The relationship between South Africa’s public and private sectors has been strained in recent years , but Deputy Finance Minister Mondli Gungubele is keen to see a new close relationship to restore international confidence in the country. He explains how this new relationship will attract foreign investment.
Attracting $100bn in FDI
The National Treasury remains committed to ensuring that South Africa is a preferred investment destination to achieve our goal of attracting $100 billion in foreign direct investment (FDI). Specifically, we contribute to ensuring a stable and sound macroeconomic policy framework – both monetary and fiscal.
Policies in key sectors namely: energy, mining, telecommunications, immigration and agriculture need to be finalized. The finalisation of the Mining Charter, release of spectrum and finalization of the Integrated Resource Plan, as well as the implementation of e-visas and ten-year visas are crucial policy reforms that have been outstanding for some time and are hampering investment and growth in key economic sectors.
Restoring investor confidence in the sector
The National Treasury maintains that close cooperation with the private sector is crucial to restoring investor confidence in our sector. This is why we are committed to building lasting partnerships between government and the private sector. These partnerships have already resulted in breakthroughs such as the CEO Initiative, which will continue to play an important role in collaboration to boost job creation and growth. These have included:
- The business-led fund to support high-potential small and medium-sized enterprises already has commitments of R1.4 billion to date. Approximately R500 million is expected to be disbursed to the first round of enterprises in this year. This will be complemented by government’s Small Business and Innovation Fund, with an initial allocation of R2 billion, which will focus on supporting businesses in the critical start-up phase.
- The Youth Employment Services or “YES” initiative, which aims to provide quality work experiences for vulnerable youth, was launched in March this year and is operational.
- There is also continued collaboration through the National Economic Development and Labour Council (Nedlac) to improve the country’s investment ratings and accelerate economic growth.
- Further to this, an Investment Conference is being held this month to create sustainable employment and generate $100 billion of new investments over the next five years.
As part of government, the National Treasury is committed to implementing structural reforms to promote investment by reducing policy uncertainty, and act decisively to strengthen governance and sound financial practices at state-owned companies.
Confidence and investment are mutually reinforcing. South Africa’s stable macroeconomic environment provides a strong platform to attract much-needed foreign savings that can fund additional investment.
Restoring credibility to key state owned companies and public institutions is critical to restore investor confidence. National Treasury is determined to address the governance and related matters at various state owned companies (SOCs) and public entities and in so doing secure the long-term security of these entities.
Developing capacity to meet the requirements of potential investors
South Africa has the most developed, diversified, technologically advanced and industrially integrated economy on the African continent, and remains one of the preferred investment destinations globally. Which is why, for instance, we boast the largest presence of multi-national companies on the continent and were considered the “Offshoring Destination of the Year” at the 2016 Global Sourcing Association (GSA) Awards.
Our economy has an extensive and modern infrastructure network which includes the largest air, ports and logistics networks in Africa. In addition, while we are cognisant of current fiscal constraints, we will continue to expand our infrastructure through public sector investment.
While South Africa offers a number of advantages, government is keenly aware of some of the key constraints to growth. South Africa’s ranking in ease of doing business has fallen over the past year which is cause for concern in an increasingly integrated and competitive global economy. We are resultantly redoubling our efforts to enact reforms that will raise our economy’s level of productivity, increase competition, and reduce the cost of doing business.
We are particularly committed to make it easier to do business. As part of continuous improvement, InvestSA (in collaboration with the World Bank) will be coordinating inter-governmentally on a reform agenda over the next four years to improve South Africa’s ease of doing business.
A number of initiatives are already being rolled out. For example, in April the government officially launched the first ‘InvestSA One Stop Shop’ – to provide a convenient, professional service for setting up a business and cut down on the hassle and red tape.
Growing African exports and regional integration
Changes in South Africa’s trading patterns, both the nature of the products as well as their destinations, have important implications for how we think about South Africa’s export strategy. Between 2008 and 2014 manufacturing exports to the Southern African Development Community (SADC) have more than doubled. Regional growth opportunities should be harnessed to promote export growth including:
- Improving intra-regional logistics which requires joint action across a range of areas including border controls, standards, storage facilities and increasing competition and investment in infrastructure.
- With potential sources of energy spread across the region, institutional models of power generation and distribution need a regional perspective.
- Construction services exports into the continent can be expanded by pursuing a common or harmonised procurement framework for SADC; harmonising of border processes; and enhancing the export promotion schemes run by the Department of Trade and Industry (dti).
South Africa also remains committed to pursuing regional integration in a way that is beneficial for all countries involved and facilitates lasting and inclusive growth in the region and continent more broadly. South Africa’s approach to continental and regional integration is to support a three-way development oriented integration process encompassing market integration – for goods and services, infrastructure development, and industrialisation.
In terms of intra-continental trade, South Africa is signatory to several trade agreements, including South African Customs Union (SACU), and Southern African Development Community (SADC) free trade agreements (which incorporates a duty free trade between 12 of the 15 members).
The recently agreed African Continental Free Trade Area (AfCFTA) which is anticipated to boost intra-Africa trade and create a market of over a billion people with a GDP of $2.6 trillion presents a significant opportunity to unlock industrial development in the region (SADC) and the continent more broadly.
Beyond trade integration, Finance Ministers’ have implemented the SADC Integrated Regional Electronic Settlement System (SIRESS) project aimed at reducing transactional costs of such cross-border payments. Close to R4 trillion of payments are now cleared through this system; and should increase with the onboarding of additional countries.
 In 2017 the World Economic Forum Global Competiveness Report ranked SA 25th, 47th and 50th out of 137 countries for quality of air transport infrastructure, quality of roads and quality of rail infrastructure respectively, while the World Bank ranked SA first on the continent on its logistics performance index.