by Piet Coetzer

SA economy

Opportunities from global woes

World Investment Report 2012
A highly politicised domestic environment often clouds local judgement on the positives locked up in the South African economy and the opportunities offered by the present global economic woes. Forgetting the lessons from the country's own history, local developments and debates around sectors like mining is not all that unique to South Africa. Now is probably the time for groundwork to create future competitive advantages.

Two international reports released during the last two weeks illustrate how South Africa is, on the one hand, not that far removed from global trends in the mining sector and, on the other, not far off international benchmarks for an investment destination. Yet another report illustrates the opportunities ahead if the country plays its cards right.

Firstly, a report by Ernst & Young on business risks facing mining and metals in  2012/13 places the highly emotional public debate on the nationalisation of mines in clear global perspective. In the midst of a global economic down-turn and financial crisis, governments everywhere are turning to “resource nationalism”.

In fact, resource nationalism “has become the number one risk for mining and metals companies as governments globally continue to make demands in order to increase their slice of the profit pie,” says the E&Y report.

International trend

And it is not just a trend in so-called third-world countries. In Australia, among others, a proposed Minerals Resource Rent Tax is in the offing. Because “the mining and metals sector rebounded quickly from the global financial crisis, it became an early target to help restore treasury conditions. In a number of producer nations, concerns over ‘Dutch disease’ or two-speed economies have led to plans to tax mining more heavily, and provide tax relief to other sectors.”

But herein also lie opportunities for countries, including South Africa, especially if policy uncertainties can be swiftly dealt with. E&Y advisory director, Abbey Chikane, was reported as saying that countries could mitigate the risks by building relationships through engagement with all stakeholders.

Equally important, would be for companies to align their strategies with host governments’ long-term economic and political objectives, while implementing community development programmes and ensuring direct government equity participation.

While, in the midst of internal leadership battles, some factions in the ANC opt for populist rhetoric in the “nationalisation debate”, the Democratic Alliance (DA) opposition could also not resist the temptation to play petty politics in the wake of the E&Y report.

In a statement, the DA used the opportunity to ignore the international trend and just accused the ANC of picking “the wrong option on mining again”.

Investment destination

The second international report of interest on the economic front, clearly indicates that South Africa is well-positioned to attract international investors once the global economy starts turning around.

The latest World Investment Report (WIR2012) shows that South Africa has entered a list of the top 20 prospective host economies for investment by transnational corporations (TNCs) for the period 2012 to 2014. The country ranked 14th, along with the Netherlands and Poland.

South Africa was, however, also among a list of countries that received less foreign direct investment (FDI) than could be expected based on economic determinants.

Nevertheless, South Africa recorded a sharp turnaround in FDI inflows during 2011, which rose to US$5.8 billion, or 13.6% of Africa’s total during the period.

Some stakeholders in the South African economy, notably trade unions, should take note that this rebound from US$1.2 billion in 2010 was underpinned  by Wal-Mart’s acquisition of a stake in Massmart, as well as mining-related corporate activity.

While FDI into South Africa represented 7.5% of overall fixed investment in the country in 2011, the second-largest African recipient after Nigeria, the potential on this front is also highlighted by the WIR2012. It estimates that “upwards of US$500 billion in investable funds” is being held back by multinationals and that this cash ‘overhang’ could fuel a surge in FDI once global economic conditions improve.

Such hoarding has also been witnessed in South Africa, where corporate deposits have reportedly swelled to more than R530 billion. However, barring any macroeconomic shocks, the United Nations Conference on Trade and Development (Unctad) expects flows to rise to US$1.8 trillion in 2013 and US$1.9 trillion in 2014, Creamer Media reports.

Lessons from history

Some of the rhetoric now emanating from within the ANC about mining houses is   similar to that from the then president of the Transvaal Republic, Paul Kruger, in the run up to the Anglo-Boer War at the end of the 19th century. It is even closer to pronouncements by National Party (NP) leaders like the late Dr Nico Diederiks in the run up to the 1948 election that brought the NP to power.

The difference between 1898 and 1948 was that mining houses such as  Anglo American under the leadership of Ernest Oppenheimer engaged with the Afrikaner nationalists. This, among others, saw the birth of “Federale Mynbou” (Federal Mining) and a boom period in the South African mining sector.

Engagement between the various stakeholders should now be the name of the game to ensure that the country’s opportunities, and not its problems, win the future.

Piet Coetzer    

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