Rob Davies: South Africa is open for business

“Government and society need to work in genuine partnership to pursue the country’s current economic vision with conviction and vigour,” writes trade and industry minister Rob Davies on the eve of the World Economic Forum in Davos. “In the meantime, South Africa needs to continue to send a message to the world that it is still very much open for business.”

Johannesburg Securities ExchangeThe board at the Johannesburg Securities Exchange. According to the Organisation for Economic Cooperation and Development Restrictiveness Index, South Africa ranks among the most open jurisdictions for foreign direct investment in the world. (Image: Brand South Africa)

Rob DaviesRob Davies

South Africa is committed to improving its global competitiveness and reputation with a view to delivering on its growth and developmental imperatives, while the country continues to compare well with other emerging markets.

In a bid to drive this point to international investors, South Africa will be represented at this year’s World Economic Forum in Davos by a high-level multi-stakeholder team from 21 to 24 January 2015. Team South Africa, will bring to the 2 500 participants at the summit, the message that South Africa is open for business and remains an attractive and reliable investment destination.

According to the Organisation for Economic Cooperation and Development (OECD) Restrictiveness Index, South Africa ranks among the most open jurisdictions for foreign direct investment (FDI) in the world. Openness is reflected in the overall trend of growing FDI into South Africa over the last 22 years post-1994. South Africa’s stock of FDI now accounts for around 42% of GDP. Over the last five years, South Africa accounted for the bulk of new investment projects in Africa with investment arriving from the USA, some member states of the EU and increasingly from China, India and other Asian countries.

The country attracted around 24% of all the FDI projects in Africa between 2007 and 2013. In this light, and notwithstanding the challenging global economic conditions, in August 2013 the Global Financial Times Magazine of United Kingdom (UK) voted South Africa overall winner for best investment destination in Africa for 2013 and 2014.

The 2014 AT Kearney Foreign Direct Confidence Index ranks South Africa in position 13 among 25 leading economies moving up two places from 2013. South Africa ranks higher than countries such as Switzerland, Sweden and Netherlands. Research by the International Investment Initiative director at the University of Bern’s World Trade Institute, Dr Stephen Gelb, shows that over 130 foreign firms either entered South Africa or expanded their investments during 2013; that is about 2.5 foreign firms per week announced an investment in South Africa. Trade and Investment South Africa, our investment team, has developed an investment pipeline of R60.5-billion of potential investment projects.

Certainly, the draft Promotion and Protection of Investment Bill has generated some negative comment. The reality however is that this bill will ensure that all investors domestic and foreign will be treated equally on the basis of the principle of non-discrimination and substantial protection of investor rights, based on the Constitution.

South Africa’s overall performance in the World Bank’s 2015 Ease of Doing Business Index dropped from 41st to 43rd this year, at a time of subdued GDP outlook.

The report attributes the drop in rankings to South Africa’s poor or limited access to electricity, one of the biggest hurdles to doing business in the country, where it takes on average five procedures and 226 days to get connected to the grid.

Despite this, South Africa has improved in a range of indicators:

• Starting a business – 64 to 61
• Registering Property – 99 to 97
• Trading across borders – 106 to 100
• Enforcing contracts – 80 to 46
• Paying taxes – 24 to 19

The improvement in the trading across borders indicator is a critical area that impacts on performance of a range of manufactured and mineral products shipped from South Africa to international markets.

South Africa’s fall in the rankings can also be attributed to counter-productive credit policies, namely making access to credit information more difficult by requiring credit bureaus to remove negative credit information from their databases.

The results of the 2015 Ease of Doing Business Report suggest that South Africa has some work to do in creating an enabling environment to attract inward flows of investment. The challenges are however not insurmountable and many are already being addressed by the relevant authorities. South Africa’s global competitiveness is our collective responsibility and, in line with the National Development Plan, we need to begin to collectively respond to creating the conditions that improve our competitiveness.

According the World Bank, “the 20 economies at the top of the ease of doing business ranking perform well not only on the Doing Business indicators but also in other international data sets capturing dimensions of competitiveness.”

As a developing nation, South Africa will be continually confronted with considerable socioeconomic challenges that need to be resolved. However, the development of powerful interventions such as the National Development Plan and the New Growth Path provide broad yet strong blueprints for dealing with these structural issues, and the focus should remain firmly on the implementation of such plans for the good of the country and all its citizens.

Government is committed to creating an enabling environment that will facilitate investment, job creation and growth. Appropriately calibrated and enforced regulations provide business with certainty and a stable business environment. Regulations are also essential to reducing the harmful effects of illicit trade in many forms that is not only harmful to workers and consumers but also constitutes unfair competition to South African companies that are law abiding.

We must not lose sight of the things we are getting right and government and society need to work in genuine partnership to pursue the country’s current economic vision with conviction and vigour. In the meantime, South Africa needs to continue to send a message to the world that it is still very much open for business.

Follow Team South Africa at WEF Davos on @Brand_SA #SAinDavos or @Brand_SA #CompetitiveSA.