Regional trade needs to be a top priority for African leaders

Regional trade needs to be a top priority for African leaders

Sometimes what official statements don’t say is as important as what they do. Such is the declaration released at the recent Southern African Development Community (Sadc) summit.

The meeting, held in Pretoria, attracted public attention because it did not feature Zimbabwe’s first lady, Grace Mugabe, whose presence some seemed to think would be necessary for her to qualify for diplomatic immunity for an alleged assault. And, while it was expected there would be discussions on both political and economic challenges facing Southern Africa, reading the declaration left one wondering what had transpired behind closed doors in the capital.

What the official communiqué of the 37th summit did not mention was trade. This is odd in the light of some indications of trade tensions during the interactions between Sadc ministers in the meetings held in the weeks leading up to the summit. Issues covered in the communiqué range from food security to gender representation in politics to recognition of plant varieties. Most of the document is devoted to the political situations in Lesotho and the Democratic Republic of the Congo (DRC).

Investment was also overlooked. From an economic perspective, continued priority is given to industrialisation including through interactions with the private sector.

For years, trade was at the heart of the economic agenda of the Sadc. It now seems to have fallen by the wayside. It could be argued that this reflects the fact that much of the action in setting up a free trade area took place about 10 years ago and there is a framework in place to govern the movement of goods under the Sadc trade protocol.

On paper, this is so, but much remains to be done to achieve higher levels of intraregional trade and ensure an environment that encourages firms to maximise opportunities. The industrialisation agenda, if it could reach its full potential, would no doubt help to bring this about.

What is really required is a display of leadership from Sadc governments that reinforces the agreements they have already signed and provides a degree of certainty for the private sector in the region. It is worthwhile noting that 10 of the Sadc countries have recently entered into trade arrangements with the EU under the economic partnership agreements (EPAs).

The Sadc EPA, comprising Botswana, Lesotho, Namibia, Mozambique, SA and Swaziland, and the Eastern and Southern Africa (ESA) EPA, Madagascar, Mauritius, the Seychelles and Zimbabwe, have the potential to act as building blocks for stronger regional economic integration.

Such agreements reinforce commitments already entered into by Sadc member states at multilateral and regional levels, including the elimination of nontariff barriers, improving trade facilitation and implementing effective standards to protect human, animal and plant health.

While it is true that there is not one EPA for all the Sadc countries, there is still scope to use the agreements to encourage linkages in the region and develop value chains, particularly those designed to lift exports, or those linked to European firms. This can be done by taking advantage of the more flexible rules of origin, for instance. Europe remains a key trading partner for the Sadc for value-added products in sectors such as automotives and processed agricultural goods.

The EPAs that were negotiated provide continued policy space for development in the Sadc.

Under the Sadc EPA, safeguards are in place to protect regional industries in the event that imports of a specific product increase to such an extent that they cause injury or disturbance.

The EPA protection goes beyond that provided under the World Trade Organisation rules and will apply indefinitely. Infant industries can also be protected under the safeguard provisions of the EPA. Export taxes can be introduced on exports to the EU under certain circumstances, such as for reasons of fiscal revenue, environment protection, protection of infant industry or industrial development.

Trade negotiators in the Sadc can draw on the experience they have gained over many years during the sometimes difficult engagement with counterparts from the European Commission to revitalise the regional trade agenda. Much can still be done to encourage greater levels of interaction in both the trade in goods and services and in supporting investment.

This article was originally published on BusinessDay, 1 September 2017.

Photo credit: GovernmentZA via Visual hunt /  CC BY-ND
Epic Confrontations on International Trade Governance Await Zimbabwe Ahead of the 37th SADC Summit

Epic Confrontations on International Trade Governance Await Zimbabwe Ahead of the 37th SADC Summit

In the last 5 years, business relations between Pretoria and Harare have turned sour, as a result of the later resorting to the use of various techniques and shenanigans to minimise imports from her neighbour across the Limpopo River. All in the name of sovereign industrial policy development. Accompanying these tensions, the unresolved trade disagreements between the two countries are expected to take a new twist, as South Africa takes over the chairmanship of the SADC on the 17th of August for a full year. The theme for South Africa’s Chairmanship: “Partnering with the Private Sector in Developing Industry and Regional Value Chains”.

