Driving Away Investment

South Africa is in desperate need of investment, particularly in industrial activities that generate sustainable jobs.  That investment may be by locals, who are subjected to a relatively high degree of ‘binding’ to the country by virtue of their living here, owning assets here and understanding how things work here.  Increasingly, however, these investors are looking elsewhere to make their investments and to establish the factories that will create the jobs.   They are taking their capital, their skills and ingenuity, and their entrepreneurial capability to places which are more welcoming.  They are being driven away by a number of factors.

The other investors, the group that has the potential to make large investments in the country, are less bound to the local scene.  They make a (largely) rational investment decision, taking numerous factors into account, including the long-term safety of their investment, the cost of doing business, and the likelihood of having to solve problems that have nothing or little to do with the business.  These investors have the ability to move their investment to other locations, of which there are plenty, both keen to receive the funds and provide the labour, in return for the benefits those investments generate.  We have looked at some of the cost-related factors that influence the investment decision in previous weeks, but several other factors have been raised very pointedly in the past week by a client who requested an evaluation of the investment climate in five different countries.  The client has a sentimental attachment to South Africa, and was willing to compromise on some of the decision factors in order to make the investment in South Africa.  He was willing to overlook the ‘highwayman attitude’ of the South African Revenue Service, believing that, under new management, that organ of State might have come to believe itself to be bound by the laws and customs common to civilized countries.  He was willing to overlook the fact that the Government is becoming more clearly anti-Europe in its apparent desire to cosy up to the Chinese.  He was more uncomfortable in regard to the high cost of labour, but was willing to accommodate that by increasing the level of automation in the factory in order to cut the number of jobs from the planned 182 to 127, although that involved a substantial additional capital cost in setting up the business unit.  (Those figures were the labour component at commencement of business – the planned total staffing stood at 423 within two years of commencement.)  What drove the decision not to invest in South Africa was the combination of riots blocking the road from the airport into Cape Town, the war between opposing unions on the mines, and the threat by the ANC Youth League to “make the (Western Cape) Province ungovernable”.  The decision was made en route from the airport to Cape Town not to invest in South Africa, now, and for as long as the governing Party is unable to assure the company of a stable situation.

A large investment in an economy such as that of South Africa has a Multiplier Effect far beyond the money inflow and the immediate number of jobs created.  Projects to create jobs in other economies has shown that each job created directly has the potential, if the situation is managed correctly, to create at least eight additional jobs through the economic effects it puts in train.  In a depressed economy such as that of the Eastern Cape, it is quite possible to increase that Multiplier Effect factor to twelve or fifteen – in other words, for each job created directly, the total number of jobs able to be created can be as many as sixteen!  For those who do not know the figures, it is realistic to place a capital cost on each new job created at approximately $250 000.  The jobs that have been lost to South Africa, in this one decision not to invest, by the actions of the Trade Unions and the Youth League total to nearly 3 000!

It is not only the jobs that have been lost.  The factory aimed to export at least 90% of its production.  It would have produced annual export sales of over R386 000 000 and net profit, taxable, of at least R90 000 000!

The company investment that is described above is only one example of the investments that have been driven away from South Africa.  Taking my own experience of this flood of funds that could have made its way to the country, but failed to do as a result of the numerous failings of Government and the Ruling Party and its constituent parts and allies, there can be no doubt that the loss of investment to South Africa exceeds tens of billions of Rands, and tens of thousands of well-paid, sustainable jobs each year. 

In the current situation in which South Africa is now stagnating, with over a half million jobs lost in the last decade, with a Government which has proven itself either unable or unwilling to do the things essential to take the millions of its citizens out of the poverty trap in which they now find themselves, with a President who considers the need for the status bestowed by a large ‘private’ aircraft to carry him and his minions to the numerous international talk-fests that produce nothing for the people, with a Trade Union component to the ruling Party that is unwilling to countenance any measure that does not result in an increase in its power, and all compounded by a group of politicians who are locked in a struggle to gain or hold onto power at almost any cost, surely the creation of sustainable jobs should enjoy the highest priority?  Surely the politicians, those small men who claim to represent the people of South Africa while they are enriching themselves, can see that the greatest benefit to all, including themselves, can be achieved by ensuring that the economy grows?

The ANC Youth League and the Trade Unions have achieved in this New Democracy what years of sanctions were unable to achieve against the Apartheid Government.  They have succeeded in making South Africa a place where even its friends would rather not be.