A Climate Not Conducive to Foreign Investment

Peter Fabricius | The Star Early Edition | 07/29/2014

US legislators, businesses are demanding SA review its policies if it wants to benefit from international trade, writes Peter Fabricius

Originally published in The Star Early Edition

US AMBASSADOR to South Africa Patrick Gaspard has warned that economic policies and chronic strikes are discouraging American investors and traders and could jeopardise South Africa’s participation in the lucrative African Growth and Opportunity Act ( AGOA) preferential trade programme. He was speaking on the eve of US President Barack Obama’s US-Africa summit, which President Jacob Zuma and 49 other African leaders are due to attend in Washington next week.

Creating the right climate for investment in Africa will be high on the summit’s agenda and there will be a separate forum on Agoa which gives duty-free access to the US market for most products of most African countries. Trade and Industry Minister Rob Davies will take part in the forum. Agoa has helped South Africa to substantially boost exports to the US including considerable volumes of manufactured goods, notably about 60 000 cars a year. But some US legislators and businesses are increasingly demanding that South Africa amend trade and investment policies if it wants to remain part of Agoa when – or if – it is renewed next year.

In a tough letter to South Africa’s ambassador to the US Ebrahim Rasool last month, Senator Orrin Hatch, the most senior Republican on the powerful finance committee, said though he supported renewal of Agoa, “South Africa’s recent move away from participation in the global economy and violation of its international trade commitments severely complicates that task”.

He cited the Private Security Industry Regulations Amendment Bill – which restricts foreigners to minority ownership of security companies; South Africa’s recent termination of several bilateral investment treaties with European states and problems with aspects of the general 2013 Promotion and Protection of Investment Bill that will replace the treaties; the draft Intellectual Property Policy which he said would not protect innovative pharmaceuticals adequately; and the stance by African governments as a group that the World Trade Organisation’s Trade Facilitation Agreement should not be implemented until the Doha international trade negotiations had been completed.

Hatch asked the government to revise the measures. Charles Rangel, a veteran Democrat in the House of Representatives, also wrote to Rasool proposing that the government remove the restrictions on foreign investment in the private security industry bill. In an interview last week, Gaspard said Hatch’s letter “just amplifies the concerns that we have consistently raised for some time”. He said US agribusinesses had also written to Congress, raising concerns about the renewal of Agoa “based on the lack of market access for beef, poultry and pork to South African markets for reasons that we deem to be completely unscientific”. Asked if he believed South Africa’s participation in Agoa was in jeopardy, Gaspard said that Hatch was “a serious member of the US leadership” and that he and agribusiness leaders should be taken seriously.

He said Obama had pledged the administration’s support for the renewal of Agoa as a whole and also for South Africa’s continued participation but that it was Congress, and not the administration, that would decide. Gaspard said part of the problem was that South Africa’s free trade agreement with the EU was giving the EU “pronounced advantages” in market access over US companies. “And given the tens of millions of dollars of duty-free access of South African products entering the United States market, (through Agoa) it seems altogether reasonable that we would ask for some consideration.

“You know that Agoa has been chiefly responsible for the success in the manufacturing sector in the last decade in South Africa. Particularly in Port Elizabeth where you’ve got factories that are employing thousands of South Africans that are churning out, last year alone, 60 000 automobiles which made it into US markets.

“There’s thousands of direct jobs from Agoa. And then there’s all kinds of peripheral economic benefits for the surrounding communities because those workers have disposable income that goes right back into the South African economy.

“We think this is really central in the bilateral relationship. And so we hope we’ll all find the right kind of condition for renewal and continue the success and investment there.”

Gaspard said he also often raised concerns about the South African investment climate more generally, especially the protracted strikes. Gaspard, who was once a trade unionist in the US, said he was “profoundly sympathetic” to the demands of workers struggling to overcome the legacy of apartheid. “But one would hope that there would be responsible leadership in organised labour, in industry and in government who would have the ability to communicate in a transparent forthright way around these issues and would be working diligently to resolve them at the bargaining table in advance of the employment of the ultimate tool, which is a strike.

“We all know what just happened in Rustenburg with thousands of workers out of work for five months… and the calamitous impact that has had on industry and that ultimately threatened the sustainability of the very jobs that are the real economic engines in rural parts of the country in particular. So it’s right that everyone ought to be concerned about the long-term impacts of some of these protracted strikes. It’s clear that the labour situation in South Africa is already having an impact on the investment decisions of major US companies.

“For example, the US auto-maker Ford has had to close its plant in Silverton during this Numsa (National Union of Metalworkers of SA) strike. That’s over 2 000 Ford Rangers that have been lost so far to this strike. This labour volatility may have a negative impact on Ford’s decision to expand production of their Everest SUV here in South Africa.”

He suggested that the problem around these issues had been exacerbated by a lack of transparency in making policy and a lack of access to the right people in the government to discuss them.

But he had been encouraged by recent meetings he had with Davies on the Private Security Industry Bill and other concerns. “There’s been a recognition that the concerns raised in the States are not superfluous and there’s an understanding that we need to get to resolutions on some of these matters.

“We’ve heard a little bit more flexibility in the conversations that we’ve had around market access for our agribusinesses. So, that’s given us some real encouragement.”

Though Gaspard would not elaborate, Davies told Independent Newspapers a few months ago that his government was ready to address the US grievances about lack of access to the South African market if that was what it would take to save South Africa’s participation in AGOA.