South Africa could lose the next Elon Musk due to planned laws

As South Africa continues to debate amendments to the property clause of the Constitution and the Expropriation Bill, government should not lose sight of the fact that people don’t invest in assets they aren’t confident that they will have the rights to own.

If people don’t invest, economic growth doesn’t happen, says Business Leadership South Africa (BLSA) chief executive Busi Mavuso.

Mavuso said that the Expropriation Bill is perhaps the most consequential of the legislation and amendments being considered in South Africa right now.

“It goes far beyond the main driver of the reform: land reform. Indeed, my biggest issue with the Expropriation Bill is that it explicitly defines property as “not limited to land”.

“This means everything is up for grabs: from moveable and financial assets to intellectual property,” she said.

While the bill puts in place several principles underpinning justice and equity in its application, for an investor considering a jurisdiction for investment, it creates uncertainties that add to the risks, Mavuso said.

“We cannot know how organs of state will interpret the law or how courts will rule. The bill imposes no penalties for inappropriate or corrupt attempts to expropriate property that would provide some balance against the risks.”

Losing out on investors

Mavuso said she cannot see what the upside is to the all-encompassing definition of property in the bill. It does nothing to advance land reform and merely creates unacceptable risks for investors, she said.

“Reading the bill makes clear that its creators have land reform in mind. The overly wide broadening of the definition of property appears arbitrary.

“There is no example of the conditions under which it might be appropriate to expropriate intellectual property or financial assets like shares. So why create uncertainty for investors?”

Mavuso added said there is global battle on to attract investment into start-ups – a battle that South Africa has been losing.

Despite the relative sophistication of our economy, several studies have shown we are losing the battle to raise funding for venture capital investment, she said.

“A report by Partech Africa ranked South Africa fourth behind Nigeria, Kenya and Egypt on the continent for investment in new start-ups that focus on digital technology in both 2020 and 2019.

“While on the one hand we have recognised that our economy is going through fundamental change as digital technologies change the way we do everything, on the other we are frustrating investment in building the new technologies that will maintain our competitiveness.”

Mavuso said that South Africa’s economy is changing profoundly and that the assets that matter in the future will be intangible.

Software and other knowledge assets that companies invest in to develop, with long-term payoffs that are difficult to predict, she said.

“South Africa has produced world class tech companies and continues to do so. But to turn that trickle into a torrent of innovation, we need a legislative environment that entrepreneurs can completely trust to protect the intellectual property that they will spend their lives creating. The Expropriation Bill fails to support such an environment.”

Read: South Africa’s ‘silicon valley’ has over 450 tech firms and employs more than 40,000 people

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South Africa could lose the next Elon Musk due to planned laws