Investors should be queuing up to be part of new projects in South Africa: CEO
Business Leadership South Africa (BLSA) chief executive officer, Busi Mavuso, says that while investors still see South Africa as an investable destination, they’re becoming impatient with the slow pace of reforms.
“That message was clearly conveyed at a dinner that BLSA hosted for the 20-20 Investment Association in Johannesburg last Thursday,” said Mavuso.
The association is a global grouping of economically powerful institutional investors whose members include sovereign wealth funds, family offices, endowments, foundations and money management organisations with headquarters in nine countries.
“This group of investors is not going to put money into this country because they think we’re nice people. What they want is to invest into a stable environment where they receive solid returns on their investments,” the business leader said.
There is a myriad of new investment opportunities available in South Africa, such as those in the renewable energy generation and transmission sectors, as well as in electric vehicle manufacturing sector and the generation of green hydrogen. Investors should be queuing to be part of these developments, noted Mavuso.
“In addition, the attraction of some other emerging markets like Turkey and Russia have waned, providing a perfect opportunity for South Africa to step in – but with our challenges including persistent load shedding, unemployment, labour issues and the lack of implementation of crucial reforms, will we be able to do so?”
Mavuso said that the members of the 20-20 Investment Association are anything but naïve about the extremely high levels of corruption, and they feel that not enough is being done by the government to stamp it out.
South African president Cyril Ramaphosaon Sunday evening pointed to sweeping reforms in response to recommendations by a judicial panel that probed corruption in the country during Jacob Zuma’s presidential term.
The submission of Cabinet’s response to the recommendations of the Judicial Commission of Inquiry into Allegations of State Capture, Corruption and Fraud in the Public Sector is a firm and clear indication of the primacy of the rule of law and a demonstration of the democratic system at work, the presidency said in a statement.
“The people of South Africa are tired of corruption and want it to end,” Ramaphosa said in a televised address to the nation on Sunday, a day after submitting a 76-page report to parliament that details his response to the damning findings of the panel headed by chief justice Raymond Zondo.
The Commission made over 350 recommendations. And in addition to recommending actions against the perpetrators of state capture, the Commission made 95 recommendations that would require constitutional, legislative, regulatory or operational changes.
The government is committed to combatting corruption “in all its forms, in every part of government and in every sphere of the state,” he said, as reported by Bloomberg.
In his report to parliament, Ramaphosa said he will review the findings against members of his executive “and determine, on a case-by-case basis, in line with his discretion in this regard and his obligation to observe the principle of legality and to act rationally, whether or not any action ought to be taken.”
Greylisting
South Africa is also running out of time to fast-track legislation that could prevent a possible greylisting by the international community.
A year ago, the Financial Action Task Force (FATF), an international initiative established to combat money laundering, published its Mutual Evaluation Report (MER) on South Africa in which it identified major “weak spots” in our compliance processes.
The FATF gave the country a deadline of February 2023 to remedy all the deficiencies or face possible greylisting, noted legal specialists, ENSAfrica. Worse still, South Africa has until the end of this month, October, to prove to the task force that it has policies to meet the recommendations.
If South Africa does not implement the necessary measures to remedy the weak spots identified by the FATF before the deadline, the consequences could be dire. According to the International Monetary Fund (IMF), a grey-listed country can expect an average decline in capital inflow of 7.6% of gross domestic product (“GDP”), a decrease in foreign direct investment (FDI) of 3% of GDP, and a decrease in portfolio inflow of 2.9% of GDP, said ENSAfrica.
“Being grey-listed would likely further impair the economy’s links to the global financial system, raise the country’s cost of capital and create an additional disincentive for offshore companies to deal with South Africa. The country could also face international restrictions imposed by other jurisdictions, leading to additional barriers to doing business in the country.
“The international economic impacts may include an increase in the regulatory burden imposed on both South African entities and their foreign counterparties, economic restrictions from international funders such as the IMF or World Bank and restrictions imposed by individual banks and businesses in doing business with South African entities.”
The legal firm noted that countries that have been grey-listed in past have suffered long terms effects.
Mavuso said that investors would have just seen the difficulties Mauritius faced when it was grey-listed by the Financial Action Task Force (FATF) and are unlikely to want to invest in another country that faces the same fate.
According to the FATF, an organisation that oversees compliance with anti-money laundering measures, South Africa is partially compliant or noncompliant with 20 of its 40 recommendations. The FATF’s evaluation found that South Africa has enormous flaws that relate to state capture, while the inability to prosecute criminals is also a concern.
“BLSA’s recent report on greylisting finds that there is an 85% chance that we’ll be placed on the grey list, and as I’ve said before, the focus needs to be placed on the 15% chance of us avoiding grey listing altogether because if we are grey listed it will be very difficult for foreign investors like the members of the 20-20 Investment Association to do business with us,” said Mavuso.
The consequences could be grim, she warned. “Our report estimates that the economic impact of greylisting could be limited or severe depending on how South Africa reacts to greylisting. They estimate the impact at under 1% of GDP if we act with alacrity to 3% of GDP if South Africa is perceived to be slow and unwilling to meet the standards set by FATF.
“It’s clear from conversations with members of the association that we are not the worst investment destination in the world – but we need to do much more to build an investment-friendly environment by implementing wide-ranging structural reforms to make our economy more competitive and by implementing our resolution to do away with red tape. We also need to prosecute all those responsible for state capture.”
Read: Ramaphosa announces sweeping changes to tackle state capture and corruption in South Africa
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