Making up for lost time
Monday, 01 Sep 2008
Q. Which markets are TISA targeting for South African exports and inward investment, and why?
South Africa’s traditional poles of growth, the US, EU and Japan, are still very strong markets for investment, particularly because of the current economic slowdown in the US. Fixed investment there is now finding it has to seek out better margins, so South Africa offers a fantastic opportunity for the relocation of some of it. Besides the traditional markets, we are looking to markets like India, where companies are reaching a very crowded point in the domestic market and have grown to critical mass. These companies have realised their economies of scale and are now looking outside. South Africa is both a good stepping stone and point of entry in their globalisation initiative.
China of course is huge in terms of investment. The largest FDI transaction ever conducted by China anywhere on the planet was here in South Africa, with the 20% acquisition of Standard Bank. We see even more opportunities for inward investment from partners like India, China, and Russia, and across new sectors, because traditionally investors in Africa have been in the energy, primary commodities and extractive industries.
However, it’s important to remember that China and India are smaller investors on the continent than any European country or the US, which have been here for 300 years, and have a long way to go before they catch up with these traditional players. They are treading a pioneering new path in the diversification of their investment, and that’s an area where the US and Europe have not caught up. Africa should celebrate the arrival of China and India, not shy away from them.
Q. How successful has TISA been at attracting FDI to date?
Since I took over at TISA in April last year we’ve made great progress. The year before I took over the pipeline contained ZAR 4 billion (US $527.4 million) of projects, but in the fiscal year 2007/08, which closed a few months ago, the project pipeline stood at R206bn ($21.2bn). One of the areas we’ve concentrated on is mobilising domestic direct investment, not only FDI, because we see domestic investment as a sort of catalyst for attracting foreign investment. More than half of the pipeline is in fact domestic projects we’ve mobilised.
South Africa is a sophisticated market, with high standards and efficient and competitive products. We’re also a forgiving market, unlike very highly sophisticated markets like the UK and US that are so competitive and have such high costs of entry that businesses only get one chance to do it right. Here however, because of the smaller, less mature market environment, companies can more easily go through a trial and error phase.
Q. What is the DTI and TISA doing to address South Africa’s trade deficit?
Trade deficit issues aren’t always a cause for concern, particularly for a country like South Africa, which is still on a growth path and going through transformation.
It fluctuates a great deal: last year the
Standard Bank-ICBC deal brought in three months-worth of foreign exchange to South Africa in a single transaction. The likelihood of more transactions of this kind is quite high in the near future and that can really boost the current account situation.
This deficit is partly due to the trend in our imports. South Africa has been importing a lot of capital goods, which indicates investment by the manufacturing sector into productive capacity.
As a result of these imports, over the last two years we have also seen a relative increase in exports versus imports, and, importantly, the rate of increase of exports has been higher than the rate of increase of imports. That means that this investment in capital goods is now having a positive impact on our productive capacity, and the output products are now being exported. So we expect to see a narrowing in the trade deficit in the future as exports start to lift.
Q. How is TISA promoting South African investment and trade links with China?
Unfortunately we have to recognise that an economy the size of China has its sights set on large markets like the US and the European Union. South Africa is a small consideration in China’s overall commercial strategy, even though in its geopolitical strategy we are a large consideration. We are engaging with China on this process now, though, and are negotiating preferences on certain products with them. We negotiated a clothing and textiles agreement a couple of years ago, which is coming to an end at the end of this year, with a view to eventually signing a preferential trade agreement with China.
Q. What is TISA doing to establish a more effective trade balance for Africa globally and grow high-value trade opportunities?
This is a long-term process that requires building industrial capacity on the continent: infrastructure, and the capability of African economies to start producing. The problem with most countries in Africa is that they’re agrarian, single-commodity-dependent countries and their fortunes are held in the hands of some hotshot traders in London or New York who determine the price of coffee or orange juice or cocoa beans. The World Trade Organisation (WTO) talks on agriculture have a great bearing on this, because if agricultural opportunities were opened up, then Africa could move up the value chain within the agrarian sector.
The trend globally is no longer for countries to have centrally planned economies but to open up, liberalise, and instil market-based economies.
Even China is separating its government from the economy as a condition of WTO membership. In that context, governments have a particular role to play, which is to create the enabling environment. The rules of engagement, the standards we hold each other to, the trade agreements, the non-tariff barriers, elimination of tariff barriers: all come into play.
Q. How important is regional and intra-African trade and investment to South Africa?
South Africa’s future is inextricably linked to the future of the region. If you drew concentric circles of priority, our first circle would be the Southern African Customs Union, the second circle would be SADC, the next circle will be sub-Saharan Africa, the next circle the rest of Africa and then finally the rest of the world. The region and the extended region play a very important part in our overall outlook and to that end, when we change control laws to allow South African companies to invest overseas, the allowances to invest in Africa are twice as much as anywhere else in the world.
Intra-Africa trade is our number one priority. There’s a huge imbalance in South Africa’s favour, so TISA has a policy not to seek inward investment from Africa. We promote outward investment from South Africa onto the continent and we try to promote inward exports: African imports into South Africa.
All our parastatals follow a particular code of conduct when they do business on the continent, which relates to creating commercial enterprises that are sustainable, that employ and empower locals, that have local content, and create sustainable livelihoods for the areas we invest in. We also have a programme known as the Spatial Development Initiative (SDI), housed at the Development Bank of Southern Africa (DBSA) but under TISA guidance. This programme seeks to unlock cross-border initiatives that can have a huge impact, like building a port in a particular part of the continent that will help to unlock trade opportunities between three or four countries.
Q. You’ve criticised South African industries in the past for not working hard enough to stay competitive. How can they improve?
It’s very difficult to stay competitive in today’s world. Consumers have more choice, more information and more knowledge about the products they use and the way in which they are manufactured. There are a lot of stakeholders involved in the commercial process now, markets are opening up and there are many more competitors out there.
South African companies have suffered because of their historical isolation, and they have failed to innovate, in technology or management or leadership. Foreign companies that have entered South Africa over the last decade and a half have brought a competitive edge into the marketplace and a lot of it has rubbed of onto local South Africans, although not necessarily fast enough. There are still many sectors in South Africa that need to be shaken up because they are rife with uncompetitive practices.
Many foreign companies, like the automotive manufacturers for example, are highly competitive. BMW’s plant near Pretoria won an award recognising it as one of the best automotive plants in the world. That is a testimony not only to the company’s management principles but also to the workers and the business environment - if you are selling cars made in South Africa in the US and Japan you must be competitive. The value proposition South Africa offers global investors is as a manufacturing centre of excellence. We are not a low-cost producer; we are a fairly-priced, high-quality producer.