South Africa recently hosted the second of President Ramaphosa’s investment summits. In the wake of the depressing Medium Term Budget Policy Statement and close-shave of Moody’s assessment of the country (retention of investment grade, but with a negative outlook), showcasing the investment potential of the country should be an imperative bordering on desperation.
As it happens, a couple of weeks ago, there was a piece of good news on this front. In mid-October, Mara smartphones opened a plant in Durban. Representing a substantial investment in the economy, employment opportunities and an affirmation that South Africa is able to participate in the technological economy, it was hardly surprising that President Cyril Ramaphosa was present – oversized scissors in hand to cut the ribbon – at the factory’s launch.
Indeed, the facility was billed by President Ramaphosa as a triumph of his outreach efforts to attract investment. He proudly referred to the fact that this was a project promised at last year’s summit.
According to Mara, the factory was a R1.5 billion investment, and had created some 200 jobs by the time of its opening. It expected to create some 1 500 jobs directly over the coming six years, alongside thousands of others indirectly. The company emphasises that it is not merely assembling smartphones (something for which a number of facilities exist), but is manufacturing the components for its devices – a truly ‘made in Africa’ product.
The President, incidentally, saw this in action, as a device was assembled for him during the fifteen minute tour of the facility.
Indeed, doing these launches around the clock would probably be a dream job for the President – it would be a concrete indication that the economy was taking off with all the collateral benefits that this would bring.
Mara’s head, Ashish Thakkar, has for his part spoken enthusiastically of the potential of the South African market, and also of the cooperation he received in setting up his operations, and the quality of the economic ecosystem – telecommunications infrastructure, retailers and banks – within which it will operate.
These are very fine and welcome sentiments. Yet they should be understood in context. This is a business decision, not an altruistic contribution to South Africa’s development. Mara is taking a risk – as is the nature of any investment. And it seems clear from his career that Thakkar is willing to accept risks in pursuit of a profitable business objective.
For South Africa, the question naturally becomes how to ensure that ever more Ashish Thakkars see the country’s opportunities and make the decision to sink their money into the country.
President Ramaphosa was quite correct in recognising the need to improve the business environment. Of course, the broad outline of much of what needs to be done is uncontroversial, even if – like ‘fixing’ Eskom, ‘fighting’ crime or ‘restoring’ our institutions – the execution is difficult and contested.
For people less inclined than Thakkar to brave risk, there is the gnawing problem of policy uncertainty. Acknowledged by government itself as a major problem, it makes accurate planning difficult, if not impossible. At the moment, nothing signifies this malaise as starkly as the question of property rights, and the intention of the government to empower itself to expropriate assets without compensation (EWC).
Concerns about this policy and what it will mean have been a cloud over investors’ and business people’s views of the country’s future, something expressed repeatedly to us at the institute of Race Relations in private, and even acknowledged by the President’s investment envoys.
If policy uncertainty is damaging, bad policy is crippling. Indeed, a major concern underlying EWC is less the fact that it unsettles things in the present but more the threat it poses when put into practice in the future. Turning the seizure of assets (whether land or anything else – and it is highly unlikely to remain confined to land) into state policy is likely to deal a blow to the country’s economic prospects that will haunt it for years.
Regrettably, this will mirror another major disincentive, the country’s empowerment demands. Impacting business in much the same manner as EWC threatens to, they impose enormous costs on investors. Empowerment effectively takes their assets, whether through the direct transfer of equity or by forcing investment in equity equivalence schemes. Requirements to meet racial targets in employment mean that staffing can become a fraught issue; the minister of employment and labour is now demanding ever more punitive powers to drive this onward.
The consequence is likely to be that the good news of factory openings will be rare – and often negated by the downsizing or closure of others. Alternatively, South Africa will fail to be considered when an investor looks for an opportunity. It is well to remember that South Africa long assumed itself to be the destination of choice for those wanting to enter the African market, but over the years, others have vied aggressively for such opportunities. Mara’s Durban plant, incidentally, followed the opening of another facility in Kigali – Rwanda’s government having positioned itself with great determination over the years as a red-carpet location for tech-based investment.
‘We are undaunted by the considerable difficulties we have yet to overcome,’ President Ramaphosa said earlier this year. ‘Above everything else, we must get our economy working again.’
The President was right to see the Mara facility as a boon for the country. We should celebrate the establishment of high-tech manufacturing facilities and the opportunities they bring. We should respect the entrepreneurs who make this possible. As a country and as an economy, we aspire to more of it. However, without policy correction, the chances of attracting such investment will remain thin. This is a message that dare not be ignored.
– Terence Corrigan is a project manager at the Institute of Race Relations. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply).