The J ou r nal of t h e h ele n S u z m a n F o u n dat i o n | Iss u e 7 8 | A p r i l 2 0 1 6

The Business Government

Relationship: What Has
Gone Wrong?
A dysfunctional relationship between business and government – both
very far from being unified entities with coherent world views and
policies – is one of the reasons why South Africa’s economy continues to
perform sub-optimally. South Africa’s history, most notably apartheid
and race, have ensured that the kind of cultural homogeneity and shared
world views and goals, which have underpinned other successful societies,
have never characterised the government/business relationship in South
Africa. Clearly relationships have ebbed and flowed over time for a
variety of reasons and I propose to analyse and trace the relationship over
the past 30 years and to highlight the themes still relevant today. Michael Spicer has a
long and distinguished
I have divided the analysis into five eras that correspond with major ebbs and flows career in both
in the relationship: business and business
organisations, including
1 The apartheid era and specifically the late 1980s being the former CEO
2 The 1990 – 1994 transitional era of Business Leadership
3 The first decade of democracy: the Mandela and first Mbeki presidency South Africa. He holds an
4 The second Mbeki term, 2004 – 2009 MA degree in History from
Rhodes University. Before
5 The Zuma era entering business, he was
6 The commodities bust, declining growth and the 9/12 crisis attached to the Royal
Institute of International
1 The apartheid era Affairs (Chatham House),
and the South African
For most of the apartheid era the National Party government was dominated Institute of International
by farmers, lawyers, doctors, teachers and dominees. Apartheid as an ideology – Relations (Jan Smuts
essentially feudal but with national socialist overtones – was suspicious of and House).
hostile to business, particularly English speaking capital (Hoggenheimer, Britain
and the Empire), but also including Afrikaans capital. National Party cabinets
contained no business people until the 1980s and even then, they remained a tiny
minority. Emblematic of the frigid relationship between business and government
then, was the fact that the most powerful man in business in South Africa, Harry
Oppenheimer, did not meet the prime ministers and state president of the country
from 1955, when he left parliament, until 1981.

As apartheid became increasingly dysfunctional for a modernising and industrialising

country, and sanctions and isolation increasingly cut off the South African economy
from international trade, investment and financial flows, business criticism of
National Party policies became stronger and more coherent.

Then, the structure of business facilitated coherence – the economy was dominated

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by a handful of conglomerates with clear leadership amongst both the English and
Afrikaans community – Harry Oppenheimer and Anglo American, and Anton
Rupert and Rembrandt, respectively.

Nevertheless, beyond reformist moves such as the

launching of the Urban Foundation, there were
The release of Nelson Mandela and the differences of approach which manifested in such
unbanning of the ANC ushered in a cases as Gavin Relly’s seminal visit to Lusaka in
period of much closer interaction between September 1985, the establishment of the tricameral
the business community, the National parliament, the activities of the Consultative Business
Movement (CBM) and the political changes required
Party government and the returning to reintegrate into the global economy. Most business
exile movements. people shared the National Party government’s
concerns about the ANC’s ties with Moscow, Marxist
ideology and commitment to violence, but the more
conservative were unwilling to engage with the UDF and the ANC.

2 The Transition years

The release of Nelson Mandela and the unbanning of the ANC ushered in a period
of much closer interaction between the business community, the National Party
government and the returning exile movements. Just as the fall of the Berlin Wall
and disintegration of the Soviet Union played a key role in the National Party
leadership’s preparedness to change, so too did those developments help grow the
confidence of the business community that any new government in South Africa
would be less likely to pursue policies that had been so comprehensively discredited
elsewhere. The prospect of releasing business from the constraining manacles of
sanctions and an isolated hothouse economy was also a strong galvanising factor for
business proactivity.

Consider the case of the ANC’s commitment to the policy of nationalisation. The
Freedom Charter of 1955, a document capable of wide interpretation, formally
committed the party to nationalising the ‘commanding heights’ including centrally
the mines. This was the posture defended by Mandela when he addressed the first
joint ANC/business conference on economic policy convened by the CBM in May
1990. Yet following numerous discussions culminating in meetings he had with
Chinese and Vietnamese political leaders and leading international businessmen
at the World Economic Forum in Davos in 1992, Mandela persuaded the ANC
to drop the policy of nationalisation. However, a significant part of the Tripartite
Alliance remained committed to a fundamentalist adherence to the Freedom
Charter position on nationalisation, and the issue returned at various points over
the next 20-odd years.

In any event, the leadership of the small major conglomerates had concluded that
a proactive role for business was required to ensure that the transition produced
a stable democracy that enabled the pursuit of long-term investment and growth.

The currency of trust gained in the late 1980s via the CBM led to it being appointed
as the secretariat of the constitutional negotiating forum CODESA. Business’s
role was even broader, for example, leading together with civil society the rescue
process of the National Peace Accord when the constitutional talks got into serious
difficulty. This was followed by business facilitation of Inkatha’s late, but critical, re-
entry into the election process. Business was also heavily involved in creating and

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supporting institutions to support voter education and the actual conduct of the
1994 election itself.

Business too engaged intensively with all the parties in a myriad of consultations,
conferences and seminars on prospective economic policy and, indeed, a wide range
of other policy matters. A number of scenario planning exercises were carried out
building on the Anglo American scenarios of the mid/late 1980s which had helped
shape thinking of some elites (including senior National Party leaders) about the
need for a negotiated future and an economy that was geared to the changing world
environment.

