Financial Mail: Investment Bill: Thick as a Brics?

THE EU Chamber of Commerce says its members will shop around for other destinations in the wake of the controversial Protection of Investment Bill that was rammed through parliament last week.

In a not-so-veiled threat, Stefan Sakoschek, the chamber’s chairman, has told the Financial Mail that “new investment decisions have been put on hold. And serious disinvestment decisions are next on the agenda.”

Should Sakoschek follow through on his words, it could spell disaster for the country, considering that he speaks on behalf of a chamber with 1 900 members, among them household names such as Philips, Total, Oryx and Alstom. Between them they account for 77% of all of SA’s foreign direct investment (FDI), “and that represents approximately R2trillion over the past 20 years.”

It also translates to 300 000 direct jobs and 150 000 indirect jobs, accounting for approximately 25% of the country’s total employment figures.

“Yet we are being spat [at] in the face [by the department of trade & industry],” Sakoschek says. “When we started raising the red flag in parliament two years ago [about the inherent dangers of the bill], we were as careful and as diplomatic as possible. But now I’m going to step it up a notch. It’s too much. It’s nonsensical.”

His issues with the legislation, which initially, and perhaps ironically, was dubbed the Promotion & Protection of Investment Bill, and which was intended to replace bilateral investment treaties (BITs) that were struck with 45 countries post-1994, is that it affords zero protection to the foreign investor. It also enforces local over international arbitration should the need arise and generally sends shivers up the spine of any savvy investor because of the precarious climate it introduces.

“It also falls short of the commitments outlined in the SADC protocol on investment and finance,” Sakoschek adds. However in response, the DTI says: “Foreign investors are treated in the same way as domestic investors based on the principles of nondiscrimination and national treatment,” adding that further protection is afforded “by sectoral legislation covering, among others, finance, banking, communications and mining”. “It is also important to recall that, as a member of the WTO, SA subscribes to disciplines and rules that provide multilateral guarantees to foreign investors,” the department says.

Sakoschek buys none of it, however, insisting that the EU chamber, their US counterparts, along with a number of SA associations such as Business Unity SA, Business & Arts SA, the Institute of Race Relations, and the National Union of Metalworkers of SA lobbied against the bill and warned the DTI about how detrimental it would be for FDI.

When a delegation of the SA government touched down in Germany on Monday, they were met with another shrill warning about the effect the bill will have on Germany’s investment in the country.

“We can’t all be wrong,” Sakoschek says. “And it’s not as if the country does not need investment. SA is in a shambles. We are sitting on a trade deficit of close to R200bn and an anaemic growth rate of 1,4%. Yet government seems to be under the impression that their future lies with the Brics partners, and particularly China, who have been flashing the cash recently,” but which incidentally accounts for only 4% of FDI.

Interestingly, none of the Brics partners attended the parliamentary sessions or opposed the draft bill. But why would they? Though government has terminated most of its BITs, it has left its arrangements with Russia and China (and a few others) in place. "But China has a short-term investment psychology,” Sakoschek warns, “and their exercise in investment is very different to the Europeans’.”

“The best example is Transnet. They lent [the parastatal] R30bn to buy R32bn worth of locomotives from Chinese companies. So there is no investment remaining, hence the FDI figures are so low.

“Yet we [Europeans] are heavily invested but we are being discriminated against. I can tell you that at least 10 CEOs of the largest companies present here are very worried, and the general consensus is that the goal posts are shifting too much.” He cites not only this latest piece of legislation but also the new black economic empowerment guidelines as well as the expropriation bill that’s next on the horizon.

“It’s just not worth it any more. We are now looking at Nigeria, Mauritius, the Middle East and Southeast Asia.”