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SA is on notice – Peter Leon

Protectionist SA risks damaging trade relationships.

The South African government’s increasingly protectionist stance risks damaging the country’s international trade and investment relationships, say experts.

According to Peter Leon, partner and Africa co-chair at Herbert Smith Freehills, President Jacob Zuma’s administration has, in its second term, become “more protectionist, inward looking and economically nationalistic” than that of his predecessors Nelson Mandela and Thabo Mbeki.

He explained that the Mandela and Mbeki administrations saw the negotiation and implementation of a Trade Development and Co-operation Agreement with the European Union (EU) and other states. The agreement, which was signed in 1999, liberalised around 86% of South Africa’s trade with the EU over a 12-year period.

Under the former presidents, South Africa also offered foreign investors protection through a series of bilateral investment treaties. Such measures included protection from expropriation without full market value compensation, access to arbitration through an investor state settlement dispute system, fair and equitable treatment of investments coming into South Africa and full protection and security for investments.

He said the Mbeki regime also promoted the harmonisation of the Southern African Development Community (Sadc) investment regime. This was marked by the 2006 negotiation of a Sadc protocol on finance and investment, which offered investors similar protections.

“In August 2012 – bear in mind that the [Zuma] administration is now three years old – South Africa unilaterally started terminating all its bilateral investment treaties with the EU and Switzerland, in fact terminating 13 of them,” he said.

He added that the Zuma administration’s promulgation of a 2015 Protection of Investment Act, which sought to treat foreign investors as equivalent to domestic investors, effectively stripped key protection measures away from foreign investors.

The Act was in conflict with the Sadc protocol and so in a move akin to “the tail wagging the dog” saw South Africa persuade the other Sadc members to amend the treaty last year, Leon said. It has not come into effect yet.

Zuma’s terms in office coincide with the fallout from the global financial crisis, which saw a global backlash against liberalised trade and investment and spurred protectionist measures across several jurisdictions.

Still, there are concerns that South Africa’s duty-free access to the United States (US) under the Africa Growth and Opportunity Act (AGOA) is stake. South Africa’s inclusion in an extension of the deal to 2025 came despite a long drawn out dispute with the US, which it accused of dumping bone-in chicken pieces in the country. However, the Obama administration said the country would be subject to out of cycle reviews to determine its eligibility at any point within the 10-year period.

“I think South Africa is on notice,” Leon said, adding that the Private Security Industry Regulation Amendment Bill could trigger a review.

The bill, which requires private security companies to be 51% local owned, was passed by parliament in 2014 but has not been signed into law by Zuma.

Minister of state security David Mahlobo, called for the bill during his budget vote before parliament this week. “The continued provision of security services at National Key Points and Strategic Installation by private security companies which are foreign owned remains a problem. It is essential that these strategic installations are protected by South Africans, as means to secure our sovereignty. It is our conviction that the Private Security Industry Regulation Amendment Bill will assist in resolving some of these challenges including the transformation imperatives,” he said.

Leon said the passage of the bill would likely be viewed as a “red rag to a bull” by Washington, given the interests of US private security firms in South Africa.    

Should South Africa be disqualified from AGOA, it is unlikely to renegotiate as favourable a trade agreement with the Trump administration, said Peter Draper, managing director of Tutwa Consulting.

In response to a question about whether the country is being proactive in planning for a future without AGOA, he said the Department of Trade and Industry is but warned the new US administration’s negotiating template is likely to be more ambitious than previously.

“South Africa doesn’t have the market power to continue to impose obligations and costs on investors and think we’re going to get away with it,” he said, adding that the country has reached a tipping point.

The country is also due to negotiate its trade agreements with the United Kingdom, following Brexit. Local authorities are said to be considering a two-pronged approach, in which the current rules will be rolled over and renegotiated at a later stage.

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In effect what president Jacob Zuma is doing is protecting local labour and there jobs.
Its just to easy to import goods from other countries. Especially furniture . CAN YOU BELIEVABLE THAT WE IMPORT FURNITURE ? That puts 1000’s of our skilled and semi skilled labour out of work. Here is a great idea. Big business needs to dedicate & concentrate on developing our manufacturing sector gearing up for exporting. For HEAVENS SAKE – SOMEBODY MUST STABILIZE OUR RAND EXCHANGE RATE. That is the exporter worst enemy. Exporter must have a stable exchange rate or they are NEVER GOING TO KNOW WHAT THEY ARE GETTING PAID FOR THERE PRODUCTS. Manufacturing is the great employer and wealth creator. . Ask China. Ask Japan. Ask Germany. Ask Korea. Ask India. Thoes countries are wealthy because they are major exporters.

How old are you? You sound like some idealistic teenager who has no idea how business works. You probably have never even considered starting your own business. When you run your own business you are competing against others, so your costs are very important. If you can get furniture from China/India/Germany/etc cheaper than from local suppliers it is logical that you import it. Your company is not a charity organisation. The government can not protect local industries with import taxes as 30-50 years ago thanks to international agreements. Anyway, how much more would you be prepared to pay for local products compared to imported ones? 10%? 200%? In most cases SA companies can not even compete against German companies thanks to the low quality and high cost of the local workers.

Yes i have. Been the owner manager of two shopfitting workshops over 26 years. I am absolutely amazed every time i see our black skilled dedicated hard working enthusiastic labour at work. Honestly doing a wonderful job. And just as concerned as we are about the future. May I say that we must concentrate on manufacturing because it is labor intensive and brings in foreign exchange and creates wealth.

Johncan …
Those “wealthy countries” are committed to their development, which is why they’re export related economies.
Not counting their tax base tends to be larger than ours.
Not mentioning that they actually manufacture goods this country decides are desirable…
The economic choices we make determine our place on the totem pole.
.. and contrary to your opinion, countries like the USA and China (as well as the EU … if it is viewed as a single market environment) are more protectionist than we are … they happen to be true nationalists, and concentrate on creating an environment that works for the betterment of the citizens … unlike us; who operating in a vacuum, making decisions that are completely detached from the mission critical concentrations, and then blame the other party for being on the bottom of the pecking order.
We do not have jobs to protect because we sold our jobs in favour of imported goods and debt…
and our leadership is going to remain clueless about the realities of global economics.

Accept that we are a nation of consumers first, …
then start determining why … then innovate, and work on real solutions to make us less vulnerable to the whims of external market forces by INVENTING and IMPLEMENTING SOLUTIONS that could enable us to manufacture value added product instead of simply exporting raw product and importing end product at the other end of the economic spectrum.
Those countries actually MAKE/MANUFACTURE items we then decide are of value … We do not!

Is there much that one can point to that will be or is positive for the country to come out of Govt. over the past 3 years? I think not. The arrogance and ignorance being displayed flies in the face of sanity and wisdom. Perhaps it is all deliberate so certain folk can exploit the countries finances even more?

Businees people are in business TO MAKE MONEY not to create employment .
I had a factory for many years which was making big bucks until the commie anc and labour unions with BBEEE CCMA and the like made life unbearable ,so i sold out and now am an investor without the day to day kak of dealing with lazy, thieving demanding labour.
Most of those employees are now unemployed
I promise i am not alone with this issue i could write a book on similar sob stories.
That business i sold went bankrupt after 2 years.
I wish i could have switched to robots

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