Zimbabwe’s illusion of trade policy sovereignty has hurt once-fruitful and cordial bilateral business relations. Policy makers in Harare are seemingly not concerned with the agreed upon sets of trade agreements and treaties that govern cross border movement of goods and services. However, it’s expected that with South Africa in the SADC chair, a new dispensation in the usage of predictable and transparent trade policy instruments in the SADC region will be ushered in.

One of the mind-blowing examples of due disregard of regional trade agreements by government officials in Harare, was the introduction of the popular Statutory Instrument 64 of 2016 (now commonly known as SI64) with immediate effect, that is, without any notification or advance warning to the trading community and the SADC/COMESA Secretariats. SI 64 is a domestic legislation which requires traders to obtain an import permit from government before importing basic commodities; like coffee creamers, bottled water, white petroleum jellies and body creams, canned fruits and vegetables, peanut butter, plastics pipes and fittings, builders-ware products, metal clad insulated panels, baked beans, cereals, fertilizers, flash doors, beds, wardrobes, bedroom and dining suites, office furniture and woven fabrics of cotton, among many others. The decision/criteria to award an import permit remains a closely guarded secret, and officials feel they have no obligation to make it known to the transacting business public. This mysterious import-awarding criterion is fertile ground to rent-seeking officials. The consumer, who is always the ultimate bearer of poor decision making remains out of the equation, irrespective of the embedded vulnerabilities with respect to high consumer prices and poor product quality.

All this is being done unilaterally, that is, without due regard of clearly laid down provisions of Safeguards and Trade Remedies enunciated in the SADC Protocol on Trade and the COMESA Treaty that would allow for the protection of national industries. There is no doubt that the most affected businesses were from across the Limpopo River. The use of Safeguard Measures is neither new nor complex to African countries, in fact Tanzania was recently granted a Safeguard measure on sugar imports. South Africa itself makes use of safeguards in certain circumstances.

Efforts by the official delegation from Pretoria’s Union Buildings, on the margins of the 36th SADC Summit convened in Swaziland, to engage Harare authorities were fruitless. Neither have subsequent bilateral trade and investment engagements, initiated from Pretoria, Lusaka and Gaborone, yielded positive results as Zimbabwe remains obstinate and determined to maintain SI64. This coming annual Summit is an opportunity for South Africa to sanitise the so-called “Beitbridge Factor”, since it is affecting business from many other trading partners along the North-South Corridor.

What is often overlooked by government policy makers is that trade agreements are designed to allow private entities to engage in cross-border trade, in an environment that is characterised by predictability and certainty. Adherence to these international and regional trade agreements therefore is central.

Media reports from South Africa indicate that Business Membership Organisations (BMOs) are sharpening their swords ahead of the SADC Summit, awaiting to get answers on trade governance issues from Zimbabwe government officials. Will this month’s strategy on the engagement of Zimbabwe authorities yield different results from previous efforts? We suggest you keep an eye on the matter.

While the two countries have historically enjoyed shared political ideology and vision, the same does not cascade downwards to business interests. Trade policy negotiations, governance and discussions in Zimbabwe are often perceived as a secretive government prerogative, which cannot be open to public/stakeholder analysis. In comparison, South Africa’s trade policy governance is a largely inclusive stakeholder process, barring strained public-private relations in some areas.

The drama on trade governance in Zimbabwe does not end with SI64. In another puzzling development, the government of Zimbabwe recently announced that it has banned all imports of maize, with immediate effect. The announcement meant that the issuance and renewal of import licences for maize have been stopped amid indications that Zimbabwe is anticipating over 2 million tonnes of maize from the 2016/17 farming season, enough to self-sustain the nation. Local farmers are being paid US$390/tonne, yet regional exporters are landing maize imports in Zimbabwe at US$210/tonne. Regional and international farmers who are in grain export business were caught by yet another surprise announcement.

In 2016 alone, Zimbabwe imported maize worth US$286 million, mainly from South Africa (32.9{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}), Zambia (29.7{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}), Mexico (18.7{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}), and Mauritius (8.7{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}), among other source markets. Meanwhile, the Zimbabwe Oil Expressers Association are currently lobbying the government to extend the maize ban to include imports of soya beans, which are mainly coming from Zambia and South Africa. The lobby industry indicated that soya bean imports are landing at US$360/tonne, far below the US$500/tonne being paid to local farmers. This development is reportedly forcing oil expressing firms to reduce the shelf price of edible oil. One wonders whose vested interests are being promoted by authorities in all these tomfooleries.

