Many investment roadblocks still
Pressure mounts on president to get economy and government guidelines into the positive again.
Amajor hurdle on the South African investment road is uncertainty and concerns about the soon to be released Mining Charter, says Kevin Cron, head of corporate mergers and acquisitions at Norton Rose Fulbright.
The charter will be released within weeks, but industry players are “nervous” that the new minister of mineral resources, Gwede Mantashe, is keeping controversial provisions in his predecessor’s charter that caused so much concern.
There are many policy problems facing the country in achieving President Cyril Ramaphosa’s target of $100 billion in new investments over the next five years.
“Although there has been welcoming changes in the management of state-owned enterprises there is a dire need for a coherent policy that is understood and implemented by all state entities.
“It is critical for government to shift through current legislation and find what it is that investors find concerning. It must then decide if it is absolutely necessary to keep that legislation,” Cron says.
Cron is not convinced that there is a full understanding of the obstacles an incoherent government policy poses.
“Frankly, I still think there is a suspicion in government of business in general. When business raises issues of concern, it is often, although not all the time viewed with suspicion.”
There are abundant investment opportunities globally, and especially in Africa. South Africa should be going out if its way to make it more attractive to investors. “I am not sure if that is fully appreciated.”
Areas of concern, besides the mining sector, are the expropriation without compensation policy, immigration legislation that makes it almost impossible to hire foreign professional workers, black economic empowerment requirements for foreign companies and exchange control issues.
The introduction of a headquarters regime to attract foreign multinational companies to set up in South Africa to manage their African operations is a fundamentally good idea, he says.
However, strict anti-avoidance rules have left it almost dead in the water, Cron adds. Corporate tax rate is also high compared to global standards, and there is no real relief for foreign companies.
The Davis Tax Committee found in its final report on corporate income tax that the current rate of 28% is on par with the African average rate of 28.21%. But it’s way above the European average of 19.71%, Asia’s 21.28%, the European Union’s 21.51% and the global average of 24.29%.
The committee recommended no change to the current rate. It says the risk of a reduced rate is that other policy measures, together with political and social uncertainty, will still act as disincentives for further or new investments.
These policy measures include immigration laws, the ability to guarantee electricity and water supplies, security of tenure and corruption.