Address by Deputy Minister of Trade and Industry Hon. Mzwandile Masina to South African Chamber of Commerce, London, United Kingdom on Investment Climate in South Africa and government’s response to weather the storm

Address by Deputy Minister of Trade and Industry Hon. Mzwandile Masina to South African Chamber of Commerce, London, United Kingdom on Investment Climate in South Africa and government’s response to weather the storm

In line with this fact, I am pleased to discuss with you today the nature of the Investment Climate in South Africa and our government’s response to weather the storm that is embodied in that climate. For purposes of providing a clear framework for this discussion, I must impress on you that the investment climate in South Africa reflects in large measure the trends of the global investment climate.

According to UNCTAD global foreign direct investment (FDI) inflows fell by 16 per cent in 2014 to $1.23 trillion, which is down from $1.47 trillion in 2013. This decline in FDI flows was influenced mainly by the fragility of the global economy, policy uncertainty for investors and elevated geopolitical risks.

Given the decline outlined above, there are regional differences that indicate that while developed economies and economies-in-transition saw significant declines of flows, developing countries remain at historically high levels. FDI flows to developing economies increased by 2 per cent to a historically high level in 2014, reaching $681 billion.

Southern Africa as a region received $10.8 billion of FDI in 2014, which is down 2.4 per cent from 2013. In that region South Africa however remains the country that receives the most foreign direct investment in the region and on the continent according to UNCTAD.

The fact of South Africa capturing the highest market share of FDI inflows is consistent with the healthy macroeconomic policy framework that successive ANC administrations have cemented. In pursuing transformation and development, the ANC has always asserted its commitment to guaranteeing the certainty of returns and investment protection to investors.

Consistent with this principle of investor protection, the South African cabinet instructed us the Department of Trade and Industry to initiate work towards an Investment Act that would update South Africa’s investment regime. This process saw the culmination of the draft Promotion and Protection Investment Bill which seeks to promote investments and clarify the level of protection that an investor may expect in the Republic of South Africa (RSA).

The Bill also aims to preserve Government’s right to pursue constitutionally-driven national development objectives and recognises the right of governments to regulate in the public interest. The Bill further seeks to achieve balances vis-à-vis the rights and obligations of all investors, and sets guidelines for the adequate protection for such investments on a non-discriminatory basis.

The Bill was subject to a public comments process which culminated in the tabling of the Bill to NEDLAC for further consideration by business, labour and government. The Bill was considered by Cabinet on 24 June 2015 and was introduced to parliament in July 2015. As we speak now it is undergoing parliamentary processes that include engagement with public stakeholders. From this process it will be promulgated into law.

Moreover, we view investment as one of our many key instruments of economic transformation and development. One strategic perspective that has emerged in our policy conversations is related to the need for South Africa’s engagement with the global economy to be re-imagined. This has come as result of the shock-effects of the 2008 global financial crisis on our domestic economy. Our export dependent economic growth, especially in minerals exports, began to stagnate and eventually fell since the advent of the 2008 global finance collapse.

The result of this was a loss of employment in the mining and manufacturing sector and thus a ripple effect was felt in the other sectors like retail with falling consumer demand. This led to a fall in employment figures. This affected the capacity of domestic consumption especially because this consumption driven growth factor was fuelled by credit extensions that could no longer be sustained.

In this regard, the strategic thrust of economic policy is systematically shifting towards the creation of industrial depth in the economy do that our engagement in the global markets will be through diversified output. It is for this reason that the 5th administration has consistently stated and worked on policy mechanisms that are geared towards promoting manufacturing broadly and the restructuring of our mining value chain to include local beneficiation.

The twin outcomes of this reorientation are the creation of a broad asset base for manufacturing and to build growth on a wide asset basket to avoid dependence only on mining. Implicit in this objective is the need for innovative investment in a manner that will create these new industrial assets. As government we continue to avail various incentive schemes that support innovative investment by the private sector.

Already our Industrial Policy Action Plan articulates itself towards the creation of a robust manufacturing base that ties itself to industrial inputs generated by sectors like mining. Thus the minerals beneficiation strategy that government is consolidating fits into the strategic thrust of our industrial policy framework that pursues higher exports through local manufacturing as opposed to trading purely in raw minerals

In a recent press conference updating the nation about progress since the 2015 State of The Nation Address, President Zuma highlighted that our growth rate was below the estimated level of 3%. This was mainly because of slow global recovery, especially in the Euro-zone who are our large trading partner.

