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Is SA scaring off foreign investors?

Peter Major and Enoch Godongwana debate the issue.

South Africa is sending the wrong message to foreign investors, a mining analyst has warned.

Speaking at The Director’s Event on Friday, Peter Major, director for mining at Cadiz Corporate Solutions, said this has stymied the economy, even though interest rates have been low and commodity prices have improved.

Investors had turned the page, Major said. Until South Africa changed course and gave them a reason to invest, they wouldn’t.

“Why will they [foreign investors] come here? Because they want to make money on their money. We don’t even tell investors you are going to get your money back. We say: ‘Put your money here. We are going to take some of it to pay for past problems’, even though a lot of these investors had nothing to do with it.” 

Major said South Africa should lure investors with excellent returns the way Zambia and Zaire had done in the new millennium, but instead it was passing mining charters and contemplating various mining taxes.

But Enoch Godongwana, chairperson of the ANC’s sub-committee on economic transformation, said Major was not being fair. The ruling party’s thinking around mining had “completely changed” since a former mining official made a controversial speech at the Australian Mining Indaba, something Major cited as an example of South Africa “saying the wrong things”.

Godongwana said minister of mineral resources Gwede Mantashe’s strategy is clear. South Africa is rated 74th out of 91 countries in terms of its attractiveness as a mining investment destination. With regards to policy, it sits in 89th position. Given the country’s resource base, it should be at 21.

“That is where we are heading at the moment,” Godongwana said.

Mantashe has set up two committees to work with the Chamber of Mines. One is looking at inclusive growth, while the other is investigating how to fine-tune the charter in a way that is compatible with its strategy on competitiveness and inclusive growth.

Godongwana was adamant that the country could rise in the rankings if stakeholders worked together.

“We can sit at number 21. The Chamber of Mines is predicting that if we achieve that, we can grow the mining sector four times.”

Godongwana admitted that the ANC had made mistakes.

“I would not be honest with this audience if I say over the last few years we have not made a number of mistakes. We have made a number of mistakes, which some of us have admitted publicly,” he said.

South Africa had to work at rebuilding confidence and continue its reform process, he argued.

While confidence has improved since president Jacob Zuma was replaced by Cyril Ramaphosa, the shock first quarter 2.2% GDP contraction has highlighted just how fragile the economy is.

Although many economists have said that confidence is the cheapest form of stimulus, economic strategist Thabi Leoka warned that confidence alone would not grow the economy sustainably.

“I think that if we comfortably grow at a sustained level [of] 3 to 5% … over the next 10 years, then you will start to see the change that we want to see.”

Drawing on work from a Harvard professor, Leoka said the country suffered from “premature load-bearing”. Even though policies such as the RDP (the Reconstruction and Development Programme of 1994) had “kind of failed”, policymakers kept on adding to it with Gear and Asgisa (the Growth, Employment and Redistribution strategy introduced in 1996, and the Accelerated and Shared Growth Initiative for SA, which replaced Gear in 2005).

“We keep on adding without actually committing ourselves to a policy and implementing it.”

Asked whether the trust deficit between government and business – something that had been raised numerous times in the wake of Zuma’s decision to fire finance ministers Nhlanhla Nene and Pravin Gordhan – had been fixed, Busisiwe Mavuso, COO of Business Leadership South Africa, said the parties were working on the matter.

The big issue with regards to investment was whether the environment was conducive for business to grow. If such an environment was lacking, there was no need to send investment envoys into the world to raise foreign direct investment.  

“I think this current administration gets that,” said Mavuso. “Yes, we need to continue pushing them in the right direction … I don’t think that we are at a space now where we are saying that we have arrived. You know, when everything is well. No, far from it. We haven’t arrived and not everything is well.”

Ramaphosa hopes to attract $100 billion in new foreign direct investment into South Africa over the next five years and has appointed four investment envoys to find opportunities.

Mavuso said it would be disingenuous to not give credit to the current administration.

“My worry is that I don’t know to what extent do they understand the urgency of the situation. They don’t have the latitude of taking things easy. I don’t know to what extent they understand that the growth rate of any economy is constrained by its political economy.”

Political analyst Ralph Mathekga said South Africa’s problems were not as complex as many people made them out to be. 

“It is about just closing the tap at Transnet [and other entities].”

Mathekga said Ramaphosa should endeavour to close the leaks, and position the party for structural reforms after the 2019 election.

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The problem will persist until a competent and progressive ruling government emerges.
The ANC is just a corrupt, tarnished and fractured mess with a leader leaning toward socialism.
There is huge business opportunity to outsource professional government management to this country as a quicker fix, get some proper thinkers to execute with capitalist vision otherwise this African problem with confused socialist and nepotistic agenda will persist for decades by which time the mines will all be dead and buried.

As an American here I watch all the “we are going to take the land” movement as well as the majorly corrupt government that STILL EXISTS! The only difference is a new president, presiding over the same corrupt people and NO ONE EVER GOES TO JAIL.They can’t run a hospital and THEY WANT TO TAKE OVER THE HEALTH INDUSTRY?????????????????????? Please. The unions are driving the country into a failed state.They push for wage increases. Then, the companies have to retrench to cover those costs BUT the heads of the unions NEVER lose their jobs!! AND the retrenches workers are never heard from AGAIN !!!!

It boggles my mind that there can be ANY fresh foreign investment into SA

La la Land.

“Come invest in South Africa, but first you have to give me 30% of your business and employ my uncle and cousins on your board. The rest of your employees must meet our employment guidelines and we’ll tell you how much you can and cannot pay workers. Sounds attractive doesn’t it?”

Mining regulations and taxes aside, there is a toxic mix of reverse racism, ANC broedertwis, useless opposition, fake news, irresponsible free press and too many laws that only apply to honest people.

