South Africa is crafting a “new generation” investment policy framework, which will be underscored by the developmental needs of the country, especially the expansion of the country’s embattled productive sectors, Trade and Industry Minister Dr Rob Davies has revealed. A conscious effort would also be made to foster a direct link between an investor’s access to South Africa’s mineral resources and government’s ambition to support reindustrialisation.
Speaking at the launch of the United Nations Conference on Trade and Development’s (Unctad’s) ‘Investment Policy Framework for Sustainable Development’, or IPFSD, held at the University of the Witwatersrand, Davies said South Africa would refrain from entering into new bilateral investment treaties (BITs) until the new framework had been finalised. However, it would conclude BITs in cases of “compelling economic and political circumstances”.
A recent review of investment agreements signed since 1994 found the relationship between the agreements and foreign direct investment (FDI) to be “ambiguous at best”. It also found that some of the agreements posed risks, by limiting the ability of government to pursue its transformation agenda.
All these ‘first generation’ BITs were being reviewed with a view to termination, or possible renegotiation on the basis of a “new-model BIT to be developed”.
“South Africa’s updated approach would aim to achieve an appropriate balance between the rights and obligations of investors and the need to provide adequate protection to foreign investors, while ensuring that Constitutional obligations are upheld, and that government retains the policy space to regulate in the public interest.”
South Africa’s legislation in respect of the protection offered to foreign investors would be overhauled by codifying typical BIT provisions into domestic law, while clarifying their meaning in line with the Constitution.
“We would also seek to incorporate legitimate exceptions to investor protection where warranted by public policy considerations such as, for example, for national security, health and environmental reasons or for measures to address historical injustice and/or promote development,” Davies averred.
The inter-Ministerial committee dealing with investment, international relations and economic development would oversee all decision-making in respect of future investment deals.
Director of Unctad’s investment and enterprise division, Dr James Zhan, said a number of countries were undertaking similar exercises and expressed the hope that the IPFSD would offer a basis for greater global consensus on the matter.
The framework offered something of a middle way between the liberalisation of investment frameworks pursued during the 1990s and the move towards tighter regulation, pursued since the economic crisis of 2008.
Zhan indicated that the framework recognised the potential for FDI to support a country’s growth and development aspiration, but also created room for countries to pursue national policy choices, including active industrial policies.
Davies argued that South Africa and Africa were on the “cusp” of a new wave of investment, and that well-crafted investment policies were required to ensure that development flowed from such FDI.
South Africa recorded a sharp turnaround in FDI inflows during 2011, which rose to $5.8-billion, or 13.6% of Africa’s total, during the period. The rebound from $1.2-billion in 2010 was underpinned by Wal-Mart’s acquisition of a stake in Massmart, as well as mining-related corporate activity.
The performance of Africa’s largest economy also accentuated the recovery in the FDI inflows to sub-Saharan Africa as a region, which recovered from $29-billion in 2010 to $37-billion in 2011 – a level comparable with the 2008 peak. Inflows to Africa as a whole declined, meanwhile, for the third successive year, to $42.7-billion from $43.1-billion in 2010. However, the decline was caused largely by the fall-off in investment to Egypt and Libya.
Unctad said the outlook for Africa was “promising”, owing to improved investor perceptions, which were driven by relatively strong growth, higher commodity prices and economic reforms.
Davies was particularly keen for Africa, or for the Southern African Development Community, to adopt a common investment framework in the area of natural resources. In light of commodity demand from emerging Asia, the Minister was of the view that there was potential for a new competitive advantage to be created around access to Africa’s mineral assets.
“South Africa needs to construct a competitive advantage for our own manufacturing around access to mineral products. [But] that is going to require a policy intervention and it is here where the investment regime will prove important.”
South Africa was already pursuing this ambition on a bilateral basis, but “we will do better if we had a common understanding across Africa”.
The aim would be to capture investor commitments that went beyond technology transfer, skills development and competitiveness improvements and which began to include stipulations on value addition.
“South Africa has to make the transition from being a producer and supplier of ‘dirt out of the ground’ to producer and supplier of a higher level of beneficiated products,” he said, noting the material selling price differential between, for instance, mineral sands ($440/t) and titanium alloy ($100 000/t).