European Commissioner for Trade Karl De Gucht bluntly warned on Thursday that South Africa's current and proposed policies on investment agreements and export taxes are proving counterproductive or will not work.
Pretoria has unilaterally cancelled bilateral investment treaties with a number of countries, including Belgium and Spain. South Africa is also proposing to impose taxes on its own raw material exports in an attempt to increase local beneficiation and industrialisation.
"You have unilaterally put an end to bilateral investment agreements. This is bad policy," De Gucht told a small group of South African journalists on Thursday.
"You need investment. This is not the way to do it. We [the European Union (EU)] are the biggest investors in South Africa. Our investment is going down. If you want to replace existing agreements, negotiate new ones. Put in place new ones."
He highlighted that, in 2012, foreign direct investment in South Africa had dropped to the equivalent of just 1% of the country's gross domestic product. This represented a historical low and was much lower than in the case of peer countries such as Chile and Malaysia. "There is a complete contradiction between [South Africa's aim of] industrialisation and this lack of inward investment."
Regarding Pretoria's proposal to use taxes to push local beneficiation and industrialisation, De Gucht affirmed: "I don't believe it'll work. You simply can't industrialise on the basis of export taxes. For industrialisation, you need to plug into supply chains. These have become worldwide."
Nevertheless, the EU, which has a Trade and Development Cooperation Agreement with South Africa, was willing to give some consideration to the issue. "[If] it'll unblock negotiations, we're willing to be flexible. This is because, in part, it [the export tax] will not work. It's not the basis for industrialisation. It doesn't work. It doesn't harm the EU. European buyers will simply go to other countries. The EU is only concerned in the case of commodities that affect us [that can't be easily obtained elsewhere]."
"But you're a sovereign country," noted De Gucht. "You can do want you want."