All this spells political risk in capital letters. The rest of the country should learn from the bokke to see what is possible when reasonable people work together.

If I was a foreign investor,or even a local business looking to invest locally what I would like for:
Secure property rights (of land, intellectual, patents, all assets)
Favourable taxation
Balanced labour laws
Stable and cost-effective utilities (water, power, transport)
Lastly minimal govt interference and rational legislations and policies.

SA has none of these and less so every year.
So in my view not only is SA scaring off foreign investors but our own businesses as well.
The only attractive thing about us is high yield junk bonds.

yes CR goes to Canada to beg for money….he should rather stay at home and try to salvaged what is left of his land.

It has to be ironic that while he’s (CR) doing his best to dispossess white people in SA; he’s begging for money from mainly white people in Canada. Can a ripoff be more obvious?

SA has become like the rest of Africa. The rest of Africa has a lousy business history.So makes sense for foreign investors to stay away.

Ocnarf….your comment is not entirely true

Africa is a tough place to do business, customs and cultures need to be understood

Put aside Zimbabwe, there are really positive areas of business activity. To name some would be Ethiopia. The growth there is outstanding. Its airline fairs well against European and middle eastern and it leads Africa. Another is Rwanda, a pleasure to visit and many South Africans operating there

Then there is Kenya, a dynamo happening and of course Mauritius

There are others countries kicking the doom gloom trend

Met a young Afrikaans man, after loosing his career in Jhb, now trucks used or demo white goods to the DRC. Thats inspiration for thought

Agree fully with Tim, cadres should be sent up north to see how their brothers are putting things together. Rwanda is the Switzerland of Africa. Ghana also going places.

“A woman with a past, has no future” Oscar Wilde

Reputation is the problem right now . Mention Zimbabwe and South Africa, which have one massive common denominator : Violence and land grabbing, long before we even get to ”restitution of land without compensation”
The world with all the latest communication technologies in the hand of the mains ream media and ”Jo Soap” with this iPhone, has become as big as a pee…news travels faster than the ‘speed of sound”, and the World are reacting!

Your question: Is SA scaring off foreign investors?

I am unable to give you a factual answer – however I can tell you

SA IS CERTAINLY NOT ENCOURAGING FOREIGN INVESTORS – not with the recent moves of land grab and EWC and corrupt leaders in power.

Is SA scaring off foreign investors? The mere fact that the question is asked and formulated like this reveals how far off the mark SA is at the moment. This should never have been the question – it should have been: What more can we do to ensure that SA get as much foreign direct investment as possible combined with proper education, training, and skills transfer?

Let’s increase taxes even more! That will surely help plug the deficit.

The biggest problem SA is facing now, and over the next 10 years is the shortage of skilled workers, unless drastic measures are taken.

The required matric pass rate is 30%, and the real (vs the official) pass rate was only 39%. This means that in 2017, 61% of all learners in SA couldn’t even muster a total of 30%, or they just dropped out. Furthermore, the Basic Education Budget has been cut by R8bn, with 80% of the budget going towards salaries, and the measly remainder on infrastructure and students.

Furthermore, a lot of skilled workers in SA have emigrated, largely based on archaic policies such as BEE, high taxes, and the now land expropriation chatter. We also have unions that are constantly striking and demanding above inflation increases.

I’m sorry, but no one in their right mind would want to invest in a country with such a high tax rate, expensive and unskilled workers, who have a history of becoming violent and destructive. That’s why they rather move or invest their operations in Vietnam, China, or India, for example. (All countries names have lower corporate tax rates, too)

The system is broken people.

I could go on at length about risk and reward and how Zambia and Zaire can lure investors with high returns. It is the DRC last time I looked, btw. If the investors are getting high returns there is a risk problem. If they are getting low returns then the country is stable and investment friendly. Easy? If nobody wants the high returns then they are a basket case.

That aside, there has been a paradigm shift over the last few years. South Africa has less and less it can offer the world. When dealing with mining investments one must consider more than just the sovereign risk. There is also an important consideration called geology. South Africa has favourable resources of manganese, iron ore and coal but the big winners are the Witwatersrand basin (gold) and the Bushveld Complex (Chrome, PGEs, vanadium).

South Africa is a small player in the coal market, one that politicians worldwide seem determined to stamp out. There are many countries with vast resources of vanadium and iron ore of equal quality. South African gold is in terminal decline- in 2017 it produced less than 15% of what is produced in 1970. The South African diamond mines are all but exhausted. Mineral sands, copper, nickel and andalusite are minor footnotes in South African mining.

One must remember that unlike gold, platinum group elements are not monetary metals, there are merely commodities subject to the vagaries of supply and demand. The swing to electric vehicles will severely dent the PGE market as the requirement for auto catalysts will vanish.

The big emphasis is currently on commodities such as lithium and cobalt. Rare earths will make a resurgence as the electric motors need magnets.

Mining will not save South Africa. South Africa will have to re-industrialise to do this, but with the ANC in power and their rabid Marxist union curs running amuck this will never happen.

Please invest in South Africa, but don’t bring your children.

Please invest in South Africa, but don’t be surprised if we hijack your investment.

Please invest in South Africa, but don’t complain about maladministration.

Please invest in South Africa, we have all the best policies taken from the worst performing countries, Venezuela, Argentina, North Korea, Russia.

Please invest in South Africa, we have the highest tax rates, are losing the most millionaires and our state bureaucracies are dragging us down.

YES I watch a lot of international media but NOT CNN the Clinton News Network. What THEY are saying actually makes me fear for the country!!

Yes please…elaborate a bit more for us. Keen to hear to what their views are.
Thanks 🙂

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