Could SA become uninvestable? - IOL

25 July 2018 - It’s distressing enough that South Africa is struggling with an extensive portfolio of disincentives. It is more distressing that several of these have arisen from choices that the government has made.

Terence Corrigan

The summit of the Brazil-Russia-India-China-South Africa (BRICS) group raises – as do other events regularly – South Africa’s quest for investment. South Africa, the cliché has run for decades, is open for business. Regrettably, one gets the sense that after all the delegates have gone home, hoteliers have toted up their earnings and the last ‘Welcome to Mzansi’ placard has been taken down and binned, that not a great deal will be different.

It’s not so much that we’ve been down this road before as that we’ve become stuck on it. To push South Africa’s developmental agenda, to fund rapidly expanding value-adding activity, and to create the jobs that the country and society needs, requires an exponential increase in investment. Hence, president Ramaphosa’s appointment of four investment envoys to stump for investment globally. And they are, in fact, merely the latest iteration of any number of investment outreach initiatives that go back to the presidency of Nelson Mandela.

But to put the urgency of the situation into perspective, it’s worth noting that the JSE has seen outflows of some R26.2 billion since the beginning of the year. Our bond position is now in the worst position it has been in for at least seven years.

Any endeavour to attract investment has to make the case that the wins from sinking money into a market can confidently be expected to outweigh the drawbacks. This provides a decent explanation for the success that China has had in doing so. China is not always an easy environment to operate in, and in the past it was even less so: an unfamiliar linguistic and cultural environment, administrative inefficiencies, corruption, issues with intellectual property, and so on. On the other hand, China offers an enormous and growing internal market, a relatively cheap labour supply, and infrastructure capable of handling massive volumes of exports, a government eager to host foreign investors and the prospects that things will become even more hospitable in future.  

South Africa can boast a number of positive factors for investors, such as a solid banking system, sophisticated (albeit strained) infrastructure, and South Africa’s position as a ‘gateway’ to Africa. Against this must be ranked a list of difficulties, including market concentration, skills shortages, indifferent administration, an uncertain regulatory regime and the electricity supply. The list goes on, and it is not new.

Indeed, a few years ago, Dr Mark Mobius, then of Franklin Templeton Investments, commented: "They’ve got to make South Africa a much more attractive place for investment… I’m not only talking about foreign investment. I’m talking about local investment."

It’s distressing enough that South Africa is struggling with an extensive portfolio of disincentives. It is more distressing that several of these have arisen from choices that the government has made. The current drive for Expropriation without Compensation (EWC) is a prime illustration.

That two of the government’s investment envoys – Trevor Manuel and Jacko Maree – have indicated that EWC is complicating their work cannot be unexpected. The security of property rights, after all, is fundamental to investors’ decisions. South Africa will find that investors from the BRICS will look no more serenely than those from elsewhere on its current course. And whatever soothing conditions may be attached to it, EWC stands to degrade them.

With the evidence mounting that EWC is (at best) a major disincentive for investors, how will South Africa respond?

The obvious course of action would be to back away from it. EWC deals a blow to South Africa’s economic prospects at a time when it can ill afford it. And there is no credible evidence that it will do much to remedy the shortcomings of the country’s land reform programme – as is clear from a reading of the report of the High Level Panel under former president Kgalema Motlanthe, appointed by Parliament to look into the transformative impact of legislation.

It is unclear whether this is the course of action that will be taken. Some ill-thought out suggestions that this will drive development (the intervention that will turn South Africa into a ‘garden of Eden’ for example), and – more importantly – a great deal of ideological faith, appear to have been invested in the idea. And numerous senior members of government, not least President Ramaphosa himself, have repeatedly endorsed it.

(From time to time, this is enhanced by a belief that South Africa’s BRICS partners will – somehow – come to its assistance. It is difficult to forget the hubris-laden WhatsApp conversation among a number of politicians and SOE executives at the time of South Africa’s credit rating downgrade in April last year. As one message had it: "It’s actually better Western investors will pull back and we have the opportunity to bring them back on our own terms, after we have consolidated our relations with Africa and Brics. We must rearrange our foreign debt payments.")

If South Africa is to have a fighting chance of getting the investment it needs, it has to send a clear message that it is in fact open for business, that it wants business and that it will be a good and even-handed host to businesses operating in the country. EWC sends out a message directly counter to this. And if South Africa continues on its current trajectory, it will find that it is viewed as uninvestable.

* Terence Corrigan is a project manager at the Institute of Race Relations (IRR).

https://www.iol.co.za/news/opinion/could-sa-become-uninvestable-16232844

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