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What crisis? Rob Davies shrugs off SA corporate flight, says foreigners investing

Trade and Industry Minister Rob Davies is charged with growing the industrial base of South Africa. I have been keen to catch up with him, specifically to hear his plan to combat the growing number of SA corporates who are taking their investments away from home. His response in today’s interview was illuminating. Davies said foreign companies have R60bn in inward investment in the pipeline. He shrugged off reasons being given by divesting SA companies as “narrative”. Closest Davies came to admitting there was a problem was when pressed on the hiving off of SA assets by BHP Billiton, AngloGold Ashanti and Goldfield Limited. But he ascribed this to “challenges” in the mining sector. The Trade and Industry Minister rejects a widely held assertion that the Zuma Administration is “anti-business”. There’s much in this interview to absorb. Including the Government’s response to the latest WEF Global Competitiveness Report and Davies’s take on coming 144th out of 144 countries in labour relations. – AH


ALEC HOGG: Joining us from our Cape Town studio now is the Minister of Trade & Industry himself, Rob Davies. Minister, thank you for joining us. We sit in the studio regularly hearing of companies that are leaving South Africa, that are taking their capital and investing it elsewhere. They continue to say that there’s something going wrong within our country and it is reminiscent to some of them of what happened in the 1980’s when we had divestment. Sometimes there’s miscommunication and that’s why we’re really glad to have you in the studio to help us through here. This movement that we’re seeing from many companies of South African origin, out of the country: is it something that is starting to concern you?

ROB DAVIES: Well, I think we’ve seen some of this in the past. In the 1990’s there were a number of companies that moved their headquarters offshore, said they were going global, or restructuring themselves in this way. Maybe some of them are now trying to develop a new narrative around some negativity about the South African economy. However, I can say that against that, we have Trade Investment South Africa, which is a division of the Department of Trade & Industry, which deals with foreign investors –potential as well as actual – and while you don’t have to go through Trade & Investment, many do. The pipeline, which they’re servicing of R60.5bn, is remaining solid and has grown since last year. I think that we are seeing a number of international companies that see the Africa Story as positive, recognise Africa’s ambition to industrialize, see that South Africa is the most industrialised country on the continent, and recognise a number of the benefits in operating from South Africa elsewhere on the continent as well.

The pipeline that we are continuing to service actually remains quite solid and robust despite a number of the challenges and the things are in the news from day-to-day.

ALEC HOGG: Yesterday we heard AngloGold Ashanti, such a South African company that they wouldn’t even move out of downtown Johannesburg, now saying they’re splitting. They’re going to put their South African assets in one pot. BHP Billiton (and we know their history) they’ve shaved off their South African assets as well – Goldfields before them. Those are bigger than R60bn moving away. Maybe you can give us an insight into‘behind closed doors because we don’t always get to understand what you’re seeing.

ROB DAVIES: Well, one of the things we have is a serious challenge in mining and that has a number of causes. It’s not just strikes. I think strikes are caused by other things. One of them is that we have a reality, which we’d better confront as a country, that the commodity super cycle that we benefitted from for a number of years and which was one of the factors that helped us insulate ourselves from the recession, actually passed its peak in 2012. I think that the future of digging dirt out of the ground and exporting it to other countries is not quite as rosy as it was a few years ago. I think that’s perhaps part of the story. On top of that, I think we have some very serious labour relations and community issues in mining areas, which I think we’re all familiar with, overlaid by a very high indebtedness problem.

This is something that falls into our court through the National Credit Regulator, which reports to me and I think we are very well aware that there’s a very high level of indebtedness, partly caused by institutions in the micro-lending space that have been targeting low-income people with very unsustainable growth models. Those are the challenges, but I think our future lies in moving up the value chain, in industrialising, and even using our mineral resources as a competitive advantage for manufacturing. That’s part of our Industrial Policy Action plan. In the place I operate within, which is fundamentally the industrial and manufacturing space, I’m still seeing that there is a positive investment response in this country – still, coming from domestic but from foreign investors as well. Just recently, I went around at least one factory in the clothing sector, which was our most vulnerable sector and was bleeding fast, and I think we’re seeing stabilisation as well as growth of sectors like footwear.

I think that if we can do it in some of those sectors, we can do it across the board. We can do it in the metal industries. We can do it in agro-processing and we certainly are making progress in the auto sector as well.

