South Africa urgently needs to implement structural reforms to attract Foreign Direct Investment (FDI) otherwise it will continue to borrow money from multi-lateral financial institutions. That is according to Peter Leon, a partner and co-chair of the Africa region of professional services business Herbert Smith Freehills. He says the current investment protection regime is stifling FDI. Leon was discussing the challenges of getting FDI in the wake of the COVID-19 pandemic.
His warning is clear, change, or continue to borrow. He says government is likely to rely on international funding from organisations such as the International Monetary Fund and the World Bank as a result of its continued economic problems that have been worsened by the COVID-19 pandemic.
He says the current economic crisis might force government to seek more funds unless it quickly implements structural reforms.
“Given the circumstances, the country faces now with the COVID- 19, issues around economic growth I think are very likely to lead in the next year or two government having to seek a full-blown IMF facility or a standby arrangement which can give access to about 80 billion dollars from the IMF to support its budget. Basically my reading is the economic tilt of government is running out of money.”
Leon says clearer measures like policy changes need to be adopted to attract foreign investors to the country.
“The Department of Trade and Industry produced the Protection of Investment Bill which was passed by Parliament in 2015 but only came into force three years later. Basically this bill does little because all it does is provide investments to the same protection they would have under the constitution. What it makes clear is the foreign investors have no greater rights than domestic investors.”
Leon says there is a lot that can be done to encourage FDI in a post-COVID 19 era.
“During the [Thabo] Mbeki presidency, FDI was nine billion dollars. It has never ever achieved that figure again. And to put that in perspective, South Africa has always been a major recipient of FDI in African terms and the South African stock of FDI has declined significantly. I think a number of steps to re-assure Foreign Direct Investors need to happen and I’m suggesting the following, one, is the investment protection act needs to be amended, a further suggestion is for President Cyril Ramaphosa to withdraw the notices or termination [former] President Jacob Zuma made on the EU bits. It is unconstitutional for the executive to terminate any international treaty without prior resolution.”
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