International Finance Centres can help SA improve its ease of doing business ranking
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DURBAN - So how can South Africa improve its "Ease of Doing Business" ranking to facilitate President Cyril Ramaphosa’s efforts to attract $100 billion of investment into the country over the next five years?
Alan Witherden, the business development director at Ocorian, an award-winning alternative investment, corporate, institutional, private client and international growth service provider, has strong ideas on the subject.
According to Witherden, International Finance Centres (IFC) can help South Africa improve its ease of doing business ranking, as IFCs usually have a large amount of funds waiting to be invested.
Ramaphosa in his State of the Nation Address in February set a target of moving South Africa to a ranking of 50 or better in the World Bank Ease of Doing Business Index by 2022 from 82 in 2019.
In order to reach this $100 billion target, foreign direct investments will play a vital role in boosting South Africa’s economy and the President’s investment envoys have been criss-crossing IFCs such as New York and London to sell South Africa as an investment destination.
Attracting investment to South Africa is critical.
Rating agency Moody’s in April warned that while South Africa’s government indebtedness was currently in line with investment-rated sovereigns - it was on an upward trend that could rise as high as 70percent of gross domestic product (GDP) in five years.
Lucie Villa, the vice-president at Moody’s, said the rating agency’s baseline scenario estimated that the debt-to-GDP ratio was projected to reach 65 percent of GDP by 2023.
But Witherden says the situation can be improved,“Though moving up 32 places in the World Bank Ease of Doing Business Index in three years is a tough call, a marked improvement in South Africa’s position is possible.
"If we look at the criteria used to compute the index, two areas retain our attention. First is trading across borders, where in my opinion, South Africa can do a lot better. South Africa has a lot to offer in terms of manufactured commodities, produce and industrial goods that can be traded with other African countries. An improvement on this criterion would also be welcome at a time when the African Free Trade Continental Area is nearing implementation,” Witherden said.
“The second criteria South Africa could focus on is the about enforcing contracts, which has the potential to foster trust and confidence of business operators. Also, working on improving these criteria on which South Africa scores the lowest would statistically have the highest impact in terms of improving its global ranking.
"In a related area, that of approval for permits from government and municipal bodies, the concept of ‘silent agreement’ can be adopted to ease the conduct of business. By virtue of this principle, which Mauritius for example has adopted, an application is deemed to have been approved if no reply was sent out to the applying party within a pre-approved delay,” he added.
He noted that a rapid improvement in the Ease of Doing Business Survey is possible with the right targeted measures as illustrated by the case of Rwanda and Mauritius. Mauritius was ranked 49th in 2017 and in 2019 had improved to 20th worldwide, while Rwanda improved from 41st in 2017 to 29th in 2019.
In response to a question on what Durban's strengths and weaknesses are as a magnet for finance firms, Witherden said its strength was that it was a logistics hub, while its weakness was that financial services entities are predominantly located in Johannesburg and Cape Town.
Durban is Africa’s busiest port and is the channel for around 80% of the import and export of manufactured goods for the Southern African region as far north as the Democratic Republic of the Congo. It is also served by an excellent road, rail and air network. The development of a Special Economic Zone at Dube Tradeport adjacent to the King Shaka International Airport north of Durban is attracting local and international investment for a variety of enterprises.
“IFCs are not only used to structure investments. They are also widely used to structure trade. Hence, with the pending implementation of the African Continental Free Trade Area, we should see more of trade structuring happening in IFCs.
"IFCs are also able to provide guarantee and credit mechanisms in support of trade. As a matter of fact, trade finance represents a huge market in Africa for which there is currently a very big financing gap. IFCs also thrive on the absence of foreign exchange control, a pre-requisite to enabling trade between countries with different currencies. IFCs also make it possible for trading companies to have an effective treasury management and thus mitigate currency risks. Procurement activities can also be very effectively conducted within an IFC,” Witherden said.
He noted that the skills shortage in South Africa was critical due to emigration of skilled people because of political and economic uncertainty, which was exacerbated by a real concern for personal safety as a result of the high crime rate in South Africa.
Development and training initiatives are being undertaken by banks, other financial institutions and business schools to producing highly competent individuals, which would also help to address the gender and racial imbalance in the industry as there are more back and female individuals being trained.