He also noted that our energy problems robbed us of a 1.5 % growth figure; problems to which decisive turnaround interventions have been announced, including such new sources as nuclear power. Already we have turned the corner in energy infrastructure as we have opened up new power station that has significantly improved our energy supply and ended the disruptions to power. This will thus ensure that production continues unhindered and that investors will have certainty regarding their operations.

As indicated earlier, global investment flows remain constrained due to fragile economic conditions, and this is reflected in the fact that even South Africa as the highest FDI recipient in Africa has seen a decline in investment of $5.7 billion compared to 2013. But this decline to South Africa’s attraction is incidental to the general global downturn but its comparative advantage remains high on account of its comparatively healthy policy framework.

The fact of South Africa capturing the highest market share of FDI inflows is consistent with the healthy macroeconomic policy framework that successive ANC administrations have cemented. In pursuing transformation and development, the ANC has always asserted its commitment to guaranteeing the certainty of returns and investment protection to investors.

It is in this context that, in his SONA address of 2015, President Zuma announced the establishment of an inter-department clearing house for investment and investment promotion. The establishment and roll-out of this structure is a high priority for government and has proceeded with speed in order to achieve an institutional mechanism that will facilitate investment into South Africa and will cut the red-tape and other institutional hurdles that investors may face.

It is important to note that South Africa now wants to focus all its energies in achieving what is commonly referred to as the six I’s: Industrialization,  Infrastructure, Investment, Innovation, Inclusion and Intergration.

Work is already underway to promote INDUSTRIALIZATION, in particular, focusing on ramping up manufacturing, fast-tracking beneficiation efforts and promoting large scale agro-prossessing. This is due to the realization that the commodity super-circle has come and gone, resulting in a sharp decline in the consumption expenditure. It is important to note that the state will continue to provide a conducive, regulatory and supportive environment for industries to thrive. In this regard, the energy challenges, which have negatively affected our industrialization effort are being bolstered by commissioning 3 major coal powered stations, which will generate an excess of 9600 megawatts of electricity, amongst others.

Promoting INVESTMENT is another critical area where our government is sparing its efforts to ensure we crowd-in private sector investment into our economy. We are here to speak to the captains of industries to assure you that South Africa is open for business. In this regard, we have since established an investment clearing house to enable foreign investors are easily navigated through our processes. We hope that platforms like these will serve as a point of reference on the work our government is doing to promote South Africa as preferred destination for investment.

We are also hard at work with the INFRASTRUCTURE build-programme. We are spending trillions of Rands to stimulate the economy, we call upon investors to focus their attention on their core specialities. South Africa has, to date, built a very impressive road, rail, internal air freight facilities and harbors to ensure the movement of goods and people in and out of the country. In addition to this, the South African government has not ceased to invest in the rural infrastructure, in particular areas such as water and sanitation, human settlement, education and health facilities, amongst others.

INNOVATION must be encouraged as we continue to industrialize our economy, we can be more creative in the use of our mineral commodities. Our government is increasing its budget to further promote research and development. We are seeing an increasing number of doctoral and post doctoral researchers, focusing purely on innovation. We pride ourselves in projects like the Square Kilometer Array (SKA). Extensive work is underway to develop the full capacity in projects like fuel-cell technologies and other technological advancements, which happen through our research and development.

South Africa continues to promote policies that will ensure INCLUSION of the previously marginalized section of our society. Since 2002, we have implemented the BEE and BBBEE policies, however, not much progress has been achieved. Looking at the JSE listed companies, only 3% black ownership has been recorded, this is a major concern. We shall not rest until we have dealt with the triple challenges: unemployment, poverty and inequality, which are persistent. The ruling party is now implementing the Radical Socio- Economic Transformation program, as part of the inclusion strategy. At the centre of it, is the program to develop, support and promote the Black Industrialists.

The INTEGRATION efforts of our government has resulted in the signing of the Tripartite Free Trade Area in June this year, combining 26 member countries from the three Regional Blocks (SADC, COMESA and EAC). This work will be followed by the Continental Free Trade Area, which our leaders have started negotiating to ensure movement of goods and people within the continent. This, coupled with our strategic involvement in BRICS, has become essential to ensure that Africa is able to build economic trade mussels. Our strategic links to both Europe and the West remain intact and we hope to harness these to pursue our national interest.

In conclusion, the South African government remains open to engage on areas with policy uncertainty, as long as those engagements do not seek to undermine the national interest. We look forward to facilitate and assist investors who are keen in investing in South Africa. We wish to extend our gratitude to the chamber for creating a platform to present our government policy and program when the world economy is facing turbulence.