It was a momentous year. The gold price collapsed; the first black Reserve Bank governor took the helm; the face of black empowerment was changed forever; and privatisation was propelled to the top of the economic agenda, write Donna Block and Mungo Soggot
Gold, the metal that defined South Africa in the twentieth century, went on a roller coaster ride, dropping as low as $256/oz and then rising back above $300 in October, wreaking havoc along the way. The dramatic price collapse at the start of the year was triggered by fears of a gold glut after several central banks and the International Monetary Fund announced plans to sell off large portions of their bullion stocks. After vigorous lobbying by gold-producing countries – including South Africa – some of these sales were put on hold, restoring some confidence in the yellow metal.
While thousands of South African mining jobs were threatened by this price volatility, only one local mine was forced to close. East Rand Proprietary Mines, a 106-year-old mine in Boksburg, was put into liquidation in August, wiping out 5 000 jobs.
South Africa’s pioneering black empowerment company, New Africa Investments Limited (Nail), was wracked by a shareholder revolt after its directors quietly decided to award themselves R136- million of options each. Two of Nail’s founding directors – Nthato Motlana, physician to former president Nelson Mandela, and his sidekick Jonty Sandler – were forced to quit, taking sizeable exit packages with them.
The scandal infuriated institutional investors, who threatened to sell their holdings. Five months on, Nail effectively restructured itself out of existence, unveiling plans to become absorbed into Metropolitan Life where Nail representatives would exercise considerable management control. All of which constituted one of the biggest upheavals yet in South Africa’s empowerment sector: it switched the focus of empowerment to building up black management, as opposed to artificial schemes to boost black share ownership on the Johannesburg Stock Exchange (JSE).
The JSE defied expectations and pulled off one of its best years ever. South Africa became one of the most attractive comeback kids of the emerging markets, which had been slaughtered the previous year by the ripple effects of a massive loss in confidence in Asian economies. The All Share index on the JSE screamed past 8 300 points, scoffing at predictions that the benchmark index would not top 6 000 in 1999.
South Africa’s most notorious corporate scandal came to a controversial conclusion when Judge Willem Heath got cold feet about an investigation into the Absa lifeboat. Heath probed the legality of the Reserve Bank’s decision in the early 1990s to secretly rescue Bankorp, a pillar of the Afrikaans business establishment, with a R1- billion gift of public funds. Bankorp subsequently became part of Absa. After his lengthy investigation, Heath broke with legal tradition by pronouncing Absa guilty as charged and declaring that he was not going to pursue the matter. Heath argued that the return of the lifeboat could trigger a run on Absa, and, he suggested, less convincingly, disrupt the entire banking sector.
Tito Mboweni became the first black man to take control of the South African Reserve Bank (SARB), replacing Chris Stals, a governor who gained widespread respect for his conservative stance on monetary policy. Stals had a difficult final lap at the SARB, having presided over the rand’s collapse in 1998 because of what some perceived as his stubborn insistence on spending vast amounts of dollars to defend the frail currency. At the banquet thrown to celebrate Mboweni’s inauguration and Stals’s departure, President Thabo Mbeki flaunted his Thatcherite side when he gave a glowing tribute to Stals and signalled his heartfelt commitment to conservative monetary policy.
One of Mboweni’s first challenges was the country’s biggest-ever corporate collapse. Macmed, a medical supply giant, went down with almost R1-billion of debt, leaving a string of creditor banks in the lurch, and pushing one bank, FBC Fidelity, into curatorship. The Reserve Bank was forced to keep a watchful eye on the fallout that ensued in the banking sector.
Corporate South Africa lost its virginity when it was initiated with its first big- league hostile takeover. Nedcor announced its intention to swallow Stanbic, holding company of Standard Bank, which was vehemently opposed to the idea. Both banks subsequently took their fight to the streets, treating South Africans to a duel through advertisements that will continue into the new year. The saga gave Mboweni the opportunity to pull off his first blaps, when he stopped just short of threatening to revoke their bank licences if they did not take their fight out of the public spotlight.
In the Cabinet reshuffle following the June election, Jeff Radebe, a Communist Party stalwart, was given the public enterprises portfolio, putting him in charge of privatisation. It was an inspired move by the new president: Radebe’s political credentials will equip him well to diffuse the inevitable hostility to state sell-offs that would emanate from the left of the African National Congress alliance. Rabebe swiftly announced the government’s intention to sell off R150- billion of state assets by 2004.
While Radebe won the hearts of the investment community, he became embroiled in a conflict of interests involving his wife, Bridgette, and her management contract for the state diamond company, Alexkor. Rabebe drew criticism for his apparent leniency to his wife’s company, which consistently failed to honour its contractual obligations.
The corporate chicken run continued apace, with Old Mutual, the financial services giant, moving its main listing to Britain, where it wowed investors with its debut on the London Stock Exchange. While the move meant the departure of yet another major player, it also put millions of rands into the pockets of South African Old Mutual policyholders, giving a fillip to the local consumer economy and injecting $1-billion into the Reserve Bank’s foreign currency kitty.
During 1999 headline inflation sank below 2%, its lowest levels in 30 years, after a protracted period of high interest rates. Economic growth ended up being just more than 1%, with 3% forecast for next year. The government’s immensely successful efforts to rein in public spending and cut the budget deficit continued to impress foreign institutional investors. But direct investment remained lacklustre, foreign companies remaining wary of South Africa’s notorious crime levels, weak productivity and restrictive labour laws.
After four years of tortuous negotiations, the trade deal between the European Union (EU) and South Africa was signed in October. But several EU countries proceeded to haggle over the part of the agreement dealing with wines and spirits, stalling the agreement’s final ratification. The deal is supposed to be implemented in January, but disagreement over wines and spirits could still scupper the entire pact. The persistent haggling on the part of the EU states made a mockery of their promise four years ago to help post- apartheid South Africa back into the world economy. The European nations concerned have forced South Africa to phase out the use of the terms port and sherry. As if that wasn’t enough, they started insisting in late December that ouzo and grappa also be erased from the lexicon of South African wine- makers.