South Africa recently witnessed the biggest offshoring of free enterprise in years. But what did we really see?
Perhaps, I want to argue, not the bigger picture. It starts during the most unpredictable election in the period from 2009 and 2022. Campaigning around the country is intense, vicious and desperate, though much of it takes place behind closed doors.
In other words, it is September 2017 and the stakes are high. If Dlamini-Zuma wins, then President Zuma will face no justice; race nationalism and race baiting will continue to be used as the bread-and-gladiator circus to distract attention from corruption and the economy shrinking in real terms; sovereign debt will be roundly junked; the domestic-global capital strikes will continue; human capital will be squandered at Olympian rates of unemployment and high-school incompletion. It will be a disaster. Disapproval flickers from big business and for all we know this could prove to be the decisive factor.
At this time, Naspers executives, overseeing the largest company listed on the JSE, meet privately to discuss relisting offshore. At the end of the year, CEO Bob van Dijk tells Bloomberg that Naspers is “discounted” in line with capital outflows from South Africa, a point to remember. But he adds that it will be close to “impossible” for Naspers to move its listing from the JSE.
Flash forward to February 2018. The man who defeated Dlamini-Zuma at the ANC’s inhouse primary election is now president of the Republic. A day after swearing ‘to uphold and maintain’ the constitution, he calls for a change to the Bill of Rights. MP Lekota denounces this, but Ramaphosa is defended by MP Malema. “Ramaphoria” dominates news-cycles and doubters are shunned. The rand strengthens to R11.55 to the dollar.
“This is not about land. It is about the loss of votes by the ANC and its little son, the EFF…Malema is actually now leading the ANC’s  election campaign by attacking white people.” That is the mid-May appraisal of Ramaphosa’s presidential debut by Moeletsi Mbeki, who considers the motion to Expropriate property Without Compensation (EWC) as an election ploy that cannot reasonably be implemented. Mbeki would go on to explain that the ANC’s bluff ought to be called out by a coalition of decent anti-hypocrites before it is all too late. While markets respond badly, and the economy slips into recession, CEO confidence “surges”, according to various reports.
In July 2018, the SABC argues that Africa’s biggest broadcaster, a holding of Naspers called MultiChoice, should pay the state-owned enterprise for airing SABC 1,2 and 3 which it “must carry” under penalty in any case. A renewed dispute re-emerges through the second half of the year about whether MultiChoice is obliged to share exclusive sports-broadcasting rights or whether “exclusive rights” are the kind of thing that will be allowed at all in light of the “new dawn”.
The extremely complex negotiations and paperwork that involve unbundling Multichoice and relisting continue at Naspers.
Flash to the end of 2018 and Naspers has offered a second listing to local JSE competitor “A2X” which offers attractive transaction costs. Then, in January of 2019, Naspers unbundles MultiChoice, listing it on the JSE. Puthuma Nathi is a BEE investment scheme that is gifted 5% of the newly issued shares, bringing its shareholding to 25%. It seems that (intellectual) property rights with regards to sports broadcasting will survive, for another while. Moves to relist the bulk of its business offshore continue apace at Naspers.
Then it is the Ides of March 2019. 30 farms in the Northern Cape, some clearly productive, are earmarked for EWC by the ANC. This is not the first such list but it is the first that the government refuses to walk back after somewhat muted public criticism.
Sadly, this means that the anti-hypocrites failed to protect the bedrock of “SA Inc” – property rights. A failure in which I share. Or, at best, the anti-hypocrites have made this a case of informed dissent. This ought to matter. It is in the nature of information to change minds and it is the nature of changed minds to change the course.
With eyes on its discounted market cap near the end of March 2019, Naspers announces that its non-SA holdings will be bundled in “NewCo” on a stock exchange in Amsterdam and soon after in London, too. And then, from a journalist’s point of view, the story gets interesting.
By the time April Fool’s day 2019 comes round, it remains true that no financial journalist or major economist has explicitly considered the connection between EWC and the partial flight of the country’s largest listed company in print.
Naspers and the subsequent announcement of Sibaya-Stillwater to look at offshoring are not even being mentioned in the same breath as EWC, not even to try to refute the connection. EWC’s role is either unreal or unremarkable or unmentionable. But which is it?
JSE CEO Nicky Newton-King has reportedly called the latest capital flight a positive. Africa’s biggest tech giant was too big for Africa’s biggest stock exchange, making it volatile. Less Naspers means more stability, so goes Newton-King’s reasoning. There is a genuine silver-lining there, which the CEO is surely obliged to point out. But look at what is so hastily overlooked.
JSE trades by value are 40% lower this year than in the period last year. Foreign equity started flowing out in 2015 when radical land reform gained media momentum while Zuma and Malema’s brand of populist politics struck deeper roots. Foreign equity hit a low in 2016 at -R123.9 billion, net outflow; followed by -R47.6 billion in 2017; and -R53 billion in 2018, with bond trades on JSE going drastically net negative in 2018, too. The writing is the wall and it says caution, wall is closing in.
Curiously, foreign equity flows do not seem to rank high on Newton-King’s list of ambient business indicators. In 2016, the JSE temporarily misrepresented billions of rand in capital flight as a net inflow due to “technical malfunction”. “Surprised”? Newton-King’s response was a jaw-dropper. “I’d be surprised if people relied on this single piece of information to make investment decisions”.
Foreign equity flows are hugely important, signalled by Van Dijk as the key constraint to Naspers growth during the moment of greatest political confusion in the last decade. Newton-King’s implied resignation to the de facto capital strike is extremely concerning.
But the CEO has duties distinct from financial journalists whose consensus appears to be 1) that major success on the JSE crowds out investment rather than crowding it in which is a sad reality; and 2) that the status quo of stars-rise-to-leave is a form of destiny whose background conditions are not worth unpacking.
Equally distressing is the relative calm with which market commentators seem willing to greet a fundamental shift in the economy. My colleague, Dr Anthea Jeffery, has traced over 30 distinct policy moves tabled by the ruling party to erode property rights. These are the background conditions for contraction and instability. Once EWC is implemented, all units of private property become indulgences, or, in market terms, bets on the odds that the supreme arbiter of goods and services will continue to smile favourably on one’s claims to this or that. The shift in kind from a market to an indulgence economy is too potent to be ignored.
The exception once again proves the rule. Patrick Cairns of MoneyWeb appears to be the rare commentator who understands how extreme the historical moment is, comparing SA Inc. now to the horror of the 1980s (favourably) in a piece called What History Tells Us About the JSE. Plagued with fake reforms and false dawns, the 1980s was a lost decade full of horrors. By 1987, even the resilient JSE crashed, wiping out 20% of its value.
“At that point, if recent market performance and the state of the country were anyone’s criteria for investing, the JSE would not have been an unappealing choice. Yet, for the 40 years since, local equities have delivered an annualised return of 17.9%.”
When the most hopeful thing to be said is that what falls must inevitably rise and that riches await those who time the bounce, then perhaps, I humbly suggest, it is time to make like the 1980s and talk straight to the powers that frame the market.
The status quo is untenable. Managing the continued decline of SA Inc is not an option. This Republic must become a destination that attracts winners rather than the opposite.
Gabriel Crouse is the George F D Palmer Financial Journalist Trust Fellow at the Institute of Race Relations (IRR), a liberal think tank that promotes political and economic freedom. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).