Tuesday, September 10, 2013

Sage advice from usually reserved diplomats

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10 Sep 2013 | Tony Leon | Original Publication:  BDlive
Perhaps the parliamentary committee that is about to commence hearings on the MPRDA amendment bill should seek testimony from one or two key foreign ambassadors, writes Tony Leon

THE Indian ambassador to Argentina, Rengaraj Viswanathan, once counselled me: "An ambassador is someone who thinks twice before he says nothing." Fortunately, for the purposes of enriching a hot local debate, the German ambassador to South Africa, Horst Freitag, said something of real significance last week at the 40th anniversary in South Africa of the German-owned process automation group, Festo. Whether the warning from Berlin will be heeded, let alone heard, in Pretoria might be moot, given the tendency to cut off contrary or inconvenient views.

But, as Germany provides us with a significant slice of the R60bn in foreign direct investment that comes from the European Union, which has created more than 350,000 jobs, it might be prudent to do so. Given that most German investment is in the manufacturing sector, where many of its 600 companies operate, prudence becomes urgent.

According to a report in Engineering News, Freitag said: "An investor from thousands of miles away is as shy as deer and will always look for cover such as provided by bilateral investment agreements."

He was bang on the money, in all senses, when he warned against what he called "blunt instruments" and "unilateral steps", noting that "legal certainty was indispensable for an investor-friendly environment and for building investor confidence".

At play here are the bilateral investment treaties that have been placed on the chopping block by Trade and Industry Minister Rob Davies.

A flurry of treaties were signed in the early years of Nelson Mandela’s presidency, when attracting and retaining foreign investment were front and centre of economic policy-making. But such imperatives have since yielded to the agenda of transformation. Apparently a few rounds in the Washington-based International Centre for the Settlement of Investment Disputes, where such treaties are arbitrated, convinced the government that the entire black economic empowerment (BEE) project could be at risk. In one case involving the Minerals and Petroleum Resources Development Act (MPRDA), in which foreign investors argued that its provisions amounted to an "expropriation", part of the settlement discounted the BEE-mandated percentages involved. Doubtless, this setback stung the 2010 review by the Department of Trade and Industry, one of whose key recommendations was to scrap the bilateral investment treaties.

South Africa’s reliance on foreign investment is hard-wired in our history, almost from the moment gold and diamonds were discovered. There has never been enough local capital to exploit them.

I reflected on this theme in the historic surrounds of the Brenthurst Library last week, when delivering a lecture at the seat of the Oppenheimer dynasty. In the very origins of the name Anglo American lies another important fact. Without the ability to attract funding from JP Morgan and other financiers, South Africa’s mightiest original mining house might have remained but a dream of its pioneering founder, Ernest Oppenheimer. Then, as now, foreign investment was the key to economic progress. So much for foreign direct investment.

But the short-term flows are equally vital if the government is to continue, in the face of a widening current-account deficit, to fund its ambitious and necessary fiscal transfers.

Scaring off "the shy as deer" foreign investors makes our present ratio of 16-million monthly grant recipients, on the backs of just 6-million personal taxpayers, unsustainable.

Quite what the global investment community makes of the revelations around the controversial Gold Fields empowerment deal can only be imagined. Commendably, when details of some insalubrious beneficiaries of its South Deep empowerment deal first emerged, then board chairman Mamphela Ramphele ordered an international law firm to investigate. Less commendably, she later told the media that the Department of Mineral Resources apparently "forced" the company to include certain beneficiaries, of whom the present chairwoman of the ruling party hit the jackpot, allegedly to the tune of R25m. For someone who aspires to provide political leadership in the fight against corruption and the rent-seekers who masquerade as agents of transformation, this sounds lamentably lame. Why didn’t she refuse or legally challenge this shakedown?

But at least she did not bury the report, or refuse to act on its recommendations. That is the accusation now levelled against the present board.

Meanwhile, a parliamentary committee is about to commence hearings on the MPRDA amendment bill, which seeks to widen, not reduce, the ambit of ministerial discretion, and hence investor uncertainty. Perhaps it should seek testimony from one or two key foreign ambassadors, of the sort who will actually say something.

Leon is the author of The Accidental Ambassador (Pan Macmillan). Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA

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