German Chancellor Angela Merkel, right, welcomes the President Cyril Ramaphosa, left, for a meeting at the chancellery in Berlin in October 2018. File picture: Markus Schreiber/AP
German Chancellor Angela Merkel, right, welcomes the President Cyril Ramaphosa, left, for a meeting at the chancellery in Berlin in October 2018. File picture: Markus Schreiber/AP

Merkel’s visit: Time to take action, rethink policy in order to attract investment

By Terence Corrigan Time of article published Feb 5, 2020

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The visit to these shores of long-serving German Chancellor Angela Merkel should focus South African minds on the opportunities that exist in our relationships with the outside world. 

There are – as particular analysts have recently pointed out – areas in which South Africa and Germany have common objectives, both being ‘middle powers’ committed to multilateralism. 

Germany also remains one of the world’s leading economies, and a major investor in and trading partner of South Africa.

Merkel has put some effort into enhancing commercial ties with Africa, notably through the G20 Compact with Africa. From the experience of the Institute of Race Relations, there is no lack of goodwill towards South Africa by decision-makers in Germany, and some definite interest in the business opportunities on offer.

Yet, frustratingly, there is no certainty that South Africa will – or can – leverage this to its economic advantage.

Over the past few weeks, two major investment showcases took place, the World Economic Forum in Davos and the UK-Africa Investment Summit. By all accounts, South Africa failed to impress.

Long-time market analyst, Peter Attard Montalto of Intellidex put this down to a failure to recognise that attracting investment is about having an ‘X-Factor’ – establishing an internal dynamism that can get those with money and ideas intrigued and excited. 

Rather, South Africa has a fixation on the questionable notion of counting investments as they trickle in. Maybe this makes for good optics, as these can be attributed to the latest investment conference or ‘commitment’ by a CEO. 

‘Investment,’ he says, ‘should be occurring from uncontrolled optimism about the economic prospects of the country, facilitated and channelled by a capable state providing an appropriate foundation.’

Investors, entrepreneurs, will be attracted to a country based largely on the returns that can be earned. 

The costs and risks of doing business need to be outweighed by the profits to be made. Far better than a high-profile junket, a ritzy conference (where outlays already planned can ostentatiously be recycled into ‘commitments’) or a plea to the consciences of executives is making it attractive. 

In other words, lower the costs, cut the risks and enhance the prospects of a decent return.

Too much of what South Africa does moves in the other direction. The costs and multiple risks of a high crime rate, an indifferently educated and inadequately skilled workforce, a sluggish and often corrupt bureaucracy and fraying infrastructure are disincentive enough. 

They have been compounded by any number of reckless and ill-advised policy choices. 

Empowerment policy, for example, has long been an issue. It was cited in a 2018 survey of European businesses operating in South Africa as a major problem. 

The need to cede equity or to engage in expensive compensatory activities simply ups the costs of doing business in the country; that this might be ‘strengthened’ (as government promises from time to time) adds to the uncertainty of doing so. 

The degradation of property rights through Expropriation without Compensation is another. Little is so unsettling to business people as a threat to the security of their assets – this is all the more so since the ruling party’s proposal that the executive, rather than the courts, should set compensation. 

Dutch foreign minister Stef Blok, who recently visited South Africa, made some carefully worded remarks on this: “Like the SA government, we attach great value to the respect for property rights and the rule of law. When these two are endangered, it will affect existing and potential investors alike. It is important to have clarity on issues like these”.

Clarity, important though it may be, will not be enough. To revive South Africa’s economy and the interest of those able to invest will demand fundamental reforms, of which rethinking empowerment and reversing threats to property rights are but two among many. No amount of explanation will substitute for this.

Time and circumstance are not on South Africa’s side. The optimism that President Cyril Ramaphosa brought with him has largely evaporated, and the hope that action was imminent after he had achieved some sort of ‘mandate horizon’ seems now hopelessly misplaced. 

South Africa heads – probably – towards the loss of its last investment-grade credit rating, as its public finances move into ever more hazardous territory.

The country will look steadily less attractive, and not only to foreign investors: South African business people will lose hope too. Many already have. Destinations elsewhere – not least on this continent – seem far more interested in attracting business.

Whether South Africa’s leaders and policymakers are able (or willing) to see this reality and act appropriately on it remains to be seen. 

There is little to suggest they do. In the meantime, summits and conferences may be the best we can do.

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

** The views expressed herein are not necessarily those of Independent Media.


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