Johannesburg — SA's decision to block a 23b n merger between MTN and India's Bharti Airtel may indicate President Jacob Zuma favours more state involvement in the economy to protect jobs and local industries.

Bharti and MTN abandoned talks after the deadline for an agreement expired on September 30. Bharti said the structure of the deal failed to get approval from SA's government.

Zuma, who was swept into office in May with the backing of labour unions, is under mounting pressure to stem a slump in manufacturing output and the loss of tens of thousands of jobs as the economy suffers its first recession in 17 years. Until now, he has stuck to the business- friendly policies of the previous government, headed by Thabo Mbeki .

"If Thabo Mbeki represented deregulation and globalis ation and the stripping away of any kind of protection in the market, then the Zuma government is much more prepared to intervene decisively in the shaping and the reshaping of the economy," said Nic Borain, a political analyst in Cape Town whose clients include London-based HSBC Holdings .

The deal would have created a cellphone operator with annual sales of 20bn and 200-million subscribers from Johannesburg to Mumbai. Shares in MTN, Africa's biggest wireless operator, on Friday closed at R131,61 , after adding 5, 6% on Thursday as investors, including Coronation Fund Managers , said the termination of talks ends "uncertainty ".

Reserve Bank governor Tito Mboweni said last week that the country's authorities "didn't like" the merger.

"MTN must remain a South African company," he said. "It's a very important asset. The chairman, the CEO , the chief operating officer must reside in SA ."

Communications Minister Siphiwe Nyanda, appointed by Zuma in May, also said last week that Johannesburg-based MTN should remain a South African company.

Lindani Mbunyuza, a spokeswoman for the Treasury, would no t comment when asked whether the rejection of the deal was a sign the government was planning to intervene more in the economy.

In his almost five months in office, Zuma has resisted pressure from his union backers to increase spending and ease the focus on slowing inflation.

Unions have opposed the government's policy of inflation targeting, whereby the central bank is mandated to keep inflation within a range of 3%-6% by adjusting interest rates. Mboweni said last week he doubted the policy would change.

Zuma, who campaigned on promises to reduce poverty and create more jobs, is struggling to cut an unemployment rate of 23, 6%, the highest of 62 countries tracked by Bloomberg.

"In tough times, you do get a protectionist tendency," said Jean-Francois Mercier, an economist at Citigroup in Johannesburg.

Politicians "are much more jittery when foreign companies acquire major companies. There is a perception that in a crisis, a foreign company will just pack up, fire workers and go. "

Mines Minister Susan Shabangu said in July the government regretted allowing Anglo American to move its headquarters to London from Johannesburg because the company was built into a mining giant from assets in SA .

Under Mbeki, SA 's biggest retail bank, Absa Group, was allowed to sell a controlling stake to London-based Barclays, while Standard Bank , Africa's largest lender, sold a 20% stake to Industrial and Commercial Bank of China . Since 1994, SABMiller , the world's second-biggest brewer, moved its primary listing and headquarters to London, as did Old Mutual .

The government may feel more responsible for MTN because the state-owned pension fund manager, the Public Investment Corporation, is MTN's biggest shareholder with a 24% stake. Until 2006, state-owned transport company Transnet was also a shareholder.

MTN's "growth has been facilitated also by government to a degree " Nyanda said last week. "Because it is a South African entity" it would "be sad if we saw this entity move into the hands and management of foreign nationals ".

The company has more than 100-million customers in 21 countries in Africa and the Middle East.

SA had asked India's government to allow MTN to have a dual listing, India's Economic Times reported last month, citing two unidentified officials from India's finance m inistry. Indian law does no t permit dual listing, which allows companies to merge their business operations while keeping their existing shareholding structures intact.

"You tend to find with a lot of emerging markets that this issue of economic nationalism often takes precedence over basic corporate benefits," said Stephen Davies, CEO of Javelin Wealth Management in Singapore.

"The benefits to Bharti and MTN of this deal were very clear and from the point of view of creating a champion for emerging market telecoms, it would have been a perfect transaction," he said. Bloomberg