African National Congress secretary-general Gwede Mantashe speaks to the media  yesterday. He said scrutiny of leadership was not on the table at the party's national  policy conference, which opens in Midrand today. Picture: MARTIN RHODES
African National Congress secretary-general Gwede Mantashe speaks to the media yesterday. He said scrutiny of leadership was not on the table at the party's national policy conference, which opens in Midrand today. Picture: MARTIN RHODES

INVESTORS will be watching closely for signs that more state intervention in the economy is on the cards, based on the outcome of the policy conference of the African National Congress (ANC), which starts today.

Policies mooted at the event will not be adopted until the ANC's elective conference at the end of the year, but debate around the more controversial measures on the table could spook financial markets and frighten investors.

These include calls for the prescription of assets of private pension funds, the imposition of a mineral resources rent tax on an already embattled mining sector, expropriation of land and constitutional and judicial change.

If any of these policies are implemented, there would be potential for a backlash in financial markets and that could also lead to a downgrade of SA's credit standing. Credit ratings matter as they influence a country's cost of credit and investor appetite for local assets.

"The policy debate is important and it certainly will give some idea of where things could go in the medium term," Konrad Reuss, MD for Standard & Poor's (S&P) for SA and southern Africa, said yesterday.

"We are concerned about possible policy changes which, in the medium term, would be unsustainable and could undermine confidence in the markets. But at the moment it's wait and see - I would not expect immediate policy action that would change course significantly."

The three top rating agencies - S&P, Moody's and Fitch - have given SA's credit ratings a negative outlook, citing a risk that political pressure could lead to more populist economic policies.

There is huge pressure on the ANC to come up with new ideas to address chronic poverty, unemployment and inequality, which could undermine existing policies seen by investors as a prerequisite for a healthy economy.

Economists voiced concern about "media excitement" and "headlines" which the conference could generate, even if the topics under discussion never saw the light of day.

"Investors should take much of the likely noise coming out of the conference with a pinch of salt," said Nomura emerging-markets analyst Peter Attard Montalto.

Nationalisation of mines was likely to be discussed even though it had been effectively ruled out by the ANC, while the Reserve Bank's inflation-targeting mandate could also come into the spotlight, he said.

"The bread and butter of interest for investors ... will likely be the more general notion of the 'second transition' laid out in ANC discussion documents and which contains within it the notion of greater state involvement in the economy," Mr Attard Montalto said.

Economic history generally suggested that "bigger government ultimately leads to lower growth and higher inflation", Rand Merchant Bank said in a research note touching on the conference yesterday.

Iraj Abedian, chief economist at Pan African Investment and Research, said he was concerned that the problems facing SA were not being "articulated" correctly.

It would be a mistake to think that extracting money from the private sector would fix the issues of poor education and healthcare, lack of skills, and corruption, he said.

Dr Abedian said his main worry was that the faction fighting taking place in the ANC would make the policy debate "problematic".

"Nobody knows if the policies will survive the test of time. Investors are always concerned about how much continuity there will be - when there are factions in an organisation there is always a risk that policies will be thrown away," he said.

Internal squabbles are expected to dominate the conference, with opponents of President Jacob Zuma jockeying for position.

Absa Capital economist Jeff Gable said although investors would "watch the headlines" this week, he did not expect any adverse market reaction at this stage.

"I am not worried about sharp price movements due to the conference; in the grand scheme of things what's going on globally is what is taking investors' attention."

Mr Gable said investors in local assets were "more thoughtful and longer-term" than in the past.

isam@bdfm.co.za