There’s something fascinating about President Cyril Ramaphosa’s hype about investment in South Africa in his weekly From the desk of the president of 16 November, entitled Put your money into South Africa.
It is a presentation of distortions and wishful thinking, given that the government is poisoning the investment environment.
Ramaphosa says that at the first investment conference in 2018, he ‘ambitiously’ set a target to secure R1.2 trillion in investment over the succeeding five years. ‘I said that not only is new investment essential to growing our economy, but that it is fundamental to reducing unemployment, poverty and inequality.’ He then goes on at some length to say what benefits investment can bring.
However, Ramaphosa and the African National Congress (ANC) either don’t understand what is actually needed to attract investment or they don’t really care. New investment, local or foreign, will only become a reality if investors see us as investor-friendly. Yet, we continue to be investment-unfriendly.
Ramaphosa pretends that the ‘conference will demonstrate that South Africa remains an attractive investment destination’, saying that it ‘will show the progress we are making to improve the business climate. It will build on the positive momentum in investment in the years before the onset of the COVID pandemic. Foreign direct investment flows into South Africa, for example, rose sharply from R26.8 billion in 2017 to R70.6 billion in 2018.’
However, the Foreign Direct Investment inflows for the first quarter of 2020 were R29 billion (pre-Covid). The registered outflows for the first quarter were R97.6 billion.
Head of Strategic Initiatives at the IRR Hermann Pretorius notes that ‘equities net purchases/sales by foreigners between January and October 2020 reached -R121.8 billion. Bonds net purchases/sales by foreigners reached -R82.3 billion over the same period.’
Middle class is not growing
Colleague Duwayne Esau writes in the Daily Friend that the middle class is not growing but shrinking; our unemployment rate is now at 30.8%, or 43.1% on the expanded definition; and that ‘… real gross fixed capital formation, South Africa’s net investment, reached a record low of -59.9% in Q2 of 2020, which means we are getting poorer as a nation.’
The Johannesburg Stock Exchange delivered average returns of 12% in 2019 compared to 31.9% achieved on the New York Stock Exchange in 2019 – returns in South Africa are ‘modest at best.’
This is not a government that is being honest about the quagmire that is the South African economy; in fact just the opposite. Money is haemorrhaging from the South African economy yet Ramaphosa continues to pretend that we’re an attractive investment destination.
According to Ramaphosa, investor confidence has been boosted by the establishment of the Infrastructure Fund (Fund). Said Fund of R100 billion, which came into being in August 2020, doesn’t yet have the money in it. It will offer ‘a range of instruments to attract private investors.’ But why should it attract private investors when the government offers little or no return?
Then the biggest whopper: ‘Confidence is also being improved by our continuing implementation of the structural reforms…’. The structural reforms Ramaphosa insists we are implementing aren’t the ones necessary for private sector investment.
There is little sign that red tape for small and medium-sized businesses is lifting. South Africa is still one of the countries with the most arduous regulatory regimes for starting and running businesses.
The minimum wage still prevents the unskilled from offering anything to a potential employer, and the labour laws remain too rigid, particularly in regard to ease of hiring and firing.
Foreign companies and the European Union have made it clear that the greatest barrier to investment is South Africa’s Black Economic Employment (BEE) requirements, particularly being required to have 51% of your business owned by local black companies.
To this must be added the proposed legislation to expropriate property without compensation, thus eroding investors’ property rights, legislation threatening to nationalise the SA Reserve Bank, and agreements between government, banks and fund managers to allow pension funds and the like to invest in State-owned enterprises (SoEs).
Finally, Ramaphosa says: ‘We are positioning ourselves as a hub for digital services.’ This doesn’t seem to be the view of the government’s National Planning Commission.
On 6 July 2020, the Draft Report on Digital Futures: South Africa’s Digital Readiness for the Fourth Industrial Revolution was published.
The report, inter alia, found:
- The coordination and integration of activity by ministries with parallel authority is unproductive;
- The Department of Communications has spent the last five years trying to unravel the logic of the convergence of broadcasting, telecommunications and IT that informed policy and law over the last two decades;
- The Department has to create an enabling environment for broadband extension, which it doesn’t currently have;
- The implementation of the six-year-old proposed rapid deployment guidelines needs to proceed hastily. Despite massive investments in the sector, the government failed to meet its 2016 targets and will likely fail to meet the 2020 targets;
- The third market review commissioned by ICASA must be completed urgently and must provide all licensees and market players with a stable and certain environment in which to operate;
- An integrated data governance framework is essential to developing the trusted framework required for people to use online services;
- Development and implementation of data and privacy protection, cybersecurity, cybercrime and anti-surveillance are central to the governance of digital infrastructure. Coordination of the activities of various regulators is critically important;
- Political decisions regarding use of SoEs for ideological and personal interest undermine the competitive strategies in policy;
- The Cybercrime Bill still needs to be implemented by many departments. Improving administrative and technological skills will be critical to ensure the Bill’s full functionality;
- SoEs must be prevented from competing with one another. The government should merge public entities into a single operation or into private operations which can make national assets work more efficiently;
- The tendency to give additional regulatory and operational policy responsibilities to entities that are already underperforming, simply sets them up for failure;
- School curricula must be revamped to encourage the studying of science, technology, engineering, mathematics, and promote critical thinking, flexibility and creativity.
- On indices that rate public sector digital performance South Africa scores very poorly;
- Success of the State IT Agency’s new integrated enterprise model will depend on massive change-management (skills and mindset);
- Government consulting has been focused on the research councils which provide technical advice on issues such as spectrum allocation or indicator mapping, without any business plan or financial viability assessment;
- There has been almost no public investment in digital policy.
While South Africa is dithering over the above mess, other African countries will take the initiative to become the hubs of choice on the continent.
Ramaphosa ends his letter with the same old, tired, and annoying platitudes: ‘To achieve our goal, we have to work together as government, business, labour and all of society to ensure that the seeds of local and international investment land on fertile soil…the investments we secure at the third South Africa Investment Conference must lead to more jobs and improved living standards, and ultimately build the highway that leads to a better, more inclusive future for all.’
‘Plus ça change, plus c’est la même chose.’
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