The major point to make about this transitional

period was that leading businesses invested heavily The political imperative to create
in influencing the transition because they believed opportunities for black South Africans
it was necessary for their short, medium and long
to enter the economic mainstream
term interests. Organised business was populated by
senior representatives of the leading companies who underscored these pressures, and a process
employed a significant range of specialists in the fields of unbundling of non-core assets of
of public affairs, labour relations, economics and social the main groups and a more general
investment. The relative coherence of corporate South restructuring began.
Africa was therefore mirrored in organised business
institutions.

3 The first decade of democracy

Any honeymoon in relationships between business and the new ANC government
was relatively short-lived. Though President Mandela regularly convened the
so-called Brenthurst Group of the dozen or so most senior business people and
this kept the lines open with senior business leaders, economic policy within the
Tripartite Alliance remained heavily contested and unclear. The Reconstruction
and Development Programme (RDP), launched soon after the 1994 election, was
perceived by business as an idealistic and impractical approach to development when
the economy was weak and suffering significant post-apartheid fiscal and structural
headaches. Also Deputy President Mbeki, who was delegated the practical running
of the economy by Mandela, quickly distanced himself from the existing, relatively
close, relationship with business.

At the same time, the focus of leading businesses on societal issues changed as the
country reintegrated into the global economy. Firstly, this reintegration immediately
put pressure on the corporate sector to restructure away from a conglomerate
approach, which had been functional during apartheid isolation, into a more
focused structure that would be competitive in global markets and attractive to
global investment. The political imperative to create opportunities for black South
Africans to enter the economic mainstream underscored these pressures, and a
process of unbundling of non-core assets of the main groups and a more general
restructuring began. As companies streamlined and pursued the pent-up demand
of several decades to trade and invest internationally, their focus on the intensive
involvement in broad South African society began to diminish. Indeed, many took
the attitude that South African had a legitimate government and, even if they did
not like many of its policies, it was no longer desirable, appropriate or convenient
with so much going on elsewhere for them to intervene in the same way as in the
1980s and early 1990s.

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The shift was gradual but by no means slowed down by the constant rebuffs by
government of initiatives that the business community did take. Concerned by
the vacuum of economic policy in 1995 and 1996 and a debilitated economy and
weakening currency, the South African Foundation produced a document entitled
‘Growth for All’ that advocated market friendly but inclusive policies. The document
elicited a furious response from many in government, partly because it was perceived
as untransformed business lecturing a legitimate democratic government, but partly
also because it underscored the tensions and differences within the Tripartite Alliance.

A core of officials under President Mbeki had already

The concept of the BT in brief was concluded that much of the thrust of Growth For All
to recognise that the implementation was required to stabilise and restructure the economy
if an IMF/World Bank restructuring intervention
of GEAR would temporarily delay
was to be avoided. The Growth, Employment and
the addressing of many of society’s Redistribution policy (GEAR) unveiled a couple
developmental needs and postpone of months later was essentially a self-imposed
pent-up expectations while the economy restructural programme. The plan was imposed over
was stabilised. strong resistance from the Tripartite Alliance partners
and no doubt its similarity to Growth for All did not
make things easier for the Mbeki administration.

Though Deputy President Mbeki and his close ANC supporters had adopted a
market friendly approach and believed that globalisation was a reality that required
engagement rather than rejection, they still strongly distrusted the overwhelmingly
white business community. This was reflected, inter alia, in Mbeki for several years
resisting pressure from business to create his own version of the now moribund
Brenthurst Group in order to carry forward a structured dialogue with business.

Frustrated by what they perceived a growing gulf between business and government,
a number of business leaders, harking back to the days of the intensive discussions
of the CBM with politicians and civil society in the late 1980s and early 1990s,
began a consultative process with the office of Deputy President Mbeki and others.
This was to result in 1998/9 in the establishment of the Business Trust (BT). The
concept of the BT in brief was to recognise that the implementation of GEAR
would temporarily delay the addressing of many of society’s developmental needs
and postpone pent-up expectations while the economy was stabilised. Business,
therefore, had an interest in going well beyond existing CSI programmes to co-
invest with government on a few selected issues, principally employment creation
and education. It was the clear intention of the business architects of the Business
Trust that the joint programme would build trust with the government and lead to
a resumption of institutional dialogue.

Of course the BT also provided an alternative to proposals for reparations emanating

from the Truth and Reconciliation Commission (TRC) which business disliked, not
least because they would be interpreted as an admission of culpability for apartheid,
a charge repeated by many critics within the Alliance and civil society.

The resumption of institutional dialogue did in fact materialise in 1999 with the
establishment of the Big Business Working Group (BBWG) which broadened the
base of the Brenthurst Group . However, quite quickly, the newly elected President
Mbeki faced pressure from other interest groups and he decided to create a number
of other Working Groups. Whilst this provided the requisite political cover, its
elaborate nature and the time and resource demands imposed soon drove the

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direction of meetings to one of form over substance, a ritualised minuet where open
and honest dialogue seldom took place.

Unpacking the unsatisfactory nature of the BBWG reveals a number of factors.

Although some government ministers, particularly Finance Minister Trevor
Manuel challenged business to be more honest and open, on the occasions when
business essayed a more frank approach it was brutally rebuffed. President Mbeki’s
temperament and authoritarian style did not easily brook criticism and neither did
many of his colleagues.

If there had been more cultural homogeneity and social

capital between the interlocutors, the prickliness of Business was extremely resistant to the
politicians might have been alleviated though clearly idea of transferring or giving away
an authoritarian style did not make for much listening. assets and believed that BEE deals
But a lack of these factors meant that both sides were
predisposed to misunderstand each other. Given that
should be structured on essentially
meetings typically involved some 40 to 50 people commercial terms, though inevitably
(and well over 100 when all the Working Groups met there would need to be ‘facilitation’,
jointly), government resorted to ‘party postures’ which a combinations of discounts, loans,
did not allow easily for frank personal views. Some vendor financing and other support
subjects such as HIV/Aids and Zimbabwe, notorious mechanisms.
blind spots of President Mbeki, were simply off the
agenda. Attempts to discuss them were not tolerated.

