ANDREW BAHLMANN: Trash anything that hinders foreign direct investment

What SA and all of Africa need more than anything else to recover from the Covid-19 pandemic is foreign direct investment (FDI). Anything that enables FDI should be encouraged, and anything that hinders FDI should be shelved before it can do any more damage to economic growth and job creation.

That the Competition Commission is no longer blocking the sale of SA’s Burger King franchise to a US private equity firm falls squarely into the category of enabling FDI. The Burger King transaction results in the company’s BEE shareholding of 68% moving to negligible. The commission’s withdrawal from its previous stance of disallowing the deal for reasons of public interest is to be applauded — but it is the bare minimum. As a nation we ought to be actively and aggressively encouraging FDI, which has been in the doldrums for some years.

The case of Cashbuild is another instance — though not involving FDI — where the Competition Commission may be allowing “competition policy” to get in the way of good, efficient business. The commission recently recommended to the Competition Tribunal that it block Pepkor’s sale of hardware chain The Building Company (TBC), which also owns TimberCity and Tiletoria, to Cashbuild for R1.1bn.

It is true that with 228 stores in the country Cashbuild is already the largest hardware retailer in SA, and TBC is the second biggest. On the surface that may seem a clear-cut competition policy decision. However, it misses the point that hardware is one of the most fragmented retail sectors in SA, and the biggest competitor in almost any location is often an inefficient independent store. A large nationwide group in all probability would have increased competition through efficiencies.

That the country needs FDI as a top priority is clear. On gaining the presidency one of President Cyril Ramaphosa’s first actions, in April 2018, was to spearhead a drive to generate $100bn in private sector investment over the following five years, with the aim of creating 1-million to 1.5-million new job opportunities. While there were some big public announcements, in reality FDI has been going backwards for some years. I expect FDI to experience a fall in volume and value of as much as 40% from 2020 to 2021, followed by a creeping recovery of deal volume over the next two years — but only returning to 2019 levels of value within three to five years.

Even before that, data from the UN Conference on Trade and Development (Unctad) indicated that FDI inflows to SA declined from an equivalent of 2.3% of GDP during 2013 to 0.5% of GDP in 2016. My own analysis is that FDI since then has stagnated at about 0.4% of GDP. To achieve an increase in FDI all enablers need to be calculated and orchestrated. With the Competition Commission backtracking in this manner, how are foreign investors meant to consider SA as a sustainable and attractive investment destination?

As to the need for FDI, as an example Transnet will be looking for private sector partners to invest about R100bn in the ports in Durban and Ngqura/Port Elizabeth. At the same time the Treasury has quite clearly indicated that it has no money to support any new investments by state-owned enterprises. Transnet has issued a request for information to gauge the interest of potential private sector companies to participate in such partnerships. Do we wish to exclude foreign companies?

Does this imply the Competition Commission is due to have its wings clipped? There is no criticism intended here of the commission itself. It has been a matter of interpretation. The Competition Act was amended to give the commission a public interest mandate. The commission is a highly professional body that has been thorough in the way it has investigated and dealt with issues. Certainly, its initial Burger King interpretation of its newly acquired public interest mandate was too broad and had it stood would have significantly diluted the good work it has been doing. BEE issues should be left to the BEE Commission.

Let’s look at the broader issues that affect our economy. While ownership of the economy has an important place in any discussion, of immediate interest to most people are skills development, development of small and medium enterprises (SMEs), and procurement by larger companies from black-owned SMEs.

All of these ought to be more incentivised, thereby creating a far broader base to our economy. These would all fall into the category of enablers of FDI. It brings more people into SA’s economy and enables more entrepreneurs to grow their businesses and accumulate assets. What is disabling to FDI is the misguided focus and public utterances on certain aspects of transformation. This needs to be stopped as it is of minimal interest to foreign investors.

Without disabling FDI there are many other ways of altering the ownership of companies. The owners can promote employee share option schemes and worker ownership, for example.

There is an argument that BEE has pushed up the cost of doing business in SA and is consequently bad for competition. The SA economy is balanced on a knife edge. We need to look at things far more realistically, and perhaps a bit brutally. Every policy should be looked at exclusively as to whether it aids investment and growth or not. Whether it is BEE legislation or any other legislation, the question has to be asked: does this have a positive or negative impact on investment and growth?

The two most critical issues facing the country in the post-pandemic era (when it comes) will unequivocally be investment and growth. We’ve got to create an environment that says to the rest of the world: we are open for investment — and in no halfhearted manner. We are in an environment where we are competing fiercely for investment, not least with countries to the north of our border, and we have to be alive to that threat. If we lack policy certainty and don’t appear to be open for business, Kenya, Rwanda or any other country will certainly take “our” FDI.

• Bahlmann is CEO of corporate advisory firm Deal Leaders International.