ALEC HOGG: I’m glad you brought up the metals industry because one of our recent invitees was the CEO of Invicta, who says that they have a policy to get 50 percent of their revenues from outside of South Africa as soon as possible and he used the metal industry strike as one of the reasons for it. Is there any light at the end of that particularly dark tunnel with the labour unrest there?

ROB DAVIES: I think we had one abnormal strike in South Africa (the five-month strike) in the platinum sector and we’ve had other strikes. However, the strike in the metal sector for example, was not an extraordinary strike. We are a country with labour rights. We are working to try to encourage a more constructive environment of social dialogue and collective bargaining. We try to do that, as Government. For example, in the motor industry, we’ve introduced a competitiveness structure, which is dealing with trying to raise competitiveness in unions, and Government as well as the automotive sector are working together on that.

I think we’re trying to work to improve the climate, but we’re not going to be a country that doesn’t have any strikes.

It has been part of the reality that we’ve had since the dawn of democracy, and even before that, so I don’t think we want to pretend that we’re something other than what we are. However, as I said, we have an extraordinary set of circumstances in the mining sector, which we are grappling with as a Government.

ALEC HOGG: I know you do attend the World Economic Forum in Davos and you know what good work they do on a wide range of fronts. One-hundred-and-forty-four out of 144, now not just for the education structure in South Africa, but for the labour relations issues, too. Surely, that is a crisis and something that I’m sure, is occupying your mind. Is there anything within Cabinet that you guys are working out, and that you can (a) address a perceived (if not real) issue there and (b) to change the ranking on that World Competitiveness Report?

ROB DAVIES: Well, I think that’s one way of assessing competitiveness. There are a number of others. Many of our incentive schemes as the DTI are in fact, intended to address raising competitiveness. Some of the successes we’ve had in the clothing sector were because we changed our incentives to support competitiveness rising. We actually, only provide financial support when companies are involved in competitiveness raising. One of our most important generic programs is called the Manufacturing Competitiveness Enhancement Program, which starts to save more generically. What we’re trying to do on the labour relations front however, is we’re trying to improve the climate for collective bargaining and for social dialogue – both of those things.

The Deputy President was at the National Economic and Labour Council (Nedlac) the other day and I think what he pointed out by his presence there, is he was saying that this is an important body of social dialogue.

It must discuss some of the very important issues like a minimum wage, which is not going to be an easy matter to come to a consensus on, but the only way that we are actually going to solve those problems as South Africans is to come together and to reach consensus on matters. Collective bargaining and social dialogue: this is the only way we can go in South Africa. We are not a dictatorship. We can never go there and I think we have to have inclusive growth, and growth that is seen to be benefitting all people in our country.

ALEC HOGG: When we started this conversation Minister, you said that the narrative being used by businesses might not be reflecting the real reasons why they (and I don’t want to put words in your mouth)… Perhaps it’s not the real reasons why they are expanding into other geographies, but that same narrative we get here on the program is that our Government is anti-business and that the Nigerian Government is pro-business. Now, I’m sure you would have gotten that kind of comment to deal with at least once. How do you respond?

ROB DAVIES: Well, I don’t think that’s the case at all. Evidently, I travel quite a bit. The last place I went to was for example, the United States. When I talked to investors in the United States, of course they have issues that they want to raise with us and concerns they may have with us. However, the negativity that we get from South Africa is quite extraordinary and quite often, is not replicated. You talk about the WEF. I was fielding questions back during the year after Marikana from the South African press. For example, ‘was I going to be confronted with a string of foreign investors all telling us they were going to leave our shores’ and in fact, it was not the case. Many of them were raising rather sector-specific issues, challenges, and ‘how we could work together’, etcetera. I don’t think that Government is not involved in trying to support business.

The department that I’ve been involved in has a very extensive set of engagements with business in the manufacturing space. What we do is we offer very attractive incentive programs to support business. We try to engage with business, but particularly manufacturers because (just to repeat what I said earlier on) the future of this country and the African continent is to move up the value chain and to industrialize. That’s the challenge we have to face. It may mean that we have to be quite tough on sections of business that are happy with the status quo, want to import, don’t like localization, or don’t like some of the decisions we’ve taken on trade policy matters or tariffs, but we take them in the interest of supporting manufacturing and I think we’re unashamed about that.

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