And from business’s side, most white executives felt on the defensive as they were
increasingly criticised and demonised by black counterparts in the Black Business
Working Group for ‘failing to transform’, a perception often shared by government.
(President Mbeki however used to complain in private that the Black Business
Working Group was a one-note orchestra that was unwilling to move beyond its
obsession with transformation to contribute to other pressing issues. Nevertheless,
ever the politician, he found it convenient to play divide and rule.) Many established
business leaders, and not only white ones, either resorted to saying not what they
thought but what they thought their political interlocutors wanted to hear. Finally,
captains of industry are notoriously egocentric, unwilling to accept a ‘party whip’
and were liable therefore to depart from a structured agenda to personal riffs on
peripheral issues.

At the heart of the failure of the working group system to produce substantially better
working relations was the fact that there were fundamental differences on key issues.
Principle among these was the question of how the majority of the population was
to be incorporated into the formal economy. Business had not been totally blind to
the need to accelerate black involvement at all levels and from the very early 1990s
a number of black economic empowerment (BEE) schemes had been established.
The thinking amongst big business was that a rapidly growing economy should
be the principle driver of broadening opportunities particularly combined with
better education and skilling. But for political and symbolic as much as substantive
reasons, black ownership and control of chunks of the economy would have to be
accelerated through innovative mechanisms. Business was extremely resistant to
the idea of transferring or giving away assets and believed that BEE deals should
be structured on essentially commercial terms, though inevitably there would need
to be ‘facilitation’, a combinations of discounts, loans, vendor financing and other
support mechanisms.

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The problem with such an approach – aside from being a disincentive to

entrepreneurial activity – is that it relied on a continuingly rising market together
with considerable management skill and experience to ensure that dividends could
pay off the financing of BEE companies. Inevitably both conditions fell short and
though some deals endured and a few even prospered, many did not. Increasingly
an impatient emerging black business elite lobbied a receptive political elite for
state intervention to compel business to do more and much faster. As an aside, it is
remarkable how little attention education and skills, as a pre-eminent condition for
sustainable black economic advancement, received from the political elite. Though
some attention was given to broadening BEE schemes this seemed to translate
into unwieldy coalitions of politically connected women, youth and veterans.
From the business side, what is also striking is how little attention was paid to the
empowerment of employees as the first point of departure, though there were a few
rather isolated attempts at share ownership schemes.

I will return to the central issue that was only in its

Hence there was an incentive for South early stages of emergence in the mid/late 1990s.
More immediately another matter arose which was
African mining companies, still leaders
to bedevil business/government relations. While
in the world, both to unbundle and many South African companies had begun to expand
restructure to focus on their core mining internationally after 1990, they faced significant
business, and then to merge with and constraints principally in the form of substantial
acquire others internationally as a way exchange controls. These controls were a legacy of the
of surviving. This was not possible from sanctions era. But aside from the practical question
of the capital shortages during a period of economic
behind a wall of exchange controls.
restructuring, the prospect of lifting exchange controls
even on a phased basis was controversial within the
Tripartite Alliance. In the global economy a period
of firm de-conglomerisation had taken place in the 1980s to which party South
African companies were very late entrants, particularly in the mining industry. It was
clear at the beginning of the 1990s that a process of consolidation through mergers
and acquisitions would occur in the mining industry and that many companies save
the largest would be threatened. Hence there was an incentive for South African
mining companies, still leaders in the world, both to unbundle and restructure to
focus on their core mining business, and then to merge with and acquire others
internationally as a way of surviving. This was not possible from behind a wall of
exchange controls.

Derek Keys, who was the first Finance Minister of the democratic South Africa in
the mid-1990s, allowed Gencor a major mining company with which he had been
associated, to acquire Royal Dutch Shell’s mining interests and to list the resulting
company, Billiton, in London. Deputy President Mbeki reluctantly accepted the
logic of this move and accordingly approved a company restructuring of South
Africa’s leading company Anglo American which entailed moving its primary
listing to London in 1999. A handful of other major South African companies
followed suit.

Whilst these companies vehemently argued that their move to London did not
represent a vote of no confidence in South Africa and would benefit the country
through wider economic opportunities including inward flows of investment, the
moves were deeply controversial. The listings were bitterly opposed by large sections
of the Tripartite Alliance. That might be expected from its statist and non-market

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elements. But even those who were pro-market disliked the symbolism and were
uneasy about the motives behind the moves. And there was reason: notwithstanding
the commercial logic, many executives in the affected companies secretly, or not so
secretly, saw this as a way of hedging their personal and company bets against a
government which they did not altogether trust.

One of the long term effects of the London listings

and corporate unbundling and restructuring in South Because of its centrality to the economy
Africa was to radically diminish the commitment to during the apartheid era, its history
and resourcing of organised business in South Africa.
of migratory labour and other health
However, for the moment involvement remained
reasonably robust. Efforts were made through the and safety issues, the Mining Charter
1990s and early millennium to restructure organised received the most and earliest attention.
business to ensure that it better reflected the changing The Charter discussions took place
nature of the business community and society. In 1994 against the background of new mineral
the CBM and Urban Foundation merged to create legislation that transferred mining
the National Business Initiative (NBI) a grouping
rights from private to public ownership
of more progressive companies that innovated in the
establishment of Business Against Crime (BAC) and set out a process of re-granting
in 1995 and the Business Trust in 1998/9. The NBI existing rights to the mining industry.
worked also increasingly in the field of sustainability.
Though the South African Foundation (SAF) remained behind the scenes as a body
of the chief executives of big business, it was considered to be too ‘old order’ and
tainted by its anti-sanctions stance during apartheid. Nevertheless, the ties between
the NBI, SAF and other business organisations were blurred by cross-membership
of companies and the leading role played by key individuals who sat in a number of,
or even all, these bodies.

