The South African government is deliberately engaging in a series of policies designed to drive away European investment and European-led companies out of the country, one of South Africa’s oldest farmers’ unions has warned.
In a special update report released yesterday by the Transvaal Agricultural Union (TAU), which was founded in 1897, that organization warned that “Africa as a continent does not have a good reputation for sticking to its guns, so to speak. Promises made, conference resolutions ratified and agreements signed are not guarantees of fulfilment going forward.
Both the letter and the spirit in many instances are ignored: procrastination sets in, communication with responsible officials is difficult and sometimes futile, and a bad taste is left in the mouth of many who believed that certain norms and values – taken for granted in most parts of the business world – would be respected.
International treaties can be thorn in the flesh of those who chafe under conditions imposed by others – stipulations which rankle and hinder the agenda of rulers who want things their own way.
To those in the governing ANC/ SA Communist Party alliance who believe they will be in power “until the end of the world”, giving allegiance to an ideological agenda completely out of step with the developed world is not a problem.
Going the Zimbabwe route doesn’t seem to be a problem either.
Trust is a corollary to investment. The disdain with which Zimbabwe’s Robert Mugabe went back on promises and guarantees has been noted by the world.
Undertakings given to white farmers who purchased their properties after Zimbabwe’s 1980 independence were cast to the wind at the first sign that Africa’s newest tyrant might lose power.
Wholesale violent land grabs shocked the world, and even today, Mugabe plays cat and mouse with investors: the world needs the country’s minerals so foreign companies try to navigate “the treacherous waters of his indigenization drive” (Business Day 6.3.13) in order to mine that country’s high value minerals at any price.
Fifty one percent to the locals is Mugabe’s sword of Damocles over the mining companies. The Fraser Institute recently ranked Zimbabwe 91 on its mining investment table, down from 74 last year.
We can be sure that scientists somewhere in the world are trying to create a replacement for platinum, just as shale, wind, solar and other means are being explored to wean the world from its dependence on fossil fuels such as oil and gas.
In the meantime, business has to indeed navigate the treacherous investment waters of some of Africa’s mineral-rich countries.
The SA government’s decision to cancel investment and property protection agreements with the European Union (EU) has caused concern.
President Jacob Zuma’s remarks reported in the London Financial Times recently that SA wanted to end the “colonial approach” to investment has revealed once again the inferiority complex deeply embedded in the ruling classes about European influences in South Africa’s history and in current commercial enterprise.
The European Union is the source of nearly 90% of foreign direct investment in this country including assets valued at nearly R1 trillion or 34% of gross domestic product in 2010, and the EU makes up one-third of SA’s global trade. (Business Day 15.3.13).
South Africa has 13 agreements with EU member states which will be cancelled as they come up for renewal. New investments will not be covered by agreements which would guarantee compensation should expropriation or damage be suffered by investors or foreign owners.
Trade and Investment minister Rob Davies says there are plenty of other investors besides Europeans: European business leaders say they require bilateral agreements to get affordable insurance needed to raise capital for ventures abroad.
A Foreign Investment Bill is purportedly being drawn up by the SA government but is not yet in place, so there will be a vacuum as current treaties lapse and there’s nothing to take their place.
Trade and Industry deputy director general Xavier Carim told Parliament recently that foreign direct investment benefits should encompass the whole gamut of social spending.
The ANC, as government, should be responsible for this, but they have failed in their obligations and they thus shift the burden to investors, businesses, farmers and anyone else who comes within their sights.
A parallel South Africa has emerged since 1994 where virtually all government responsibilities have been taken up by the private sector – consultants do what the three tiers of government are unable to perform.
Security companies take the place of policemen, private schools teach where government schools collapse, private hospitals have mushroomed while the state institutions disgrace themselves, and companies are dragooned into corporate social investment hand-out schemes to take up the slack due to government incompetence.
The ANC has now found another source upon which to parasite: in future, foreign investors will be asked to prioritize involvement in black economic empowerment, socio-economic transformation and other ideological fantasies.
The new Bill will introduce provisions for compensation in the event of expropriation in line with the constitutional provision of “just and equitable” compensation instead of “market value” protection which exists in most treaties. Who will determine what is just and equitable is a foregone conclusion. It certainly won’t be any international arbitration body.
