South African Ruling Party Shies Away From Endorsing Asset Sales

(Bloomberg) -- South Africa’s ruling party approved a range of proposals to revive economic growth, but stopped short of endorsing Finance Minister Tito Mboweni’s controversial plan to sell some state assets.

There was “broad consensus” among members of the African National Congress’s top decision-making body about the challenges the nation faces and that business and labor must play a greater role in fostering growth, Secretary-General Ace Magashule told reporters in Johannesburg on Wednesday. It was agreed the country needs to increase spending on infrastructure, produce more renewable energy and fix ailing state companies, he said.

“South Africa urgently needs to turn around its economic performance, as the rates of growth and investment are too low,” Magashule said. There is a “clear determination to act decisively and resolutely,” he said.

The government is seeking to speed up reforms as business confidence slides and disquiet grows among investors about the deteriorating state of the government’s finances and the threat debt-stricken power utility Eskom Holdings SOC Ltd. poses to the economy.

The rand gained as much as 0.7% to 12.2287 per dollar after Magashule’s comments, reversing an earlier decline of as much as 0.4%. It’s slumped 5.9% against the U.S. currency so far this year, according to data compiled by Bloomberg.

“The speech made nice headlines but didn’t have any meat on the bones,” said Simon Harvey, a London-based foreign-exchange analyst at Monex Europe Ltd. “Actual details on the ANC’s plan are needed for a substantial rand rally.”

Fixing Eskom

A plan to fix Eskom is still a work in progress and should be completed by month-end, when Mboweni is scheduled to deliver his mid-term budget, said Enoch Godongwana, the ANC’s head of economic transformation. The party does back a proposal, announced by President Cyril Ramaphosa in February, to split the utility into generation, transmission and distribution units under a state holding company, he said.

Mboweni suggested in a policy paper released in August that the utility’s entire debt of 450 billion rand ($29.5 billion) could be settled by selling off coal-fired power plants -- an option opposed by the ANC’s labor-union allies. He also wants the state to relinquish its near monopoly over the provision of electricity, port and rail services, make it easier to do business and maintain a flexible exchange rate, inflation targeting and sustainable fiscal policy.

While the finance minister may not succeed in winning approval for all his proposals, the urgent need for a plan could mean at least some of them find easier passage. Business confidence is at its lowest level since 1985, and the central bank expects the economy to grow just 0.6% this year.

Worker Ownership

When asked about possible asset sales, Magashule said the ANC agreed that “models of worker and social ownership” will be considered.

Other measures agreed to by the ANC include:

• Energy, transport and telecommunications need to be modernized and become more competitive
• Costs and barriers to entry for small business need to lowered
• Growth in industries that create jobs, including agriculture, tourism, clothing and mining, need to be prioritized
• Industrial and trade policy need to be refocused to promote competitiveness.
• The country’s future energy mix should be based on the lowest-cost option.

--With assistance from Mike Cohen, Paul Vecchiatto and Robert Brand.

To contact the reporters on this story: Nkululeko Ncana in Johannesburg at nncana@bloomberg.net;Amogelang Mbatha in Johannesburg at ambatha@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Alastair Reed

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