OBG talks to Raman Dhawan, Managing Director, Tata Africa

Interview: Raman Dhawan

What are the regulatory and legislative issues affecting foreign investors in South Africa?

RAMAN DHAWAN: South Africa has a democratic system which contributes to a stable political environment, with checks and balances initiated by the government to encourage ethical business practices. Agencies such as the Department of Trade and Industry are helpful to investors who demonstrate a long-term commitment. In automotives, we had no trouble acquiring over 100 permissions from various government agencies.

There are regulatory challenges to doing business in South Africa. However, it is in the interest of any international investor to be well versed on the regulations that govern tax, human resources and, more recently, the environmental protection standards of any country in which they seek to invest. South Africa’s environmental regulatory regime, in particular, is rigorous and well enforced. Our development of a chrome smelter in Richards Bay rightly entailed widespread consultations down to community level and mandatory mitigation procedures, which were later applied to existing manufacturers. But I would not consider this a barrier to investment. The ups and downs of doing business in South Africa have more been a reflection of peaks and troughs in the economy. As long as we play by the rules, we are allowed to do as much business as we want.

How would you compare South Africa’s competitiveness to other manufacturing markets?

DHAWAN: Labour issues are a vital enabler to doing business. In response to the country’s unemployment challenges, industry recognises the need to increase the capability and number of people in manufacturing operations, and much is being done in skills development. The key question is how public and private sector partners can cooperate to improve labour relations and conduct policy discussions with outcomes that are followed with implementation. Another constraint on manufacturing is the limited size of the domestic market. To sustain capacity, manufacturers need to have access to a larger market than the domestic one. African markets are relatively small and a regional approach of intra-Africa trade is critical. Cooperation across African markets is vital to the health of industry, as these countries alone cannot compete with China or India. Our leaders must be pragmatic and take steps toward a common market. Until then, firms can be competitive importing finished products and paying import duty.

To what extent are energy and transportation limitations challenging for the manufacturing sector?

DHAWAN: There are definitely opportunities for improvement in the country’s energy generation capacity which, with improved reliability and affordability, can reduce the costs of doing business. The proposed energy mix for South Africa has been outlined in the Integrated Resources Plan and, in our view, the government has done a commendable job in seeking to diversify the energy mix by factoring in both affordability and security of supply. While the long-term energy solution for Africa is new investment in supply options, many generation projects are constrained by the inability to transmit and distribute power. Subsequently, there is also an urgent need for national and regional energy transmission, and a regulatory environment that is geared to allow more bilateral trade in the future.

Finally, improvement of logistics is key, and this can be done through rail expansion projects. There is an opportunity to accelerate regional integration and entrench South Africa’s position as an economic centre with access to other markets in southern Africa. It is encouraging to note that infrastructure development lies at the heart of the government’s fiscal stimulation package. While these plans look good, we now need to see if they work in practice. The major parastatals have a primary coordinating role, but the private sector can provide the capital and expertise needed to augment these projects. Cooperation between the public and private sectors will help marry the development and commercial paradigms necessary for success.