Poor utilities deter investment in SA, say European firms
They also cite the red tape and costs associated with BEE with some looking to invest in neighbouring countries rather than SA
European businesses are delaying investment in SA because of poor power and water supply, and the costs of complying with BEE legislation, representatives of an industry body have said.
SA has suffered intermittent power outages since 2008 after Eskom failed to invest adequately in new generation capacity and the provision of other services, such as water, has deteriorated.
At the same time, broad-based BEE and laws compelling companies to procure goods and services from black-owned companies to help redress the inequities of apartheid are overly bureaucratic and expensive to comply with, the representatives said.
The obstacles illustrate the challenges as President Cyril Ramaphosa backs a drive to attract investment to help the economy recover from what’s forecast by the government to be the biggest contraction in nine decades in 2020. Ramaphosa is due to hold an investment conference in Johannesburg next week.
Inconsistent water and electricity supply have “wreaked havoc”, said Shane van der Nest, the head of Huhtamaki Oyj’s SA business and a board member of the EU Chamber of Commerce and Industry in SA. “Our shareholders says, ‘Look at the amount of money we’ve had to spend trying to source alternative supplies of energy’. So that’s the delay.”
The Finland-based packaging company has sued the City of Ekurhuleni, after an electricity substation it depended on blew up twice and affected production and has delayed a €70m (R1.14bn) investment in new machinery, Van der Nest said.
“Until we see a comfortability in terms of utility supply we are relatively cautious,” he said, listing six companies that have delayed investment.
Tyrone Seale, Ramaphosa’s spokesperson referred queries to the department of trade, industry and competition. Sidwell Medupe, the department’s spokesperson, requested queries by e-mail and is yet to respond. Calls to the communications office of the City of Ekurhuleni weren’t answered.
The government has said it’s working to resolve power supply issues and plans to procure electricity from independent power producers (IPPS).
European companies also struggle to comply with BEE laws, said Marc van Pelt, MD of Pepperl+Fuchs, a German photo-sensor producer that has facilities in SA.
While 1,100 European companies operate in SA, of which 600 are German, many are family-owned and find it difficult to comply with the black ownership requirements, he said. Procurement and training legislation is overly complex and this pushes up costs, he said.
Both Van Pelt and Van der Nest said they are committed to fulfilling BEE criteria but complained about the associated costs.
“BEE certainly adds massive costs to businesses,” said Van der Nest. “I have a dedicated resource just focusing on administration and functions, gathering paper and measuring, doing all the things we need to do. And really, if I was going to open up a business in SA and start as a small to medium enterprise, I would seriously think twice.”
Van der Nest is exploring expanding in Botswana instead of SA while Van Pelt has chosen to import some products rather than invest in local production.
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