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Nov 04, 2011

Investment options across SA’s borders

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By: Donald MacKay

 

Investing in South Africa, which is ranked ninety-seventh out of 139 countries on the Global Competitiveness Index, comes with a rather comprehensive set of challenges. South Africa’s so-called strike season, a severely challenged education system and institutional hurdles provide just some of the narrow alleyways investors need to navigate. What options do investors have?

I keep wondering why we are not seeing more manufacturers simply relocating their businesses to Botswana or Lesotho. Gabarone is a mere three-hour drive from Johannesburg, making it closer than Durban, and Lesotho is actually inside our borders – not far from Bloemfontein. They certainly do have a few interesting things going for them besides their proximity to South Africa. One of these is their considerably more investment-friendly labour laws. Further, they are both members of the Southern African Customs Union (Sacu). The Sacu agreement allows goods to move freely, and most importantly, duty free, between all Sacu countries.

This means that, if an investor was to relo- cate a clothing factory from Newcastle to, say, Lesotho or Botswana, he or she could still sell items of clothing produced in Botswana or Lesotho in South Africa and not be subjected to the 45% duty on clothing that is currently in place. Further, the same investor will have even better access to certain global markets through better Generalised System of Prefer- ences rates, as well as better access to the US market through the African Growth and Opportunity Act (Agoa). Both Botswana and Lesotho qualify for special treatment under Agoa’s ‘special rule for apparel’, whereas South Africa does not.

Once you start exploring the options, the discussion takes a few interesting turns. The annual cost of labour unrest in rand terms and work hours and work days lost, along with the militancy, violence and damage to property (often caused by totally unrelated parties or private individuals) now associated with labour action in South Africa is significant.

Our well-organised labour movement has also cottoned on to the concept of ‘sympathy strikes’, crippling complete economic sectors or geographical areas not even directly affected by the industrial action at the centre of the dispute.

Yes, these countries may lack some of the skills we have, but people can be taught and a workforce that is actually working, and not striking, tends to learn faster. I have no doubt that these countries would welcome skilled professionals and infrastructure can be upgraded to meet the needs of industry.

This is almost the main reason for the exist- ence of organisations like the World Bank. A healthy growth injection will provide our neighbouring countries with a growing tax base and, while it may certainly take a while before energy- and infrastructure-intensive heavy industry finds its way to the out- skirts of Gaborone, more entrepreneurial small and medium-sized enter- prises, which are known to be the most prolific job creators, may make the journey over the Limpopo river a lot sooner.

Yet, with everything considered, why are we not seeing queues at the borders, with South African investors rushing to take advantage of these opportunities? Perhaps it is ignorance or prejudice, or simply fear of the unknown. But if we keep making life so difficult for the businesses within our borders, these options will, at some point, become more attractive. Sooner or later, companies will have had enough of the unnecessary cost and inefficiencies of doing business in South Africa and will look more seriously at our neighbours. The success stories will follow and the trend may not be all that easily reversed.

 

  • MacKay is a director at Xikhovha Advisory - dmackay@xa.co.za
Edited by: Martin Zhuwakinyu
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