Why SA is no more ‘the gateway to Africa’

Produced for the Bulletin&Record (Zambia) March issue

Back in December last year, on the pages of the Zambia Bulletin & Record, it was noted that South Africa was no longer regarded as the potential gateway to investment in Africa; that countries such as Zambia and Ghana now pipped this one-time leader. This assessment followed interviews with several international investment analysts and the input at a Frontline Club meeting in London by leading analyst Natznet Tesfay.

It was reinforced at the international mining indaba in Cape Town in February. There it became clear, certainly from a mining perspective, that South Africa, for all its claims and potential, is not the favoured investment destination in Africa. However, it should not, perhaps, be ranked as low down the list as it was by Canada’s conservative, free market think tank, the Fraser Institute. According to Fraser, South Africa ranks eighth in Africa in a list topped by Botswana and including Zambia and Namibia.

In what must be seen as a major wake-up call, some mining analysts even ranked the current potential of crisis-wracked Zimbabwe higher than that of South Africa. For South Africa, the situation was exacerbated by some contradictory statements by ministers, and by the fact that the “N word” — nationalisation — has again crept onto the political agenda. Although the governing ANC at its elective conference in December last year officially dismissed this, it continued to surface. At the same time, the Mineral Petroleum Resources Amendment Bill was introduced.

According to many observers, this proposed legislation is another example of the “ad hoc-ism” for which the government is often criticised. An important part of the Bill calls for the beneficiation of minerals, rather than their continued export in raw form followed by imports of the products created — “beneficiated” — in other countries. This is generally accepted as an admirable goal and government saw it as an invitation to investors. However, the Bill also includes amendments that propose greater ministerial control and bureaucracy, along with an as yet undefined export licensing regime that seems to have dampened investor enthusiasm.

To reinforce the negative sentiment side, there is also the comment by World Bank economist Punam Chuhan-Pole. She stated that investment flows are going to countries “like Nigeria and Zambia” and pointed out that the World Bank expected the growth rate last year for Africa excluding South Africa to be 6%. “With South Africa, that would be only 4.7%.”

Despite such broadly negative comments and assessments, South African officialdom remains unmoved: assertions that the country has fallen behind others on the continent in terms of investor choice are still largely dismissed. Ministers and government department spokespeople continue to express confidence that the range of resources in the country and the relative sophistication of infrastructure will ensure that South Africa will remain the favoured investment destination for the continent. National planning minister Trevor Manuel also rejects negative sentiments about South Africa as “Afro-pessimism”, implying that this negative view applies to the continent as a whole. Obviously, it does not.

But South Africa does have some important cards to play, prime among them being that the country is a member of the relatively new economic bloc, BRICS. Amid much fanfare, South Africa will host the fifth, two-day BRICS (Brazil, Russia, India, China, South Africa) summit starting on March 26. And, as the department of international relations here points out, BRICS is defined as “the powerful grouping of the world’s leading emerging market economies”. Being part of this economic bloc, South Africa defines itself as one of the “new locomotives for global growth”.

This remains the official view and was the confident position taken by President Jacob Zuma and his high-powered delegation when they attended the World Economic Forum annual meeting in Davos, Switzerland, in January. But at the WEF there was obviously considerable scepticism about South African promises of stability, assured policies and an investment-friendly climate. This was hardly surprising, following the rash of strikes that came in the wake of the bloody confrontation last August at Marikana on the platinum belt in the north-west of the country.

However, in early February and amid all the apparently negative sentiment regarding South Africa, two surveys of “business leaders” were announced that claimed that South Africa was still the African investment destination of choice. But they flew in the face of sovereign credit rating downgrades of South Africa by the major ratings agencies. They also did little to lift spirits since they were broadcast shortly before the annual State of the Nation address at which President Jacob Zuma was scheduled to define the economic direction the country would take over the next year and beyond. What he said — or did not say — would be crucial from an investment perspective.

This event — known by the acronym SoNA — is also something of a gala affair that allows local politicians and their assorted hangers-on to parade, usually in freshly acquired finery, on a red carpet before the television cameras. So there was as much media speculation about who might be wearing what as there was on what might be said about the current state of the nation and where it might be heading.

With the first ranging shots having already been fired in what promises to be a tough election campaign next year, Zuma’s speech was widely expected to contain some dramatic policy announcements. But, as it turned out, there was more substance in the fashion parade than emerged in the SoNA speech.

Even the governing party’s allies, the Congress of SA Trade Unions and the SA Communist Party, provided a luke-warm “could have been better” comment. All the opposition parties, with a fair degree of accuracy, maintained that there was nothing new in this year’s SoNA. Most observers had been expecting some detail to the broad outline of the 450-page National Development Plan (NDP), presented to Zuma in August last year. Zuma at least started his speech by mentioning the NDP. But that was where it ended.

However, Zuma did employ some nifty verbal gymnastics in order to extricate the government from some ministerial comments that were potentially damaging to the unity of the governing alliance. These concerned a promised youth wage subsidy to employers and the declaration that teaching would become “an essential service”. In law, this means removing from teachers the right to strike. He managed to squirm out of both, in the process changing the definition of essential services.

Although unremarkable, the SoNA speech should have been the national focus. But the very day that the 2013 SoNA emerged, news broke of Oscar Pistorious, the “Blade Runner” of Olympic fame, shooting to death his fashion model girlfriend. That made the front pages and topped news bulletins, not only nationally, but internationally. And no sooner had this furore died down than the long-time critic, academic and anti-apartheid activist Mamphela Ramphele stole another publicity march on the ANC, announcing the formation of a “political party platform” that seems likely to emerge as a political challenger.

All that is clear that the 2014 election campaign is underway, with ANC, for the moment, on the back foot. There is sure to be a revival, but it seems unlikely that any really tough decisions will be taken for fear alienating potential constituencies.