Also in the 1990s, the two major established chamber movements representing
commerce and industry merged to form Business South Africa (BSA). Leaders of
BSA and the other major business bodies strongly felt that it would be desirable to
create a non-racial business body and so began discussions early in the millennium
with the Black Business Council (BBC) a body comprising leading black executives
and professionals. The result was the creation of Business Unity South Africa
(BUSA) in 2001. It was recognised by many, though not all, that this was an artificial
construct which would need to evolve as existing business continued to transform
and new black businesses were created. It was artificial because it put together 19
sectoral bodies representing established often large companies in mining, banking,
industry, etc, all in varying stages of transformation with a smaller number of
smaller black professional associations representing black individuals. The attempt
to present this as an equal partnership was undermined by the gross imbalance of
funding and economic power. This stored up the seeds of future discord.

The new millennium also saw the emergence of stronger government intervention
in Black Economic Empowerment or transformation (a looser term rarely
carefully defined). Following on pressure from black business and the so-called
Ramaphosa Black Economic Empowerment Commission, government proposed
that each sector of the economy establish a Charter setting our goals and targets
for transformation. Because of its centrality to the economy during the apartheid
era, its history of migratory labour and other health and safety issues, the Mining
Charter received the most and earliest attention. The Charter discussions took
place against the background of new mineral legislation that transferred mining

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rights from private to public ownership and set out a process of re-granting existing
rights to the mining industry. Widespread concern in the industry locally and
internationally, given that the changes represented a clear weakening of property
rights which had seemed to be guaranteed by the Constitution, reached crisis point
when it was leaked that government was intending to compel mining companies
to transfer 50% of their assets to black ownership. When this led to the overnight
loss of 25% of the market capitalisation of mining companies, government denied
that this had been its intention. (Whether the 50% had ever been a firm proposal
or a negotiating tactic intended to soften up the industry has never become clear.)

The mining legislation and Charter negotiations

severely damaged business confidence. The pattern of
Though the Treasury has laboured state intervention through legislation and regulation
throughout the period that tendering that promoted subjective, bureaucratic and frequently
and procurement is conducted on, as inefficient and costly processes has come to represent
transparent and commercial terms one of the central disputes between major businesses
as possible, with strictly defined and and government. As elsewhere in the world, business
constantly articulates the requirement for stability,
limited BEE offsets, the universal
certainty and clarity of legislation and regulation
risks attendant on licensing and in the interests of planning and sustaining business
procurement has provided too strong activity over the long term. Government, distrustful
a set of incentives to create a of what it perceives as enduring racial capital
patronage system that rewards unwilling to transform, believes it must intervene
politically affiliated business people and give itself the freedom to constantly change the
rules in the face of business’s perceived intransigence.
and facilitates corruption.
Avoiding parliamentary and constitutional scrutiny
by introducing change through regulation rather
than legislation and discretionary, subjective powers
rather than objective constitutionally testable legislation is a much easier and more
convenient route, by no means unique in the world. But, as elsewhere, this approach
continues to undermine business confidence and this in turn promotes sub-optimal
outcomes.

One way for government to promote empowerment and black business formation
is to require certain levels of company empowerment as a condition of government
licensing and procurement. Though the Treasury has laboured throughout the period
that tendering and procurement is conducted on, as transparent and commercial
terms as possible, with strictly defined and limited BEE offsets, the universal risks
attendant on licensing and procurement has provided too strong a set of incentives
to create a patronage system that rewards politically affiliated business people and
facilitates corruption.

4 The second Mbeki term

A seminal development in the government/business development was marked by
the release of the Ten Year Review of democracy in 2004. This represented a major
shift in government thinking away from the essentially open and relatively market
friendly approach of the previous decade that included elements of liberalisation,
deregulation and privatisation. The thesis put forward by the Review was that where
the state had been in charge the country had flourished and where the private sector
had been allowed free rein the country had failed. (This was a startling assertion
almost entirely unsupported by evidence and certainly on the basis of wider
empirical consideration highly contestable. What was remarkable – and it was a

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commentary on the growingly co-opted posture of business – was that business did
not push back at all on this claim.) What was therefore needed, the Review asserted,
and what was accordingly adumbrated, was the remarkably undefined concept of a
developmental state. Such a state would lead the economy and society, playing an
activist and interventionist role. The private sector was to be relegated to the role of
a supporter and implementer of government initiatives.

Though President Mbeki continued to ruthlessly

dominate Cosatu and SACP within government, the Business had always conceived the
developmental state ideology allowed old statists like
Trade and Industry Minister Rob Davies to elaborate Business Trust as a five-year programme
a major new front of intervention, the Industrial with a significant concentrated
Policy Action Plan. This borrowed selectively from contribution (over R1-billion) that
the south-east Asian experience to set up a renewed would end when the economy had
import substitution model based on rolling back the
liberalisation and opening policies of the 1990s in the stabilised and had begun to grow.
interests of picking winners and subsidisng favoured
companies and sectors behind a protectionist wall. Though there was a strong BEE
element to this, it remained classic statism of the kind fashionable in the 1960s and
1970s. But it was to provide horses – state procurement and subsidy – which both
patronage business and manufacturers could ride together, and so it was popular
amongst some business interests.

