OBG talks to Rob Davies, Minister of Trade and Industry

Interview: Rob Davies

How will the Promotion and Protection of Investment Bill impact foreign direct investment (FDI)?

ROB DAVIES: South Africa’s decision to terminate bilateral investment treaties (BITs) and replace them with the Promotion and Protection of Investment Bill should not affect the decisions of foreign firms to invest in the country. Based on our experience, we have seen that there is no correlation between the existence or lack of BITs and the level of FDI. In the years just immediately after the 1994 democratic transition, we signed a number of BITs with some countries but ended up without any investment flows between us. Alternatively, we have not signed any such agreement with countries such as the US and Japan, and yet we enjoy quite a substantial amount of investment from these countries. In fact, in 2013 South Africa was the biggest recipient of FDI on the African continent. The new framework is intended to update and broaden the scope of FDI protections in the country, bringing it in line with our constitution.

What policy measures can be taken to enhance enforcement of local content and beneficiation?

DAVIES: Our efforts to reindustrialise stem from a period of de-industrialisation and the need to move up the value chain, as that is where the real income is captured. South Africa and the African continent as a whole are defined within the world economy as exporters of primary products and importers of finished goods. That is not the place one needs to be in the global value chain given that more than 60% of world trade is now dominated by intermediate products or value addition.

Thus, the Industrial Policy Action Plan is intended to target certain sectors for the development of local industries. By prioritising and incentivising local procurement through designations we improve our manufacturing and supplier base. Designations for railways and locomotives led to Transnet’s procurement of rolling stock to be produced locally. The same goes for our desire to add value to mineral products through beneficiation. The new Mineral and Petroleum Resources Development Amendment Bill will empower the ministry to classify a certain percentage of mineral products as strategic, making them more available for local beneficiation and creating value-added products such as jewellery, fuel cell technology and much more.

That said, we will face some challenges, most notably energy and skills constraints. Manufacturing is energy intensive and the country’s power supply and utility prices are a concern. The other issue is skills, as we have a large pool of unskilled labour and must encourage investment in skills development. Overall, we must also enhance our competitiveness, which is driven by labour productivity and stability.

What role do special economic zones (SEZs) play in boosting industrial development?

DAVIES: The goal of SEZs is to allow us to concentrate economic activity while still decentralising industrialisation outside of the main established metropolitan areas to smaller towns and cities. These zones do not only need to be based around ports, airports or built on manufacturing industries. Industrial activity will be spread across the country with the hope of identifying at least one potential SEZ in each province. The zones will offer incentive programmes, Customs-controlled areas and development of relevant infrastructure.

How can further financial integration among BRICS members foster trade and investment?

DAVIES: After discussions with BRICS, we have established a basis for cooperation in the area of supporting industrialisation and value-added activities in each other’s markets. The big development in this regard is the recent establishment of the BRICS’ New Development Bank, which will have its first regional branch in South Africa. An infrastructure backlog on the continent is holding back potential growth of 2%. This lack of infrastructure connections is also impeding regional trade and integration, thus the BRICS development bank will provide a source of funding to fill the gap.