SA laws will unnerve investors, block FDI

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The Private Security Industry Regulation Amendment Bill is of grave concern to foreign investors. Foreign investment is one of the most crucial mechanisms for South Africa to spur economic growth, but multinationals need a stable and predictable policy environment.

Take the contribution that our members, who form part of the American Chamber of Commerce in South Africa, have made to the country. Just 80 US firms, surveyed two years ago, contributed a combined total of R233 billion to the local economy, employing 150 000 South Africans.

They spent R445 million on corporate social investment and invested R500m on skills development, putting another R320m into training. These firms are fighting poverty and creating jobs in South Africa.

But they need to protect their investment in the host country and so they need policies linked to an established legal and regulatory framework that will provide security for these investments.

South Africa is competing against other developing markets for foreign investment and we have to ensure that our policies are business friendly and attract investors.

The bill, though it does bring regulation to the industry, includes a controversial clause that requires foreign-owned security companies and their suppliers to hand over 51 percent stakes to South Africans. The reason, ostensibly, is that these firms collect security intelligence that puts South Africa at risk. This is absurd.

Foreign-owned security companies in South Africa make up less than 10 percent of the local security industry. And it is already a legal requirement that the management and staff of foreign-owned securities companies are South Africans.

We should be up in arms about the impact this bill will have on foreign investors. This goes far beyond the security industry. Investors will wonder what sector will be forced to hand over half of their businesses next. Will companies continue to use South Africa as a foothold economy from which to expand operations to Africa? We think not.

There are other costs and risks associated with this bill. South Africa would be in violation of its global trade obligations. The country will infringe its commitments under the World Trade Organisation’s general agreement on trade in services.

South Africa has undertaken to give full market access and national treatment commitments to “investigation and security” services. This obligation requires private companies to “provide these services, without restriction, on terms no less favourable than those applicable to local firms”.

If South Africa ignores its obligations, aggrieved countries could win the right to retaliate against our exports. Just as important is the bill’s implications for South Africa’s eligibility for the US general system of preferences, the platform for the African Growth and Opportunity Act.

These treaties give South African exporters unprecedented access to the US market, enabling 98 percent of South African exports to enter the US duty free.

Many international firms have chosen South Africa as an investment destination precisely for this preferential access, contributing to the country’s rise as a manufacturing hub. Let’s translate the importance to numbers, however. US trade data show that South African exports to the US under the general system of preferences and the African Growth and Opportunity Act were worth $3.6bn (about R38bn) last year.

The US was the largest destination for South African exports after China, accounting for 7 percent of all exports. But it was by far the largest destination for the vehicle sector (21 percent of all exports) and for passenger cars (42 percent of exports).

Overall, the US was the leading destination for South Africa’s key industrial exports – vehicles, machinery and chemicals.

By comparison, the fellow Brics countries of Brazil, Russia, India and China combined made up 17 percent of South Africa’s global exports, but took only 3 percent of vehicle exports and 5 percent of the top industrial exports.

South Africa’s preferential access to the US is important to our plans for industrialisation and critical for our strategic automotive sector. We cannot risk that access.

Although we do not provide the US reciprocity for the access we gain, the Africa Growth and Opportunity Act requires any country that uses this law to have “a market-based economy that protects private property rights”.

The US Trade Act also says that a country would not qualify as a beneficiary developing country if it has “nationalised, expropriated or otherwise seized ownership or control of property, including patents, trademarks or copyrights, owned by a US citizen or… corporation, partnership or association which is 50 percent or more beneficially owned by US citizens”.

And yet, the new bill would make South Africa ineligible on this score. So overall, it puts at risk 44 percent of our exports to the US, or 3 percent of our global exports.

We encourage the government to reconsider certain policies proposed recently, including the Protection and Promotion of Investment Bill, the Expropriation Bill and the Mineral and Petroleum Resources Development Act. These policies make investors jittery and create the perception that South Africa is closing its doors to foreign direct investment (FDI).

If implemented, these laws will lead to many foreign-owned companies reconsidering their investment, costing South Africa jobs and economic growth.

* Carol O’Brien is executive director of the American Chamber of Commerce. This article was first published in Sunday Times: Business Times.


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