BIG BUSINESS PLEASED WITH ZUMA BUT UNCERTAIN OF

C O N F I D E N T I A L PRETORIA 001739 E.O. 12958: DECL: 08/26/2019 TAGS: ECON PGOV SF SUBJECT: BIG BUSINESS PLEASED WITH ZUMA BUT UNCERTAIN OF THE FUTURE Classified By: Economic Counselor Terri Robl, reasons 1.4 (b) and (d) ¶1. (C) Summary: South Africa's business community believes that Jacob Zuma has put together a good team of economic ministers, according to Business Unity South Africa (BUSA). Business is also gratified that the new government is accessible and eager to get input from business. However, BUSA sees commitments made at the ANC's December 2007 conference as unrealistic in the current economic climate. The contradiction between fiscal discipline and "Polokwane pressure" could cause tension within the ANC and lead to longer-term fiscal slippage. End Summary. -------------- The Early News is Good... -------------- ¶2. (C) The South African business community is pleased with Jacob Zuma's first months in office, but executives are still uncertain about the long-term direction of policy, according to Raymond Parsons, the Deputy CEO of Business Unity South Africa (BUSA),the country's premier big business organization. Parsons met with Deputy Econ Counselor and Econ Specialist on August 25 in Johannesburg. ¶3. (C) Parsons cited a long list of Zuma decisions that were welcomed by BUSA and its members. These decision included: -- The appointment of "pragmatic technocrats" to most of the economic ministries. "Zuma has put together a good economic team," Parsons said, citing Finance Minister Pravin Gordhan and Trade and Industry Minister Rob Davies in particular. -- The selection of Gill Marcus as governor of the South African Reserve Bank (SARB). Parsons told us that Marcus has a "brilliant CV" reflecting prior service in parliament, National Treasury, the SARB, and the private sector. He speculated that SARB might take a "more nuanced" approach to inflation-targeting under Marcus, but he expressed doubt she would support abandonment of the policy altogether, as some ANC allies have demanded. He noted that Marcus was involved in the design and implementation of the inflation-targeting policy during her years at Treasury and SARB. (Note: Parsons sits on the SARB board.) -- Tapping Trevor Manuel as head of the National Planning Commission. While acknowledging the Commission's role is still unclear, Parsons was confident Manuel would play a central role in coordinating policy and giving strategic direction to the government. Parsons also said that "the new government is listening to business. They seem eager to get our inputs." He told us that BUSA is holding one-on-one meetings with all of the economic ministers, and the group will meet with Zuma himself in the near future. -------------- ...But Question Marks Remain -------------- ¶4. (C) While pleased with Zuma's performance to date, Parsons admitted that "smart businessmen are still watching and waiting." "The jury is still out," he claimed. ¶5. (C) In particular, Parsons was worried that social and economic commitments made at the ANC's 2007 Polokwane conference are "unaffordable and unrealistic" in the current climate of recession and large deficits. (He cited national health care as an example.) Parsons expressed confidence that cabinet members appreciate how sharply the fiscal picture has deteriorated since 2007, if only because Finance Minister Gordhan "reminds them of it at every opportunity." However, the BUSA official warned that "many in the ANC still don't get the message -- and this will create tension" as ANC members look to Zuma to "deliver on Polokwane." Parsons did not rule out that "Polokwane pressures" could lead to fiscal slippage, which would undermine SAG credit and eat up resources better used on infrastructure and other productive assets. ¶6. (C) Parsons appeared exasperated that cabinet officials such as Higher Education Minister Blade Nzimande and Deputy Transport Minister Jeremy Cronin, both members of the South African Communist Party (SACP),have called on parastatals to play a larger role in development. He exclaimed, "It's bizarre. Everyone talks about state incapacity, but in the next breath they want the state to do more." -------------- Comment -------------- ¶7. (C) Parsons' views are now commonplace in business circles, where Zuma gets high marks for his cabinet but worries linger that sound policy could be undermined by alliance politics. Parsons is right to be concerned that pressure to "deliver" on jobs and social services might be unrealistic and could erode fiscal discipline. In weighing his words, however, it is good to remember that white big business in South Africa remains distrustful of the ANC and suspicious of its capacity to govern. A wave of anxiety swept through corporate suites when Zuma became ANC President in 2007. Having grown comfortable with the economic stewardship of Thabo Mbeki, many executives viewed the new ANC leader as corrupt, poorly-educated, and beholden to labor federation COSATU and the SACP. Compared to 2007, the view of Zuma today is almost upbeat. GIPS