German businesses are interested in investing in SA but they want to see “good conditions” in place, including less bureaucracy and more legal certainty, German Chancellor Angela Merkel said on Thursday.
Merkel’s two-day visit to SA — its largest trading partner in Africa — comes as the country faces rolling power cuts by struggling power utility Eskom, which is weighing on business and investor confidence and has eroded already weak expectations of economic growth.
Alongside poor growth, policy uncertainty — notably on expropriation without compensation as well as the slow pace of economic reforms — has become a point of concern for international investors and the local business community.
Trade between SA and Germany reached R235bn in the past 12 months. The relationship is skewed in favour of Germany, says Eckart Naumann, an independent economist and associate of the Stellenbosch-based Trade Law Centre. Germany’s exports to SA were almost 30% higher than its imports from SA in 2018.
Merkel’s visit marks a rekindling of the bilateral political relationship that stagnated under the previous administration led by Jacob Zuma, which saw a general realignment in diplomatic ties towards China and the other Brics countries (Brazil, Russia and India), said Naumann.
“SA is too important to fail — current political and recessionary headwinds won’t be lost on Merkel, and SA’s challenges can and will impact on Germany,” he said.
Despite the headwinds, President Cyril Ramaphosa’s administration has made it a priority to ease doing business in SA and seeks to attract foreign direct investment (FDI) into SA to the value of R1.2-trillion over the next five years.
Among areas of co-operation that the two countries discussed was the energy sector, including a role for natural gas and the possibility of setting up smaller gas-fired power plants in SA. Alongside greater co-operation in the renewables energy sector, education and skills development were among the points of discussions between the leaders, as well as economic ties between the two countries.
The question of expropriation without compensation (EWC) is one of the most discussed issues among German businesses represented in the Southern African German Chamber of Commerce & Industry, said its CEO, Matthias Boddenberg — in particular in light of the recent proposal by the ANC to remove the courts as the primary arbiter of expropriation decisions.
The chamber has 630 member companies, which directly employ more than 100,000 South Africans and a further 110,000 indirectly through the supply chain.
“Many of our member companies think it is possible without changing section 25 [of the constitution],” he said “If you start changing the constitution we are asking ourselves what is coming next.
“If the rule of law is valid then there must be access to the courts in every decision the state makes.”
This was “a non-negotiable” for the majority of the chambers’ members, he added.
Education and training was another important matter for the German investment community, he added.
SA is battling record unemployment, at almost 30%, and discussions between Ramaphosa and Merkel also focused on ways in which SA could replicate Germany’s model for vocational training and skills development to help reduce joblessness, particularly among the youth.
At the most recent SA investment conference, held in November 2019, German companies accounted for nearly R11bn of investment pledges, mainly in the automotive and manufacturing sectors.
At the SA-Germany Business Roundtable — where new Eskom CEO André de Ruyter and Absa CEO Daniel Mminele were in attendance — Ramaphosa gave assurances to the German contingent.
“We are taking clear and decisive measures to ensure policy certainty and reduce the cost of doing business,” he said. SA is committed to regulatory efficiency, legislative reform, fiscal consolidation and prudent macroeconomic policies, he said.
The government is focused on measures to ensure the stable supply of electricity, including the accelerated introduction of new generating capacity by independent producers, said Ramaphosa.
“We are working with the leadership and management of our power utility, Eskom, to stabilise its finances, improve its operational performance and achieve a sustainable business model,” he said.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.