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Punting for investment trumps cooperation in a fractured world

SA must first get its own house in order.
US president, Donald Trump. South Africa was not the only country vying for international investment at the recent WEF meeting in Davos, Curson writes. Picture: Moneyweb

Paying lip service to the Davos theme of creating a shared future in a fractured world, world leaders took the opportunity to punt for investment in between wining and dining with business leaders.

The South African delegation’s Davos outing may have dominated the headlines in South Africa, but it is Trump who is hogging the overseas headlines. Our Davos inspired euphoria should come down to earth.

South Africa has strong competition in trying to attract investment, and we may only achieve “a country to watch” status. Whereas Deputy President Cyril Ramaphosa addressed a packed room of 130 delegates, President Trump attracted a couple of thousand. And even though not everyone in the audience was a fan of Trump, he is, after all, a master salesman. And the US wants investment.

The US stock market is hitting unprecedented highs. During the course of the Davos week US officials even managed to make “America first does not mean America alone” almost palatable. And what better surety can investors have than the president of the world’s strongest economy proclaiming that “America is open for business and we are competitive once again”. Trump has slashed the corporate tax rate from 35% to 21%, and is cutting regulations. Consumer confidence is at record highs, and unemployment is at its lowest. The US stock market is soaring, with the tech giants of Facebook, Microsoft, Alphabet, Amazon and Apple, having a market capitalisation of $3.6 trillion.

Trump’s speech may have been criticised by the liberals, but he knows how to provide certainty to investors and attract the money.

Jostling for position, Emmanuel Macron also announced that “France is back”. His underlying message of “invest, share and protect” did not prevent his accusers labelling him as the “president of the rich”. France has also reduced protection for workers and lowered corporate taxes for smaller companies from 33.33% to 28%. France is particularly targeting the tech giants for investment.

The deputy president may be hopeful that he has attracted new investment into SA. But what can he offer? He cannot even be certain that he will be giving the State of the Union address on February 8. And he has not yet reigned in those members of the political elite who continue to utter conflicting statements. After all, he only managed a narrow victory in December.

SA has run out of money to offer new incentives to attract investment, and the business environment remains uncertain:

  • The Investing in Africa Mining Indaba, which brings together international mining companies, governments, and investors, kicks off on February 5 in Cape Town. The High Court review of the controversial new SA Mining Charter has been postponed to mid-February. No doubt Mineral Resources Minister Mosebenzi Zwane will use his appearance at the Mining Indaba to again ruffle feathers in explaining why this new Mining Charter fits in with what is intended by “radical economic transformation”.
  • Mining tax incentives and the negative role they play in profit shifting will also come up for discussion at the Indaba. Until there is more clarity around the SA Mining Charter and more certainty around the tax treatment of mines, it is unlikely that mining in SA will see new investment in the foreseeable future.
  • National Treasury has some deep holes to full, from making up for Sars revenue shortfall, to propping up the parasitic state-owned entities (SOEs), to the promised free university education. Seeking more revenue could impact the company tax rate, the slashing of tax incentives, forced investment in government projects, the VAT rate, or any number of new measures.
  • If National Treasury does not have an accurate picture of the debt position and the cash requirements of all the large state-owned entities by the time the budget is finalised, we could be in for some nasty shocks before the end of the year.

Struggling to clear itself of state capture and corruption, SA must get its own house in order before it can compete with the rest of the world for investment.

  • The Hawks have carried out some raids and have no doubt collected a couple of boxes of documents – let us wait and see what they do with them. Collecting documents is easy. Studying them and putting together credible evidence in order to lay a charge and make it stick, well, that is an altogether different thing.
  • Eskom has not yet been saved. Replacing an inept board with a better board will be ineffective if there is not an efficient underlying workable structure.
  • Time is running out to bring the SOEs into line. This includes sorting out the SOE debt, charging corrupt officials, nullifying fraudulent contracts, halting nepotism, employing staff with the requisite skills and experience, and putting an immediate end to irregular and wasteful expenditure.

Until we do this, no one will be sending us a life raft.

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An excellent summation of our current reality. Monday’s mining indaba will be the next test of Ramaphosa’s leadership. It’s going to be a long weekend for Mosebenzi Zwane too as he bets on his position.

End of comments.

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