South Africa


The Investors’ Memo: Anatomy of self-inflicted damage

The Investors’ Memo: Anatomy of self-inflicted damage
Human Settlements Minister Lindiwe Sisulu interacts with residents during her visit on August 31, 2017 in Khayelitsha, South Africa. (Photo by Gallo Images / Sunday Times / David Harrison)

It might be election crazy. But President Ramaphosa’s investment drive isn’t benefiting when International Relations issues a diplomatic summons to the representatives of five countries that seven months ago prepped a discussion document as part of wide-ranging consultations on getting money to South Africa. And then the governing ANC steps in claiming ‘interference by the Western imperialist forces’, and ‘latterday colonialists’, to undermine SA’s sovereignty with their bullying. It’s the anatomy of political self-sabotage.

The ambassadors of Germany, The Netherlands, Switzerland and the United States and United Kingdom High Commissioner on Monday afternoon succinctly put on record that the memo at issue actually wasn’t an official document, and that it was part of the preparation for the presidential investment summit that had been announced for a few months down the line in October 2018.

It was a six-paragraph statement after their meeting with senior officials from the Department of International Relations (Dirco) in Pretoria after the five top diplomats received notice of a “démarche”, a summons that’s a serious diplomatic dressing-down, on Sunday, hours after World powers warn SA on graft was proclaimed from the Sunday Times front page.

We made it clear that we had not sent any official documentation to any branch of the South African government. What media have been referring to is an informal discussion paper, drafted by our missions in June 2018 in the run-up to the President’s Investment Conference,” say the five top diplomats.

This discussion paper was intended to support South Africa’s investment drive and to underpin our constructive dialogue with the South African government…”

In turn, the official Dirco statement noted the heads of missions had “regretted the misunderstanding” over the memo and had “further clarified that the discussion paper had been sent to the Presidency to contribute to the dialogue on how South Africa can attract more foreign direct investment”. And there had been agreement on lines of communication.

A case of saving face, perhaps, but how did it get here?

This is what happened.

Through whatever channels in the wide-ranging consultations, the Presidency led in the run-up to the October investment indaba, the memo landed with Trudi Makhaya, the president’s economic advisor since early 2018. And by all accounts, it had stayed there.

Makhaya referred queries to the presidency. Khusela Diko, the presidential spokesperson, referred to the joint statement of the five heads of missions, saying:

We welcome the statement issued by the five embassies.”

It is reliably understood the diplomats’ memo initially was circulated shortly after June, but nobody seemed to bite at the time, unlike now, in February 2019, with a few months to go before elections.

In mid-2018 South Africa was still gripped by Ramaphoria, with anticipation of the much-talked-about stimulus and economic recovery package to bail out a flailing South African economy – it was announced in September 2018 – while the first Pounds and Dollars in investment pledges had been secured towards the target of US$100-billion over five years that Ramaphosa had announced in his 2018 State of the Nation Address (SONA).

Daily Maverick by Monday had confirmed that the memo was indeed seven months old, having been prepared ahead of a meeting with retired Standard Bank CEO Jacko Maree, one of the investment envoys President Cyril Ramaphosa appointed in April 2018. That’s just before the president headed off on a five-country and Commonwealth Heads of State gathering, a round of visits of international schmoozing on South Africa’s renewal and also to start raising investment, some of which was secured.

The memo, which Daily Maverick has subsequently seen, raises familiar issues raised – often and regularly – not only with Ramaphosa during his overseas visits and also in domestic engagements, but also across the South African government. And it does so in a rather co-operative tone.

“… We share the goal of a united and democratic, equal and non-racist constitutional South Africa where everybody can enjoy and benefit from the political, social and economic freedoms enshrined in the Constitution of 1996,” says the June 2018 memo.

We are convinced that an open economy that allows for as much as possible free and unimpeded flow of goods, services, capital and people is an important precondition in any prosperous economic development in South Africa. Long-term oriented foreign investment can crucially support South Africa in attaining its development and transformation objectives.”

It goes on to emphasise that “(w)e are optimistic that trust and confidence can be restored and foreign investment can pick up step by step to reach and outperform levels of the past. President Ramaphosa has set high and ambitious goals for foreign investment in the next 5 years. We are willing to make our contribution towards achieving that goal.” (Note: emphasis as in document)

Then the diplomats acknowledge that “foreign investors need to have a serious commitment to meaningful transformation and to overcoming the legacy of the Apartheid past”, that they want to “contribute to sustainable economic growth, the creation of decent and well-paid jobs and, in particular, to quality professional education”. Crucially, they commit to “ethical and honest business practices…” (Note: emphasis as in document)

Given that many of the companies fingered central to State Capture, be it KPMG, McKinsey and others, are European-based and dominated, that seems a good thing.

But, according to the memo, there are fundamental principles to be respected: “a clear, unqualified and manifest political commitment to the rule of law, the independence of the judiciary and to honest and ethical business practices…” alongside a level playing field for foreign investors and a “reliable political and economic framework”. (Note: emphasis as in document)

This requires five key moves: eliminating regulatory uncertainty – something rating agencies have hammered on about for years; sticking to the rule of law – something that has been a key focus of the Ramaphosa administration renewal mantra, hence the Zondo commission and other inquiries into the tax collection agency and prosecuting services, and a review of the visa regime, which has been repeatedly raised before.

The investment boycott threat contention that started the furore appears to be based on the paragraph on investment protection.

