It’s been more than a year since the business community and foreign observers raised their concerns over the vague and, in some cases, worrying amendments and bills announced to “promote investments and clarify the level of protection that an investor may expect in South Africa” or “to ensure that national security is highly guarded”. The concerns around the proposed bills and amendments were again raised at a recent EU-SA roundtable on trade relations co-organized by Tutwa together with the Agricultural Business Chamber. Beyond the face value of the bills and amendments, and their likely externalities, concerns were expressed that these are merely tools to shift more power over commerce to government.
In his address at the roundtable former EU Ambassador to Croatia, Dr. Paul Vandoren, shared his views and experience within the EU context. He noted that South Africa and the European Union are very different, most notably in terms of economic development. However, it would be a shameful waste not to look at the EU for any useful lessons that might be applied in the South African context. More than this it would be short-sighted not to hear out the concern of EU investors holding a staggering €41.8 billion worth of investments in South Africa.
The European Union is also facing low economic growth rates (1.4% recorded in 2014) similar to South Africa’s (1.5% recorded in 2014), and increasing unemployment. The externalities of these problems differ between the EU and SA but again there are some similarities and lessons to be learnt.
In his address Dr. Vandoren acknowledged the EU’s issue with sluggish economic growth but noted that it is best addressed by further liberalisation of trade and investment; as he put it “bring some oxygen to EU economy”. If the EU concludes their outstanding trade negotiations, it is estimated that a further 2.2% could be added to their collective GDP. The EU is also shifting their trade negotiation focus from multilateral to bi-lateral negotiations, out of necessity. The slow progress in multilateral trade negotiations is directly hampering the EU’s economic growth rates as is evident in the estimated gains from concluding their outstanding trade negotiations.
Ambassador Vandoren pointed out that within the EU a decision making process of qualified majority voting ensures that strategies and negotiations proceed smoothly in consultation with all interest groups, including political leaders, bureaucrats, the business community and civil society. This ensures that every party that might be impacted by the EC’s decisions have a chance to state their case and have the opportunity to affect the EC’s decisions.
While full trade liberalization is not an option for a small economy like South Africa a bi-lateral trade liberalization approach with key trading partners might leave just enough policy space for South Africa to achieve higher grow and implement developmental and transformative incentive schemes. At the moment South Africa seems to be heading towards a more protectionist approach, especially when considering the cancellation (or expiration) of Bilateral Investment Treaties and the recently passed Promotion and Protection of Investment Bill. In addition, these moves do not instil a lot of confidence in foreign investors, sources of much needed capital, technology and job opportunities.
South Africa’s decision making process also lacks the inclusiveness of the EC’s. While there is a great need for transformation and developmental schemes the government’s current approach seems to disregard the impact these schemes will have on the private sector and ultimately the wider economy. This is possibly the most pressing concern to tend to as policy decisions to address the countries triple threats (poverty, inequality, unemployment) cannot be effective without coordination with the business community.
Ultimately there is a simple lesson to be learnt, a country cannot develop in a vacuum. While more control over trade and investment might be comfortable for the national government, foreign investors and trading partners are unlikely to share that feeling. This is not necessarily due to an inherent distrust in the governing party but more likely due to record low business and consumer confidence instilled by the seeming disconnect between government policy and private sector needs.
Dr. Paul. L. Vandoren, Ambassador rtd, now ‘Vandoren Consulting’;
International and EU Affairs;