As indicated the import of the Ten Year Review was not clear to business at the
time. Its relationship with government remained confused. The Business Trust had
yielded some gains – close and successful cooperation in building tourism, in malaria
reduction, in selected aspects of employment creation (such as the building of a very
successful business outsourcing sector, as well as education). Also, the BBWG has
begun to operate slightly more effectively towards the end of this period with a
more coherent agenda and concrete cooperation in some areas.

Business had always conceived the Business Trust as a five-year programme with
a significant concentrated contribution (over R1-billion) that would end when
the economy had stabilised and had begun to grow. That was indeed the case by
2004 with growth in the new millennium moving up from 3% towards even higher
growth of 5% in 2005 -2008, a period characterised by the pre-Global Financial
Crisis (GFC) global boom. However the re-emergence in 2003/4 of the reparations
debate that had raged in the 1990s, when a number of class actions were lodged in
the US and South Africa against major multinationals involved in the apartheid
economy, posed a dilemma for both government and big business.

Though many in the Alliance and ANC hankered for some punishment of big
business for its perceived role during apartheid and believed it had not adequately
come forward to confess its sins during the TRC process, the ANC had had its
own difficulties with the TRC, had curtailed the implementation of government
reparations for human rights victims and intensely disliked the idea that South
African issues were within the remit of extra-territorial legislation, especially from
the US.

The Mbeki administration was therefore minded to oppose the US class action
and their domestic counterparts but sought to establish a President’s Fund for
broad socio-economic development along the lines that of President Vincente
Fox of Mexico, to which business would contribute. Business however disliked the

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patronage inherent in such an instrument and therefore counter-proposed that the

Business Trust be extended for a further five years, and this is what was eventually
agreed.

The more fraught side of the relationship was illustrated by ongoing tensions over
HIV/Aids, a catastrophe that directly affected business as a large employer of those
infected, and over Zimbabwe where business both was concerned at the spillover
potential of the Zimbabwe government’s racial policies for South Africa, as well
as having business interests directly threatened in Zimbabwe. Just how prickly the
relationship could be was demonstrated by the furore President Mbeki created by
bitterly criticising the CEO of Anglo American, Tony Trahar, for what Trahar
considered to be constructive and positive comments about the investment climate
in South Africa (inter alia he said that the business climate was improving as
political risk in SA had diminished).

One of the complaints that government had about

Yet government and the political class business was the fractured nature of business
organisations that complicated business/government
were not predisposed to listen to criticism interactions. BUSA continued to struggle to recognise
from a business community who were the needs of established business that required a
perceived as corrupt themselves – each national mandated umbrella body which could
corrupt transaction with a civil servant articulate its views in Nedlac and parliament, and
or politician required in this view a those of many black members who were focused
business counterpart. almost exclusively on transformation issues. At the
same time, the old SA Foundation was rebranded
and refocused as Business Leadership South Africa
(BLSA), a policy/advocacy/lobby group of big business.
Its emergence was received by suspicion by many in government and other parts of
business, including organised business who saw it as a front for established ‘white’
business interests, but slowly over the period it became harder for government to
ignore BLSA in the absence of other functional business bodies with coherent views.

In the second half of the 2000s corruption assumed a greater salience in South
Africa as an issue undermining society and economic performance. The controversy
over the 1990s arms deal lumbered on but perceptions that the country faced a
real problem were sharpened by evidence of wrong doing on the part of leading
politicians including deputy President Zuma as well as the phenomenon of
tenderpreneurs. These were black entrepreneurs who became wealthy by soliciting
tenders from government at national, provincial and local levels, often in ways that
bypassed due process, and in areas where the lives of the poor were directly affected.
Yet government and the political class were not predisposed to listen to criticism
from a business community who were perceived as corrupt themselves – each
corrupt transaction with a civil servant or politician required in this view a business
counterpart. And from a left wing or racial perspective ‘monopoly capital’ continued
to make excess profits from exploiting the poor and indulging in anti-competitive
behaviour.

The strengthening of competition policy was a riposte to this behaviour, real and
perceived. From a business perspective however many in government continued to
have a one-eyed view on the subject as the largest monopolists were state owned
enterprises which were leaders in the art of anti-competitive behaviour. Further,
the industrial policy promoted by some in government looked to favouring and
subsidising some firms over others rather than promoting market competition in

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the interests of the consumer. Hence it could be said that both the public and private
sectors had complex vested interests that drove both to become able exponents
of hypocrisy on competition matters. Yet greater competition (and attendant
productivity and competitiveness) is one of the key structural requirements of the
South African economy identified by all the recent major reviews of the SA economy
in order to achieve a higher growth rate and more optimal growth outcomes.

5 The Zuma years

The ousting of President Mbeki after the Polokwane
conference in early 2009 coincided with the global
financial crisis and marked a new period of significant
With weak leadership and no interest
turbulence and uncertainty in government/business in policy and a cabinet pulling in
relations. The ‘coalition of the wounded’ – those who different directions both ideologically
had been marginalised or suppressed by President and departmentally, the ANC as
Mbeki’s autocratic management style – had little a party, and especially the office of
that unified them apart from opposition to Mbeki.
Secretary General, assumed a greater
As major members of the coalition, Cosatu and the
SACP expected to get greater roles in and influence
role particularly as later in the period
over government and to some extent did: a last the influence of the SACP and
minute addition to the economic cluster of ministers COSATU declined.
in President Zuma’s new cabinet was the creation of
an additional post of Economic Development (EDD)
for Ebrahim Patel, a leading trade unionist in the textile sector. Trevor Manuel,
the highly experienced Finance Minister of the previous decade who was closely
associated with the centrist economic policies of GEAR, an anathema to Cosatu
and the SACP, was moved to oversee the National Planning Commission. However,
with no clear brief for all these new and old departments, a period of contestation
between the economic ministries ensued.

