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We need to fix the traffic lights to go on the greenAnyone seeking a considered opinion on what factors may work to impede South Africa’s economic growth, is unlikely to consult a lawyer. Yet, the view from the desk of some legal practitioners is surprisingly revealing. It is particularly revealing when foreign investors come to the country to explore the prospects of making long-term, capital-intensive deals. Lawyers see what it is that dampens the enthusiasm of cash-flush, risk-hungry but flighty foreign investors. We get to see why deals fail.
Interestingly, and perhaps counterintuitively, it is not crime, poor service delivery or unrest. Security and services can be bought, unrest avoided. What investors cannot stomach, and which has caused many a deal to implode at the outset, is regulatory uncertainty.
Structuring a long-term infrastructure, construction or mining deal is enormously complex. It involves finding the steady ground in amongst the web of laws and regulations governing financing, corporate structure, competition, the environment and black economic empowerment compliance; while ensuring that the project retains its commercial integrity.
Authorisations from the state in the form of licences, permits or ministerial permissions always are required. It is on this front that foreign investors encounter alarming inefficiencies – crashing silence, inexplicable delay, needless and onerous administration. This is why they go elsewhere.
The important question thus arises of whether South Africa can regard itself as competitive in the global economy. Much has been written on what countries need to do in this regard.
Perhaps the most prolific and well known on the subject is best-selling author and The New York Times columnist, Thomas L. Friedman. It is his thesis that investment flows to those countries which don the “Golden Straitjacket”.
Two things, he says, happen to a country that puts it on – its economy grows and its politics shrinks.
To fit into the Golden Straitjacket, Friedman maintains, a country must either adopt, or be seen as moving toward, a certain set of golden rules. He lists about 20, but at the top are making the private sector the primary engine of economic growth; maintaining a low rate of inflation and price stability; and shrinking the size of state bureaucracy. Eliminating government corruption, not surprisingly, also features in the list.
Friedman likens the global marketplace to an “electronic herd” of anonymous stock, bond, currency and multinational investors who do not recognise anyone’s unique circumstances, who do not have the time to look at any one country in much detail, but who lavishly reward those countries that are transparent about what they are doing and who always respond to good governance and good economic management.
Other commentators put it slightly differently. Kenichi Ohmae, also a well-known and published analyst of international business trends, argues that reaping the benefits of the global economy means recognising the demise of nation states.
Nation states, he says, no longer have to play a market-making role. Rather, given their own troubles, which are considerable, they most often simply get in the way.
He warns that as long as nation states continue to view themselves as the essential prime movers in economic affairs, so long as they resist – in the name of national interest – any erosion of central control as a threat to sovereignty, neither they nor their people will be able to harness the full resources of the global economy.
Against this ruthless and, perhaps, uncomfortably realistic account of the workings of the global market, it becomes necessary to question whether South Africa derives a little too much comfort from the fact that it has resources that others want.
A country that has resources, but whose economy is dominated by monopolistic and inefficient state enterprises, is in great danger of being overlooked in favour of other resource-rich countries whose governments do not get in the way of commercial activity.
While there certainly are pockets of excellence in South Africa’s state-run apparatus – South African Revenue Service and Treasury are examples – there are too many potholes of inefficiency, too many enterprises run by politicians who do not have the know-how to run a company.
In many areas, the private sector has stepped in to fill the gap. Apart from private health, education and policing, there are even numerous citizen-controlled, parallel municipalities.
There is enormous scope for the government to tap into private sector know-how and talent. Public-private partnerships (PPPs) cater for the transfer of appropriate technical, operational and financial risk to a private party. In many jurisdictions, PPPs are a well-worn route to enhanced efficiency and development, and South Africa already has an excellent PPP legal framework.
Unless invited to do so, however, the private sector cannot fill the regulatory vacuum. It cannot do anything to streamline the processing of applications for licences or permits, it cannot lure state functionaries to their desks, it is helpless in the face of the unopened file.
These inefficiencies are the broken traffic lights, the potholes, the blackouts on the road to foreign direct investment in South Africa. If South Africans wish to tap into the global market, if we want to keep foreign investors at the desk long enough to close the deal, then our attention must be focused much more seriously on smoothing their paths. We need to fix the traffic lights.
Andrew Mitchell
