20 August 2018

Private Sector Consultation for SA: World Bank Group Country Partnership Framework

The World Bank Group, encompassing the International Finance Corporation, held a private sector consultation on its Systematic Country Diagnosis in partnership with BUSA, the British High Commission and the Swiss State Secretariat for Economic Affairs.

 

The event took place on Thursday 16 August 2018 at the Capital in Sandhurst, Johannesburg.

 

BUSA Vice-President Martin Kingston gave this opening address at the consultation:

 

Introduction

  • We welcome the opportunity to engage with the International Finance Corporation and the broader World Bank Group in this Private Sector Consultation for South Africa with a view to understanding the private sector’s perspectives on constraints to investment within the context of the current political economy.

About BUSA

  • BUSA is an apex body representing business in South Africa. The BUSA membership reaches across all sectors of the economy from agriculture and forestry, to manufacturing in metals, agriculture and motor and to services such as tourism, banking, insurance and retail. We represent a diversity of businesses from very large to small and from local to multinational. Our core focus is on promoting an enabling environment for economic growth and employment. Much of our time is spent negotiating and influencing policy and the legislative framework to create a more conducive environment for business.
  • In this way BUSA, which represents the overwhelming majority of the private sector in South Africa, is uniquely positioned to provide insight into policy and regulatory impediments to investment. This initiative from the World Bank Group is therefore appropriate to maximise opportunities for investment in South Africa, thereby leveraging scope for inclusive economic growth.

South Africa’s economic potential

  • South Africa’s economic potential is significant but can only be unlocked by confronting the many socio-economic challenges we face, exemplified above all by the triple challenges of unemployment, poverty and inequality, that remain part of the legacy of apartheid. However, we have significant untapped and talented human capital in a large population of youth; we have vast natural resources including agricultural land, mineral resources and beautiful and diverse scenery, with significant potential to grow and expand our economy in primary, secondary and tertiary sectors.
  • We are also strategically positioned, with the necessary infrastructure, institutional structures, and diversity in our economy to act as a gateway to the rest of the Continent, an opportunity that should be further unlocked by the ongoing trade negotiations on the Tripartite Free Trade Area and Continental Free Trade Area, recently ratified by South Africa.
  • South Africa has been and continues to be an attractive trade partner and investment destination, earning enviable rankings in an African context in the WEF’s Global Competitiveness Report including the soundness of its financial markets, domestic competition, efficient transport infrastructure and the protection of the rights of shareholders.
  • South Africa further benefits from robust, independent institutions, a free press, a strong rule of law, with entrenched property rights under our Constitution. We have a vibrant democracy, with the active involvement of business and labour in statutory social dialogue through the National Economic and Labour Advisory Council (Nedlac). Significant improvements have been made in recent years in innovation and uptake of information and communications technology – particularly in internet access and affordability.

Challenges and impediments to investment

  • Notwithstanding this enormous potential, South Africa is confronted by a number of socio-economic challenges, which business acknowledges and is prepared to address in partnership with government and other social partners. Whilst the private sector is and will remain the primary engine of investment, employment, revenue and economic growth in South Africa, it cannot do this alone.
  • Addressing the various regulatory challenges is a necessary starting point to begin the discussion. Without pre-empting or prescribing today’s discussions, BUSA has identified, at a high-level, a number of challenges that not only deter new investment, but also puts at risk existing investment and jobs:
  • The draft mitigation system on greenhouse gases for 2021 – 2035, is misaligned to the Carbon Tax Bill for 2019-2022. This is compounded by the Climate Change Bill, and the recently published Air Quality Act that requires businesses to have a closure plan by 2030.  Compliance will be extremely challenging if possible at all.
  • Mindful of the considerable challenges facing the country pertaining to land reform, BUSA has been engaging with social partners in Nedlac on a number of legal instruments since 2015 that are in various stages of consideration and implementation. These include regulations on land holdings, deeds registration, communal land, and labour rights. Uncertainty as to the content and timing of this legislation, in addition to the relationship between various legal instruments, together with the Parliamentary processes do not currently create the stable foundation required for investment in the sector.  Moreover, the Constitutional Review Committee consideration of the property clause has resulted in considerable concern as to whether property rights, are adequately secure.  Clarity and consistency on land reform and expropriation without compensation is a priority.
  • While the recent draft of the mining charter is improved, it still has major significant elements that make the sector uncompetitive and uninvestable.  Given the fact that mining companies have multi decade planning horizons – a stable, predictable and a competitive regulatory environment is required.
  • Competition Law is currently under review, and needs to be monitored closely to ensure that it does not inadvertently deter investment – local and international
  • Looking at Black Economic Empowerment skills development or labour law regime, there is a multiplicity of legislation, supplemented by codes, guidelines and regulations that make it close to impossible for businesses to comply with.
  • Business needs to have a competent and capable state with which it can partner and must provide resources to reinforce capacity where possible.

Conclusion

  • In conclusion, unlocking significant incremental private sector investment is the key to addressing the multiple legacies of apartheid and under-development and achieving sustainable, inclusive economic growth. Business believes that the onus rests on government to provide an appropriate regulatory environment for this to occur. While this remains the case, much of today’s discussion will focus on ways in which the private sector can partner with government and other social partners in symbiotically unlocking investment and creating the conditions for economic growth, job creation and socio-economic development.
  • I would like to thank the IFC and the wider World Bank Group for partnering with BUSA, as well as the British High Commission in Pretoria and the Swiss State Secretariat for Economic Affairs (SECO) in supporting this long overdue dialogue. I wish you a productive engagement.