New strategy needed on investment

Each iteration of the South African Investment Conference brings to mind the adage that if you’re explaining, you’re losing. Listening to President Ramaphosa’s address to last week’s gathering seemed geared to taking this to the next level, explaining away some very significant losses.

His speech was upbeat. South Africa was emerging not only from the pandemic, but from the toxic mix of governance pathologies that have bedevilled the country. The business community, he claimed, were fully on board with this. Its members understood the manner in which things were changing for the better, and the enormous opportunities that South Africa offered.

More than this, the target of attracting R1.2 trillion investment over five years – set towards the beginning of President Ramaphosa’s incumbency – was well within reach, with commitments to two thirds of this having been met by the third conference in 2020. (Taking into account the commitments made in the most recent one, South Africa has succeeded in attracting some R1.14 trillion, around 95% of the goal.)

That being said, these numbers represent commitments to be rolled out, not cash in hand. The President commented that of the R774 billion committed at previous conferences, some R316 billion had actually been invested. In this sense, less than half of what was promised has actually materialised (though in fairness, large investments happen over protracted periods). There is also an element of spin: some part of this investment would have been on the cards anyway, some of it might refer to the maintenance and upgrading of existing investments (as opposed to wholly new endeavours), and some might not be going to particularly productive purposes.

While the National Development Plan hoped to raise investment to 30% of GDP by 2030, it has not breached 20% since 2008. In fact, in 2019 – the year before that pandemic (and the first full year of President Ramaphosa’s incumbency) – it stood at 15.3%. In 2021, investment to GDP had fallen to 13%.

Besides, Treasury’s three-year GDP growth projections sit below 2%. Compare the sub-2% outlook (possibly lower, as Treasury tends to err towards optimism in its projections) to the 5.4% envisioned by the NDP, and it is apparent that whatever successes these conferences have achieved, they have barely moved the needle on South Africa’s economic malaise. Even officialdom doesn’t expect much.

Perhaps no one should. In early 2020, Peter Attard Montalto – veteran investment analyst, and perceptive commentator on South Africa – wrote in a column on BusinessLive that South Africa was essentially mistaking the fundamental drivers of growth and investment. Writing in the aftermath of another investment conference (the UK-Africa Investment Summit), he remarked: ‘The pitch was off but there was a strange belief evident in the countability of individual investments: if you just have more individual commitments from individual companies with rand amounts attached, and more hands on which to count them, you will be fine. In this conception, because a certain company is investing in this industry and another in another industry it’s a sign of life in each industry. Never mind if a handful of other investors have turned down opportunities or become frustrated and put plans on ice.’

He added that what was missing was an ‘X-Factor’, an attractive investment proposition and a conducive environment with competitive advantages that create opportunities for doing business in the here and now. Stressing moral obligations or South Africa’s history was not going to make a viable case.

This approach was on display last week as Ramaphosa reeled off a list of investment projects that were unfolding, pointed to some reforms and indicated that more were to come. ‘Social partnership’ featured prominently, as did a concluding appeal to join the government in transforming the economy and uplifting the country’s people.

The problem is that for every pitch and assurance he gave, a counter could be offered. So, he pointed to the manufacture of pharmaceuticals in Gqeberha in the Eastern Cape, or the Nant SA vaccine manufacturing campus in Cape Town, but one might equally refer to the closure of the Mara smartphone factory in the Dube Trade Port Special Economic Zone in KwaZulu Natal, which was launched with great fanfare only three years ago. Or the decision announced by Bell Equipment just this week to move a greater part of its manufacturing out of the country – so that it is ‘less exposed to the risks presented by the volatility of the South African landscape.’

One might also ask pointed questions about the advisability of Minister Ebrahim Patel’s duties on steel, and whether they are not more likely to chase existing manufacturers out of business than in building up a competitive domestic steel industry.

In reference to the President’s claims of success in the measures taken to deal with crime and the destruction of property – which businesspeople ‘need to know’ about – it’s probable that a more immediate reality would be the massive damage of the July riots last year, the vandalism and intimidation of stores and businesses by red-clad activists, and the harassment meted out by the ‘construction mafia’. Indeed, Bell referred to the July riots in explaining its decision. The state has offered scant protection from this.

President Ramaphosa also commented: ‘As investors, you need to know that your investments are secure, that the operating environment is stable, and that you are supported by policy certainty and regulatory safeguards.’

That’s true enough. Unfortunately, assurances to the contrary notwithstanding, this is not a reality.

While the President has vacillated on many things, a signature issue of his incumbency has been pushing for Expropriation without Compensation (EWC). This has taken numerous forms, but it needs to be pointed out that one of these was a drive to change the Constitution. It’s an incongruous situation: the President raises the country’s constitutional order as a factor favourable to investment yet put considerable political capital into undermining it to grant the state greater latitude over privately-owned assets.

Indeed, it is precisely South Africa’s constitutional order and the place of the courts within it that have come under harsh criticism from within the President’s own party in the last few months. Constitutionalism and the authority of the courts – as has been made clear by Lindiwe Sisulu, Ngoako Ramatlhodi and Sihle Zikalala – must be reviewed. The President has hardly helped the concerns that these pronouncements would have occasioned by the timidity with which he has approached this, and an apparent unwillingness forthrightly to challenge it.

As for policy certainty, this is something that is perpetually and interminably being worked on, always just over the horizon. This, too, was implicit in the President’s address.

And then of course, there is what he failed to mention. The Land Court Bill and Expropriation Bill seek to push the EWC agenda forward. An amendment to the Employment Equity Act would allow the minister to impose race quotas on firms and hit them with crippling penalties for failing to achieve the state’s prescribed outcomes. Current race-based empowerment policy remains firmly in place in the government’s worldview, despite an interesting judgement by the Constitutional Court in February that disallowed particular race-based procurement rules. (Such policy, was, incidentally, intrinsic to state capture.)

At a generous interpretation, the official position seemed to be a combination of an optimistic narrative around a selective universe of information, premised on the hope that those listening would be moved by it. And some things are just not up for discussion.

The message in former Finance Minister Tito Mboweni’s injunction that ‘hope is good but it is not a strategy’ seems to have given way to hope being largely the substance of the strategy. This will not produce the breakthroughs that South Africa needs.

The President needs to be willing to move boldly, to make his assurances on the country real, and to go beyond them into taking action that will really demonstrate fundamental reform and investment attractiveness.

Peter Attard Montalto rightly said that what South Africa needed was to stoke an enthusiasm for the country and its offerings such that they would in effect sell themselves: ‘Investors respond to countries with an X factor pitch that shows action, reform and shifting the cost-benefit dial. It’s not difficult. Get it right and you won’t be able to count the pledges.’

Were President Ramaphosa to declare that EWC is off the table, or that he would not sign the Employment Equity Amendment Bill, or that the failed empowerment model would be thoroughly reconceptualised, he might be pleasantly surprised at the outcome. Both from businesses and from South Africa’s people.

It would, at any rate, be a better course than trying to talk them away.