Although Patel was closer to Rob Davies, who remained as Trade and Industry
Minister, in terms of ideological persuasion and was united in resisting the
continuing macro-economic orthodoxy of the Treasury under the new Minister of
Finance Pravin Gordhan, the turf war between EDD and the DTI was no less
intense than that with Treasury. And the role of the Planning Commission also
remained unclear for a considerable time – the statists disliked the independence
of the commission just as they disliked the independence of the Reserve Bank, and
would have been happier if both had been brought under direct state control.

Amidst this confusion on policy that President Zuma, as uninterested in policy as his
predecessor has been interested, did nothing to clarify, existing institutions created
by President Mbeki to foster dialogue with business such as the Working Groups
were abandoned. Participation by government in the Business Trust withered on
the vine, and representation on bodies such as the International Marketing Council,
another Mbeki creation, were swiftly changed to reflect the interest groups within
the Zuma coalition. Mainstream business was not amongst them.

The conflation of the State with the ruling Party, begun under President Mbeki,
became a central theme under the Zuma Presidency. With weak leadership and no
interest in policy and a cabinet pulling in different directions both ideologically and
departmentally, the ANC as a party, and especially the office of Secretary General,
assumed a greater role particularly as later in the period the influence of the SACP
and COSATU declined. Not unrelated the rising tendency to personalised patronage

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rule by the President through careful placement of dependent allies characterised

more recent times. Naturally this added a further complicating dimension to the
business/government relationship.

With such confusion and contestation, there ensued some 18 months after the 2009
election when there was no formal dialogue between business and government
besides meetings with individual ministers. Additionally Minister Patel assumed
the role of coordinating South Africa’s response to the GFC and imported his
Nedlac-honed corporatist style of trying to create a pact or set of pacts between big
business, big labour and big government. Though a minority of business had become
increasingly sceptical of such corporatism, the deliberations on the response to the
GFC proceeded to consume significant time and resources of all parties without
concrete output.

The hiatus in business/government relations coincided

with a period of crisis within organised business
With the trend towards patronage
itself. BUSA had never institutionally moved beyond
accelerating under a Presidency where its original artificial construct. Black professional
family and associates were eager and associations who seldom paid their extremely
active participants in politically directed modest dues and were little involved in issues aside
wealth accumulation, supported by a from empowerment matters, nevertheless became
cast of foreign and local carpetbaggers, increasingly critical of BUSA for failing to reflect their
interests. They were not sanctioned by the leadership
ever more aggressive BEE legislation
of BUSA (black and white) for failing to fulfill their
and legislation defined a set of business constitutional obligations because of a fear of causing
interests that were separate and at racial offence. Meanwhile the thinning out of senior
variance to the productive sector. corporate officials who were charged with thinking
and lobbying on policy issues and representing
business in various forums had progressed to a point
where no more than a handful remained. And corporates generally were less and
less willing to speak assertively of their interests especially if it involved any public
criticism of government. The consequences were that organisations like BUSA were
weakly led and ineffectual and the general stance of established business could be
summarised as ‘going along to get along’. Such a stance was reinforced when the few
individuals and companies that raised their voices were swiftly and violently cut off
at the knees by their political interlocutors.

The appointment of a new president for BUSA became the catalyst for the walkout
by many of the professional associations of black business led by Jimmy Manyi’s
Black Management Forum (interestingly the majority of BMF members were civil
servants) and Sandile Zungu, head of the reinvigorated Black Business Council and
the losing presidential candidate. Though formally the leadership of the government
regretted the rupture, practically it did much to promote it both funding and
supporting the exclusively black organisations. These organisations also assumed a
higher profile role in the delegations of business people taken on President Zuma’s
international travels.

With the trend towards patronage accelerating under a Presidency where family
and associates were eager and active participants in politically directed wealth
accumulation, supported by a cast of foreign and local carpetbaggers, ever more
aggressive BEE legislation and legislation defined a set of business interests
that were separate and at variance to the productive sector. Revised BEE policy
in the form of the Broad Based Black Economic Empowerment Act of 2013,

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 The b u s iness g ov e r n m e n t r elati o n s h i p ? W h at h as g o n e w r o n g ?

despite a rhetorical nod in the direction of including broader parts of the South
African community, continued to emphasise and indeed increase a focus on the
redistribution of ownership and control of existing productive assets to a few
politically connected individuals. Hence the incentive to take risks, to innovate
and establish new grass root businesses - small medium and large – was heavily
reduced. This central aspect of BEE can therefore be said to have contributed
to South Africa’s sub-optimal economic performance as well as highlighting
inequality in the country.

