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At this rate, we will need a Protection of Divestment Act

11th March 2016

By: Riaan de Lange

  

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Is it ironic that, only a few days ago, notification of the publication of the Protection of Investment Act, 2015, appeared on the Department of Trade and Industry (DTI) website and, as I am typing, a mere hours ago, the Financial Times of London announced that Britain’s largest retail bank would be announcing its exit from Africa? The Act was published on December 15, 2015, and comes into operation on a date to be determined by the President by proclamation in the Government Gazette.

The British bank’s apparent impending announcement is said to be due to South Africa’s having three Ministers of Finance in a space of five days during December and to the continuing depreciation of the South African rand, the latest as a consequence of the current Minister of Finance apparently threatening to resign.

If the bank’s expected announcement materialises, it would be what some market commentators have called “the biggest dis- investment from South Africa since the 1980s”.

But ‘disinvestment’ is the incorrect term; it would, in fact, be ‘divestment’, which is defined as the action or process of selling off subsidiary business interests or investments. According to Investopedia, the term ‘divestment’ is more appropriate in the following contexts: a change in corporate strategy, where, for example, a firm might divest from a particular subsidiary to focus on its core business, and/or changing social goals, where any of numerous political reasons might prompt a firm to reduce investments.

Either way, it would be a significant financial withdrawal from the South African economy, and particularly from a sector which is regularly hailed as one of the country’s successes. In his February 11 State of the Nation address, President Jacob Zuma stated: “Compatriots, we are proud of our Top Ten ranking in the World Economic Forum competitiveness report with respect to financial services.” So, how should a divestment from this sector of the economy be viewed? It is generally acknowledged that the present challenges faced by the South African economy are largely due to internal, rather than external (international), factors. Could this imply a loss of faith in the South Africa economy? Could this have a knock-on effect?

The economic reality is that, although this international retail bank’s investment in the South African economy might be profitable in rand terms, it might not be as profitable when its returns are converted into a foreign currency – its real investment return. With the South African rand persisting on a southward trajectory, South Africa’s investment attraction and return are becoming less so. As a consequence, foreign investors might well favour investments in ventures that offer higher returns. In addition, the luxury that South Africa might have had in offering higher investor returns that outweigh investor concerns about its volatile economic and political environment have, arguably, diminished significantly, with investors possibly having lost their appetite for such investments.

In reality, South Africa’s economic growth is stagnant, which means that lower returns are being generated in rand terms. Given our ever-weakening currency, the returns are even weaker when converted into a foreign currency.

Since South Africa is supposedly desperate for foreign investment, one would have expected it to make every effort to become increasingly investor friendly; but, alas, no. Without regurgitating the unpleasantness around the termination of South Africa’s bilateral investment treaties (BITs) with its major trading and investment partner, the European Union, the Protection of Investment Act, 2015, was published without the customary announcement; its publication came two days after the succession of Ministers of Finance and a day before a public holiday. It is understood that the Act does not actually differ from the Bill, which contained a number of controversial clauses.

According to the DTI’s release, “the government of South Africa is confident that the Act achieves the appropriate balance of rights and obligations between investors and the State and will provide adequate protection [for] investors”.

Just in case you were wondering, South Africa did not terminate all its BITs. You would have thought otherwise, no doubt, but, to be fair, some of the BTIs cannot be terminated – for the moment, at least. Finding a list of South Africa’s BITs is not an easy exercise. The sole source that I could find was the United Nations Conference on Trade and Development website, which lists South Africa’s 49 BITs in alphabetical order, with the status in brackets: Algeria (signed – not in force), Angola (signed – not in force), Argentina (in force), Austria (terminated), Belgium-Luxembourg Economic Union, or the BLEU (terminated), Brunei Darussalam (signed – not in force), Canada (signed – not in force), Chile (signed – not in force), China (in force), the Democratic Republic of Congo (signed – not in force), Republic of Congo (signed – not in force), Cuba (in force), Czech Republic (in force), Denmark (terminated), Egypt (signed – not in force), Equatorial Guinea (signed – not in force), Ethiopia (signed – not in force), Finland (in force), France (terminated), Gabon (signed – not in force), Germany (terminated), Ghana (signed – not in force), Greece (in force), Guinea (signed – not in force), Iran (in force), Israel (signed – not in force), Italy (in force), Korea (in force), Libya (signed – not in force), Madagascar (signed – not in force), Mauritius (in force), Mozambique (in force), the Netherlands (terminated), Nigeria (in force), Paraguay (in force), Qatar (signed – not in force), Russian Federation (in force), Rwanda (signed – not in force), Senegal (signed – not in force), Spain (terminated), Sweden (in force), Switzerland (terminated), Tanzania (signed – not in force), Tunisia (signed – not in force), Turkey (signed – not in force), Uganda (signed –not in force), the UK (terminated), Yemen (signed – not in force) and Zimbabwe (signed – not in force).

All things considered, if international investors are starting to reconsider their investment, a Protection of Divestment Act might be more fitting.

Unframed Glass Mirror Dumping
On February 19, the International Trade Administration Commission of South Africa (Itac) informed of the initiation of the sunset review of the antidumping duty on unframed glass mirrors originating in or imported from India. This followed an Itac notification on June 19, 2015, that unless a substantiated request is made by or on behalf of the Southern African Customs Union (Sacu) industry, indicating that the expiry of the antidumping duty would likely lead to the continuation or recurrence of dumping and material injury, the anti- dumping duty would expire on March 3.

A response to the sunset review application questionnaire was received from PFG Building Glass, a division of the PG group, on behalf of the Sacu industry, on September 11, 2015.

Comment is due by March 29.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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