaders do not sign away our freedom and, significantly, our economic room of manoeuvre.   

*Solly Moeng is brand reputation management adviser and CEO of strategic corporate communications consultancy DonValley.