The constraints of a rigid labour market, lobbied for

by a trade union movement vigorously promoting Big companies continuously bemoaned
the interests of a narrow class of the existing the rigidities of the labour market but
unionised workforce, disincentivised entrepreneurial
nevertheless routinely gave in to wage
activity further. It also disincentivised the addition
of new employees to existing firms, particularly settlements well above inflation rates
those young and unskilled black south Africans who without any productivity clauses, and
formed the bulk of the country’s very large army of maintained the competitiveness of
the unemployed. their businesses by shedding labour and
The fault lines and differing interests within business
raising prices. They ignored the plight of
are clearly delineated by attitudes to the country’s small and medium enterprises who had
labour legislation. In the early years of democracy, no such remedies.
big business representatives had at least acquiesced
in and, in some ways, been the architect of a labour relations regime that was
more suited to a full employment northern European society than an emerging
economy with serious unemployment challenges. But as evidence of its cost
emerged, business became more critical, but in a diffuse and ineffectual way.
Big companies continuously bemoaned the rigidities of the labour market but
nevertheless routinely gave in to wage settlements well above inflation rates
without any productivity clauses, and maintained the competitiveness of their
businesses by shedding labour and raising prices. They ignored the plight of small
and medium enterprises who had no such remedies. Even when President Zuma’s
administration, partly at the behest of its Cosatu allies, introduced four new major
pieces of legislation that dramatically tightened labour laws, business opposition
proved no more strategic or effective. An initial thrust to draw a line of total
rejection at Nedlac in 2011/12 was followed by a retreat into the usual compromise
mode which allowed government and its Cosatu allies to outmaneuver business
with only limited dilution to the legislation eventually promulgated in 2014.

Nevertheless, the expectation by Cosatu and the SACP that they would be able
to shift the direction of economic policy making within the Zuma administration
decisively to the left was not fulfilled. Rather the process of policy contestation
continued. Over a period of three years, three major and contradictory policy
documents emerged. The first was the New Growth Path authored by Minister
Patel and his EDD. This set out the developmental state approach which sought
to create a series of new higher skill, higher wage, but ironically more capital
and energy rather than labour intensive industries at a time when South Africa
was rapidly running short of both capital and energy. The state would catalyse
higher growth through a major new infrastructural push, 95% of which would be
funded and directed by the state and its key strategic state-owned enterprises. The
private sector, rhetorically recognised as the driver of growth and employment,
was practically assigned a clearly subordinate role.

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michael spice r

Though it shared some similarities, it was not totally congruent with the various
iterations of the Industrial Policy Action Plan (IPAP), a protectionist inward
industrial programme that also posited state intervention in and support of a very
wide range of capital intensive industries. Both of these policies were aimed at the
workers their authors wished South Africa had, the skilled who would be offered
higher wages in so-called ‘decent’ jobs, rather than the overwhelming reality of
the army of young and unskilled South Africans prevented from entering the job
market at all by the barriers created by labour laws and union protectionism.

The third document, the National Development Plan,

was a more market-friendly though unwieldy and
Despite the fact that big business leaders aspirational document. It was officially adopted as
serve on the Planning Commission policy by the second Zuma administration in 2014
over the continuing opposition of Cosatu and SACP.
and business has strongly supported the To some extent this reflected the declining influence
NDP, business leaders have continued of a Cosatu at war with itself and with the new rising
to participate in and lend credibility to star of unionism, Amcu, in the wake of the seminal
initiatives that are palpably unfriendly Marikana massacre of August 2012. There were also
pressures from the more conservative patronage
to market approaches, such as the business elite whose interests were hostile to those
idealistic ‘compacts’ that are promoted of the left.
by Minister Patel.
Notwithstanding this, because the Cabinets of the
first and second Zuma Administration continued to
reflect the full spectrum of ideological views – in fact
the second cabinet was substantially larger and even more diverse – and in the
absence of any strong leadership from the top, Ministers and their Departments
felt free to continue to promote policies and legislation which directly contradicted
the thrust of the NDP. An important feature of the post-Marikana period was
the rise of the EFF after Julius Malema was expelled from the ANC, espousing
a populist rhetoric that threatened to outflank the ANC. In turn this encouraged
populist responses from the ANC in areas such as land reform policy, further
threatening property rights.

Despite the fact that big business leaders serve on the Planning Commission
and business has strongly supported the NDP, business leaders have continued
to participate in and lend credibility to initiatives that are palpably unfriendly to
market approaches, such as the idealistic ‘compacts’ that are promoted by Minister
Patel. These posit business as a single, centrally directed actor willing and able to
deliver a complex set of itemised commitments and actions that frequently go
against business’s deepest interests and inclinations.

To take another example: business opposed the creation by government of Sectoral

Education and Training Authorities (SETAs) as institutions that would be
unnecessarily bureaucratic and open to corruption. They considered funding and
training of workers to be properly the remit of companies. When these SETAs
more than fulfilled their predictions of bureaucratic inertia and corruption and
undermined, delayed and made more expensive the pipeline of skills, very few in
business were willing to argue that the SETAs should simply be closed, even after
years of incremental attempts to ‘improve’ these institutions had continued to
yield little progress. No doubt a major effort by business could yield some gains in
efficiency, but the fundamental structural problem of their statist and bureaucratic
design would remain.

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 The b u s iness g ov e r n m e n t r elati o n s h i p ? W h at h as g o n e w r o n g ?

6 The commodities bust, declining growth and the 9/12 crisis

As the impact of the commodities bust induced by China’s change away from an
export to a consumption strategy bit after 2011, the threadbare nature of the South
African economic ‘model’ became clearer. None of the key structural inhibitors of
growth were tackled; in fact, the constraints were actively worsened by legislation,
as in the four major labour law revisions referred to above, or by declining SOE
performance, as the majority of SOEs were riven by governance challenges and
as inefficiences drove up administered prices, with energy shortages being a key
economic constraint from 2008; or by deteriorating macro balances characterised
inter alia by a burgeoning public sector wage bill, growing trade and fiscal deficits
and growing cost of borrowing and debt servicing.

