It would be impolite to describe the ANC’s head of economic transformation, Mmamoloko Kubayi, in words that I use around the house — like when I stub my toe or knock my knee against something in the dark. The best I can do after comments attributed to Kubayi — for business to “invest unconditionally” — is to describe them as ill-informed, misguided, ignorant and dangerous.
I would like to put on my clever-people cap, sit her down and explain how corporate investment works, especially the power relations that shape negotiations around foreign direct investment (FDI). Of course, I may be accused of “mansplaining”, “undermining black excellence” or “treating an African woman with disrespect”, but Kubayi represents the liberation movement that governs SA (the one that brought the country close to the event horizon of a massive black hole), and whatever she says in her capacity as “head of economic transformation” ought to be taken seriously. The future of future generations is at stake here.
Let me start, somewhere near the beginning, by going through some of the power relations, and demonstrate the way Kubayi has things back to front, a display of ignorance that is as horripilating as it is embarrassing to observe.
Countries typically lure investors with promises of tax breaks, national treatment (treating foreign and national companies equally) and sometimes special treatment. At this stage of negotiations the investor has the power, and officials of investment destinations do their best to accommodate them. In fact, the officials are not simply less powerful during negotiations — short of outright begging, they may sometimes seem supplicatory.
If the investor is considering ploughing, say, R1bn into SA, or any other country for that matter, they would have done their homework. They want assurances. Above anything else, they want to know there will be demand for what they provide or produce, and that they can be reasonably certain there will be a return on investment (ROI). They need to be familiar with competition policy, and expect political stability, among very many other matters. These are all elementary issues. Or at least they should be.
When you have miseducated and ignorant rapscallions in power the game can change. The money of investors is no longer safe
Once the investor agrees to plough their hundreds of millions into the destination country, power shifts. The host country now has the power, and the investor is at the mercy of national forces. The host country — specifically the governing party — can change laws or regulations in ways that undermine corporations, increase taxation, strip them of rights and create (tax or nontax) barriers to trade. Once this shift has taken place the investor is relatively helpless.
The investor has now invested a large sum into the country’s political economy, and when you have miseducated and ignorant rapscallions in power the game can change. The money of investors is no longer safe, ROI can no longer be relied on, and sunk costs — money invested that cannot be recovered — can become debilitating and slowly cripple the investor.
It gets worse in a climate of corporate capture (somebody should count how many ANC national executive committee members or cadres are on company boards in SA) and cronyism. This can take the form of an inability to dismiss workers found to be engaged in illicit dealings or for simply not doing their jobs because they are linked to the liberation movement.
What Kubayi has done is grab the negotiation and bargaining process by the tail end (she was at least honest) and present to investors what to expect if they bring their money to SA. The message that has gone out is that the liberation movement has no intention of honouring the most basic requirements or prerequisites for bringing their money to SA.
The utterances attributed to Kubayi are reckless, ignorant and revelatory. If there is any doubt as to why SA has been failing to attract much FDI, or why even local people are apparently sitting on piles of money, it is because the liberation movement that governs wants people to invest money and expect nothing in return.
In some ways there is no contradiction. Kubayi has simply stated publicly what most loyal cadres repeat in whispers. She has essentially said to investors: send us your money and wave it goodbye. But let us leave Kubayi, alongside people such as Irwin Jim of the National Union of Metalworkers of SA and so many of their fellow travellers, happily padding in the kiddie pool.
There may be an actual reason why investors around the world are stockpiling money. It has to do with the uncertainty and distrust in the liberal capitalism that has dominated the world for the past 70 years or so. It may also explain why youth unemployment is at record highs around the world. If you consider the youth of today as the entrepreneurs, manufacturers, producers, innovators and designers of the future you would be well advised to invest in them, in education, and in research & development today.
That people would rather sit on their “stockpiles of cash” than invest in the future may well be an expression of fear of what the future may bring. Having said all that, and with regard to the liberation movement that governs, the horror is already upon us.
• Lagardien, an external examiner at the Nelson Mandela School of Public Governance, has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.
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