ANDREW BAHLMANN: BEE, blackouts and Competition Commission trip up foreign investment

When the National Treasury first published its Economic Policy Paper at the start of Cyril Ramaphosa’s presidency, its purpose was to set the agenda for discussions on economic policy within the ANC and to serve as a framework for the economic policy of a new government.

“Extraordinary measures” is what Ramaphosa claimed were required at the time, adding that central to this effort would be infrastructure construction and maintenance. Figures in the hundreds of billions have frequently been touted since then, with no sign of new public funding being made available for projects. During the Ramaphosa presidency few new government-led infrastructure projects of any significance have been initiated.    

These years have been characterised by growing anxiety, as the economy remains mired in stagnation and the government has failed to act decisively to address the many problems we face. The actions of the Competition Commission are just one such example. We can all agree that SA needs to become more competitive internationally. To do so, the country needs a reset as to how it views foreign direct investment (FDI).

The Competition Commission has been active in adjudicating acquisitions by foreign investors of local companies such as Clover and PepsiCo. But do these sorts of deals affect the economy’s engine room — the mid-market sector of businesses with a turnover of R300m-R800m that create employment and fund the government’s tax coffers as they grow?

When making acquisition decisions, the commission should adopt a pro-growth strategy. For instance, it ruled in the case of Clover that the new owners could not retrench staff for three years. Fair enough, but the effect of this “maintenance” decision was eroded by the fact that the company retrenched workers the moment the moratorium was over. I would encourage the commission that rather than restricting the ability of companies to do transactions, let them do so but on stringent pro-employment conditions that serve to stimulate their sector of the economy.

Economic engine room

Without pro-growth conditions of this nature, all FDI means is that assets change hands without any true new investment taking place. We need to see growth in our economic engine room as a means of getting other foreign investors excited to participate in SA as a new market. The present scenario might “tick the box” of FDI coming in, but if in reality assets are just swapping hands for the enrichment of a few shareholders, without doing anything meaningful in the economy at a grassroots level, it is of questionable value.

Those types of big deals will occur in any event without any need to stimulate them. What is needed is FDI that will actually change conditions on the ground. To attract FDI in the mid-market, foreign investors should be given comfort on issues such as BEE and power-grid availability, and for the commission to speak to a growth strategy. Through Ramaphosa’s economic strategy, many SA firms such as ours have flown the SA banner for FDI, but the country itself requires appropriate marketing.

To accomplish this would require many reforms to BEE, the power grid, the Competition Commission — as well as the creation of incentives for upskilling people to improve productivity and make SA more globally competitive. We cannot omit from strategic thinking that we live in an AI world where robots will increasingly perform the basic labour, so humans must have a high skills level to be employable.

FDI cannot be looked at in isolation. If a company invests locally it is looking at the long-term future of SA. It will be interested in BEE, in the power grid and infrastructure. SA does have a value proposition as a centre of manufacturing in an environment where logistics are globally becoming a bottleneck, and its currency makes the overhead structure here, relative to skills and capability, comparatively more favourable.

The types of clients we deal with are continuing to be successful and to employ new staff — they typically are in the market for new investors as part of their growth strategy. They are trading well, typically not because of the country’s macroeconomic environment but because of their internal qualities, such as good customer service.

However, SA needs thousands of these businesses being established monthly to get it to where it needs to be. We need investors who have a long-term sustainable view of the country as a home for their investment.

The alternative is to take an ever more isolationist view, which is unsustainable. In this scenario, as the country becomes less and less competitive, cheap imports will be increasingly entering it and local businesses will experience declining margins as they try compete. That in turn makes a local business uncompetitive from a global return perspective.

• Bahlmann is CEO at corporate advisory firm Deal Leaders International.