Aside from Treasury, the Zuma Administration

seemed blithely unaware of the looming economic The warnings of Treasury and
crunch: ambitious plans for a National Health
Scheme and a 9600 MW nuclear build were advanced
external agencies fell on deaf ears in
without any serious thought as to how they would be an Administration and ruling party
financed - and these are just the most prominent of a almost entirely captured by the
long list of other spending plans. patronage interests of the President,
his family and cronies.
But it was clear to many observers – the ratings
agencies, the IMF, the World Bank and some private
sector economists, that South Africa’s potential as well as actual growth rate was
steadily declining to the low single digits and that a fiscal crunch was just around
the corner: there would simply be no more money, not just for future schemes but
even to service government’s existing needs and programmes.

The warnings of Treasury and external agencies fell on deaf ears in an Administration
and ruling party almost entirely captured by the patronage interests of the
President, his family and cronies. Ministers and senior officials who did not do the
bidding of these interests were moved so that virtually the only institutions left
that were independent were the Judiciary, the Public Protector and the Treasury
(SARS having seemingly fallen to the machinations of the security apparatus
acting on behalf of the interests referred to above).

Throughout the period 2012 – 2015, organised business stuck to its model of
‘going along to get along’, avoiding either criticising government or defending
its interests and those of the economy in public, whilst also not fundamentally
challenging the root causes of the country’s malaise. Efforts by BLSA and BUSA
to partner government programmes and build trust bore little fruit.

It was only when President Zuma, emboldened by his recent success in replacing
Minister of Mines Ngoako Ramathlodi with a pliant nonentity, fired Minister
Nhlanhla Nene on 9 December 2015 for insisting on a proper cost analysis of the
nuclear build and resisting the transparently corrupt schemes of the President’s
close friend and Chairman of SAA, Dudu Myeni, that the international and local
markets precipitated a crisis and allowed for a potential reassessment by business
of its strategy and tactics towards government relations.

Whilst there has been significant support for the reappointed Minister Pravin
Gordhan and his endeavours to prevent a disastrous credit downgrade, the
early assumption that he would be able to leverage the crisis to begin to effect

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michael spice r

institutional change, starting with those bodies under his (nominal) control, SARS
and SAA, underestimated the power of those interests ranged against reform.

The group of mainly banking CEOs who met Minister Radebe and Zweli
Mkize, the ANC Treasurer General, three days after the firing of Minister
Nene, contributed to the reversal of the appointment of his successor and the
reappointment of Pravin Gordhan as Finance Minister. The same group of
CEOs, somewhat broadened, then had extensive discussions with the President
and Finance Minister ahead of the World Economic Forum in January and the
Opening of Parliament and the State of the Nation Address by the President
in early February. The President’s address referenced some of the eight points
set out by the CEOs to get the economy going, as did the Budget later in the
month.

Subsequently three working groups headed by senior

Yet business remains for the most part CEOs, working with state officials, were deputed
to carry some of these ideas forward in the fields
publicly silent in the face of the political
of reinvigorating both ailing and more promising
and economic struggle. industries to accelerate growth, stimulating small
and medium business, and boosting confidence in
the South African economy. There is considerable
energy and commitment behind this new proactive partnership approach that
has also drawn in trade union participation. It is also notable that both senior
black and white business leadership is involved, though BLSA is notable by its
organizational absence.

Yet these groups are ad hoc interventions that run in parallel with ever more
egregious evidence of state capture by private business interests and the political
corruption of key agencies and SOEs by these interests, often using the security
apparatus and seemingly acting on behalf of the President.

Hence, for example, the Hawks investigation of the so-called ‘Rogue Unit’ in
SARS and the mailing of 27 questions to Minister Gordhan just before he
delivered the budget. This together with the bizarre press conference called by
the Minister of Police Nathi Nhleko (thoroughly discredited by the Nkandla
scandal) and the Minister of State Security David Mahlobo, are widely
interpreted as part of the President’s push back measures to prevent Minister
Gordhan from tackling governance issues, starting with SARS and SAA.

Notwithstanding their solid support for Minister Gordhan, some CEOs declined
to accompany Minister Gordhan on his mission abroad to raise confidence of
investors and prevent a ratings downgrade, on the grounds that the political
issues at the heart of the loss of investor confidence are not being tackled and
indeed are being deliberately ignored. Yet business remains for the most part
publicly silent in the face of the political and economic struggle. Meantime the
President and the ANC continue to pursue an electoral strategy for the local
government elections that combines populist land reform with minimum wages
demanded by organised labour and racial rhetoric to neutralise the opposition
DA. All these are guaranteed to erode investor confidence and growth further
and to undermine the supposed national priority of avoiding a credit downgrade.

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Conclusion
At the time of writing, the political struggle between reformers who under the
leadership of Treasury seek to escape the low growth trap and are insistent on
good governance and independent institutions, and those whose patronage
interests require the undermining of the independence of those same institutions,
remains unresolved.

South Africa isn’t the only emerging world democracy to face the conundrum of a
low growth, state capitalism environment; the BRICS nations immediately spring
to mind, particularly Brazil which has suffered serial rating downgrades and
which is in deep recession. But compared to Brazil, the business and government
communities in South Africa are less homogenous and have the burden of an
apartheid past and an increasingly fractious liberation movement held together
more by referencing the divided past than building the unified future.

The 9/12 crisis represents the best opportunity to build a new strategy of
engagement with government that is based on a clear view of the need to
facilitate the structural impediments to higher economic growth, including failed
political leadership. But it will require even bolder leadership from black and
white business leaders and much greater investment in more unified and effective
business organisations.

This article is based on research conducted for The Centre for Development and
Enterprise’s project ‘The Growth Agenda: Priorities for Mass Employment and
Inclusion’, whose reports will be released in early April 2016.

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