TAU SA warned sometime ago that land redistribution legislation containing expropriation clauses and the abrogation of the willing seller, willing buyer provisions would be extended to the rest of South Africa. This appears to be on the cards.
The ANC wants to move away from a Eurocentric investment community towards others with whom South Africa does not have treaties, confirms Mr Carim. He also says that treaties “pose risks and constrain government’s ability to regulate in the public interest”.
Perhaps the writing was on the wall. A 2012 study that surveyed 88 EU companies revealed that South Africa’s low skills and education levels, empowerment legislation, bureaucracy and graft were curbing investment.
Some European businessmen say that current treaties are being cancelled “in case SA decides to nationalize certain key sectors in the economy”.
At the same time, SA companies are quietly moving abroad, or at least diversifying in that direction. They are looking for a way out. Insurance giant Old Mutual plans to expand to Kenya and West Africa;
Liberty Holdings is trying for acquisitions in Nigeria and Ghana by the end of 2013;
Massmart is increasing its foot print in more African countries;
Exxaro Resources is commissioning a plant in the Republic of Congo;
Netcare medical group has just raised its stake in Britain’s largest hospital group General Healthcare Group for 11 million pounds;
Naspers has already put its stake firmly into Russian and Eastern European soil;
SA’s retailers say the rest of Africa is increasingly delivering better returns than South Africa;
Grindrod announced this month it had its eyes “firmly” on the rest of Africa;
Nedbank is set to generate revenue from at least 35 African countries with a 20% stake in Ecobank;
construction group Wilson Bayley Homes Ovcon saw steady growth in the last six months in its Australian division;
Sun International’s Monticello operation in Chile saw strong growth of 31% up to December last year;
ABSA bank is ready to acquire the biggest bank network in Africa;
SAB Miller has announced a $864 million brewery deal with China;
Sanlam hopes to conclude an R800m deal in Indonesia this year following a successful entry into Malaysia; and
MTN is looking to Myanmar for its next investment.
General Motors SA says the “only frontier for growth is Africa”;
Famous Brands food group this week announced expansion into India, while Nando’s Chicken is already in a score of countries including northern Pakistan.
Discovery is spending R116m on an increased stake in China’s Ping An, while Anglo Gold Ashanti has hived off the bulk of its South African mines – international resources shareholders are growing increasingly strident in their calls to quarantine South African gold assets from those in “less restive and less regulated parts of the world”. (Sunday Times 10.2.13). (More than 60% of Johannesburg Stock Exchange-listed companies’ revenue comes from outside South Africa’s borders.)
So it’s time to get out of Dodge, both local and international companies are saying to themselves, and the exodus, though quite low key, is apparent.
The SA government speaks with forked tongue – it creates an unfriendly investment climate because it cannot be trusted, because it threatens nationalization and cannot control labor costs and violence.
SA’s electricity supply is unpredictable and now the question of compensation in the event of nationalization has put the nail in the coffin of external confidence in SA’s ability to return profits and protect investments. (It is no coincidence that foreign direct investment flows into SA dropped by 43,6% last year.)
At the same time, the SA government chides local companies for their lack of investment in the country despite the huge surplus of cash (estimated to be around $500 billion) floating around South Africa. The government appears not to see the irony in this conundrum.
Enter the Chinese. It may not be well known that some SA companies importing from China are paying in SA rands.
The Chinese have quite a stock of rands with which they are buying up SA mines and other businesses at bargain basement prices.
China Precious Metals has paid R150 million for the once thriving Aurora mine, a going concern that was looted by Jacob Zuma’s nephew and Nelson Mandela’s grandson.
Soon it may be offering good prices for farms. Already the Chinese are successfully farming in Zimbabwe, albeit at the grace and favor of the country’s president.
The ANC will soon discover that the Chinese are a different kettle of fish to South African businessmen and farmers who put up with the SA government’s intransigence and fickle behavior.
There will be a price to pay for ditching the EU and taking up with a new set of investors. There will be no free lunch, and pounds of flesh will be demanded.