Investors balk at unpredictable law
THE government is inclined to dismiss warnings that its policy choices could discourage foreign investment as either exaggerated or without foundation. But that stance is starting to appear decidedly shaky as investors break their silence to object to opaque lawmaking, and international data on foreign direct investment flows point to a loss of interest in SA as an investment destination.
Anglo American CEO Mark Cutifani recently objected to the government’s decision to reopen debate over minerals pricing, saying this reversal had created mistrust and put SA’s credibility at risk internationally. Meanwhile, private equity firms polled by Bloomberg say returns from South African investments have been shrinking for a decade, making West and subSaharan Africa more attractive due to their ability to offer a higher internal rate of return.
Yet despite paying lip service to the need for foreign investment and the importance of policy predictability and business confidence, the government continues to promote and promulgate laws that do the opposite. The draft Expropriation Bill that is now before Parliament, for example, is intended to form the foundation for the pending Protection and Promotion of Investment Bill, which replaces bilateral investment treaties, and the Regulation of Land Holdings Bill, which will ban foreigners from buying agricultural land and limit the size of existing farms to 12,000ha.
Yet it is silent on how it will interact with the Property Valuation Act that was promulgated last year, which provides for the establishment of an office of the valuergeneral whose job it will be to value property earmarked for expropriation. This law was intended to overcome the land reform logjam, which the government blames on the failure of the “willing buyer, willing seller” principle.
It remains to be seen whether this goal will be achieved, given that the word is that there have always been plenty of willing sellers, and the real obstacle has been a lack of political will on the part of the state. Either way, the outcome has been greater uncertainty across the board, from the perspective of existing farmers, local business owners and potential foreign investors alike.
The definition of property contained in the draft Expropriation Bill is not restricted to land, raising the prospect of movable property, including assets such as shares and intangibles such as intellectual property, being seized by the state. This is especially worrying because, although the bill now allows recourse to the courts in the event of dispute, terms such as “public interest”, “public purpose” and “reasonable terms” remain in the draft without detailed explanation of what they actually mean. Who determines what is in the public interest? Reasonable from whose perspective?
As if this were not enough confusion, President Jacob Zuma referred in his state of the nation address to a policy to be “explored” that would see commercial farmers being forced to cede half of their land to their employees. Again, no details on how this might work. No indication that any research has been carried out to ascertain whether such a policy is feasible, let alone constitutional.
Yesterday, in his response to the state of the nation debate, Mr Zuma pooh-poohed concerns that if the Regulation of Land Holdings Bill becomes law and SA’s most successful farmers are forced to reduce their land holdings, food security will be compromised. But it is clear that this and many other policies are being formulated on the hoof in response to populist pressure, which is guaranteed to increase uncertainty and result in bad laws.