No investor would venture to come to South Africa without proper and comprehensive guarantees for his investment,” was what was quoted in the Sunday newspaper, but importantly the memo goes on to say:

Abrogating existing bilateral investment treaties without a proper investment protection law in force is a serious impediment to such foreign investment.”

That’s a direct reference to the controversial 2015 Promotion and Protection of Investment Act that government believed would allow greater scope against what it saw as restrictive bilateral treaties – many that lapsed were not renewed – and stave off possible international arbitration over an established policy like broad-based black economic empowerment.

The European Union was never a fan of this and has made this publicly known. But it hasn’t stopped anyone from investing in South Africa. The German company Mercedes-Benz in June 2018 announced R10-billion investment in East London. British Prime Minister Theresa May’s August 2018 official working visit to South Africa announced investments worth R72-billion in Africa by 2022, with South Africa a key beneficiary country. And other European countries like France are keen on getting involved and putting their money behind projects.

The memo raised concerns around the land issue, or more precisely the land expropriation without compensation issue. Again an issue Ramaphosa has tackled this internationally for about a year – and domestically when, for example, it came up in his Q&A in the House in August 2018. More recently he had to talk to this at the World Economic Forum (WEF) in Davos, Switzerland.

A presidency insider told Daily Maverick that none of the issues the memo raises around corruption, regulatory and policy certainty and the visa regimen are unfamiliar. They have been “raised sharply” at various investment meetings Ramaphosa has had in the past three months, be it with a head of state, officials or business representatives. These concerns were broached during Ramaphosa’s visit to the European Union in November 2018, his meeting with French President Emmanuel Macron, and also the meeting with German Chancellor Angela Merkel on the sidelines of the October 2018 G20 Africa Summit in Berlin which led to the November 2018 state visit by German President Frank-Walter Steinmeier, and a German business delegation.

That everyone is watching the Zondo State Capture Commission, and others like the Nugent Inquiry or even the 2018 parliamentary inquiry into State Capture at Eskom, was already clear then. Steinmeier said so.

We’re visiting you at a time when interest in SA is awakening again. We’re following the new developments in SA with great interest. We’re following your new policies, your efforts to strengthen the independence of the judiciary by creating transparency, also your efforts to fight corruption,” said Steinmeier, according to Business Day.

We’re following very closely the governmental institutions’ efforts [to fight] what is called state capture in South Africa. They are a very important signal to the international community, a signal that is very well received in Germany.”

It’s a no-brainer that the testimony before the Zondo Commission into State Capture would be closely watched by embassies – it’s part of what diplomatic staff do, like attending debates in the National Assembly where embassy staff are regularly spotted in the diplomatic bay of the public gallery.

So what’s behind the furore over a seven-month-old memo that in large measure offers support to South Africa’s renewal and investment drive?

It could be a factional push to shift South Africa’s investment drive away from Europe towards BRICS, the grouping of Brazil, Russia, India, China and South Africa. But China already is playing an important investment role in a warming relationship backed up by Ramaphosa’s state visit there in September 2018. According to the Presidency, a number of agreements were signed, including one investment project valued at R14-billion. And the recent state visit to India also deepened relations, including cementing the 2018 unblocking of Denel, the arms manufacturer that had been blackballed over dodgy practices in India previously. It’s important: India is one of the lucrative markets for arms and weapons.

Is there perhaps an electioneering push to situate South Africa’s foreign policy within BRICS and the AU? While the ANC election manifesto seems to emphasise the African Union, SADC (Southern African Development Community) and the Global South, the reality is that 75% plus of trade is with the UK, Germany, The Netherlands, the US and Switzerland – the five countries that through their diplomatic representative drafted the memo at the centre of the furore.

It’s clearly election season when a sensible unsigned discussion memo can generate so much anti-colonialist political backlash,” said Intellidex analyst Peter Attard Montalto with a caution.

The content of the memo should not be forgotten however and reflects the current views of a large swathe of investors around the lack of implementation of reform or meaningful improvements tot the doing business environment in the past year.”

The ANC reaction to describe the memo as “an act of imperialism”, was reiterated by acting ANC national spokesperson Zizi Kodwa. “We are a sovereign state based on the rule of law. We are doing a lot of work to root out corruption, including the commissions, painful as these are…” he told Daily Maverick. “There was no need for such a memo.”

And the South African Communist Party (SACP) agrees: “Not only does the conduct displayed by the imperialist embassies violate all international diplomatic protocols as pointed out by Dirco, but is deeply offensive and an attack on our national sovereignty. Some of these countries have in the past used their embassies as the frontline in their offensive actions in destabilising many developing countries”.

The statements of the governing ANC and SACP echoed the need for adherence to protocol and lines of diplomatic communications that Dirco raised in two statements since Sunday.

There is a view that Dirco reacted too strongly – it “overreacted” without the necessary information was how one government insider put it – in the wake of the newspaper report. It could not be fully ascertained how much communication there had been between the presidency and Dirco – it is reliably understood there had been a decision to let the department take the lead – before International Relations issued the démarche.

When asked about what could be seen as an overreaction, International Minister Lindiwe Sisulu’s spokesperson Ndivhuwo Mabaya said the date of the memo was not important.

What is important is that all communications from ambassadors or diplomats must follow diplomatic channels and protocols. Our own diplomats who are representing us in 125 countries also follow the same diplomatic channels.”

A case of form over function, perhaps, and a rational sounding fallback in election induced high-pressure times, but this debacle may just have made South Africa’s case for itself a little bit more difficult. DM


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