In yet another dramatic turn of events, Zimbabwe is likely to taste its own ad hoc self-serving prescription/medicine on the trade policy governance’s uncertainty and unpredictability, following announcement by a senior government policymaker of the country’s intentions to export excess maize. The unanswered question remains as to which country will buy Zimbabwe’s maize exports following a long history of denying other trading partners access to its own home market. Is this an opportune time for other countries to start talking of dispute settlement/resolutions in trade agreements? A popular phrase that come to mind when discussing trade disputes is retaliation, despite its complex legal processes and technical jargons.

As Zimbabwe prepares itself to attend the SADC Summit, the nation’s Speaker of the House of Assembly recently lobbied the customs authorities (ZIMRA) to raise the import duty on used cars (second hand car imports) to 150{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in order to control the country’s overall import bill and save on foreign currency. Private cars, which are listed on Zimbabwe’s sensitive product list, currently attract an equivalent of 96{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} duty payable, inclusive of VAT, surtax and other charges.

Evidently, trade policy governance in Zimbabwe is now elitist and driven by strong business lobby groups, who often find themselves in complex political overlaps. Disappointingly to Zimbabwe authorities, the forthcoming SADC Summit will provide a platform for regional private sector, concerned government-led delegations, civil society and other interest groups to seek answers from the country’s authorities. It is a very unfortunate development that Zimbabwe is now at loggerheads with its own historical and traditional trading partners, and the wounds will obviously be self-inflicted.

An opportune moment has come to move away from political solidarity, and promote thriving private sector development in Zimbabwe through transparent and predictable regional trade policy!

Brian Mureverwi is a Senior Trade Expert at the Zimbabwe Trade Forum, a newly established public-private dialogue platform on pertinent international trade issues.

Photo credit: GovernmentZA via Visual Hunt / CC BY-ND

What’s Next for the ANC?

What’s Next for the ANC?

President Zuma’s decision will have damaging consequences for the country. While this may not be immediately evident, except in the movement of the exchange rate, in time its effects will be engraved deeply on the institutions of state, on the economy, on the fabric of society, and could eventually trigger critical systems collapse.

Jacob Zuma’s myopia overlooks the implications of his political action on the credibility of his party, the ANC. He is burning its prospects for the 2019 general elections. In the process, he is also digging a political grave for himself. Many consider Zuma to be a political chess master, but his latest move is everything but skilful. Even for reasons to do with self-preservation, he could have laid low, bided his time, and struck after he had an opportunity to assess the political temperature at the ANC’s national policy conference in three months’ time. Now that he has played his ace card, and with nothing left up his sleeve, what is likely to follow?

First, on the broader macro-landscape, confidence in the economy will continue to slide. Malusi Gigaba, Gordhan’s successor, will have a difficult job in convincing the sceptical public that he is the right man for the job. The international markets will be incredulous. He is going to grope in the dark, and battle to convincingly sell the South African story to investors at home and abroad. Zuma’s faction did not appoint him for his gravity. To them he is an instrument in their hands to oil the looting machine. The critical battles won by Gordhan are where Gigaba will stumble.

It is worth highlighting some of Gordhan’s successes, apart from maintaining macro-economic stability and sustaining South Africa’s credibility in international markets: he pushed back against the Gupta family who pressured him to intercede with the banks on their behalf. He refused to approve illegal contracting between the South African Social Security and Cash Paymaster System, an arrangement that has a whiff of corruption. Gordhan has consistently stood his ground against a nuclear build programme that undermines the integrity of supply chain management rules, and that would be another treasure trove for cronies. He tightened the noose on state-owned enterprises such as SAA and Eskom, led by arrogant and unaccountable boards. It is unthinkable that Gigaba will stand up to his political boss, and other profligate ministers who see their portfolios as conferring a right to an open chequebook.

Second, all eyes will be on the bureaucrats at the National Treasury, especially the fate of Director General, Lungisa Fuzile. It is doubtful that he will stay on. Apart from Lungisa, there are other senior Treasury officials who have featured prominently in dodgy intelligence reports in the past, and have been on the frame for persecution: the head of the budget office, Michael Sachs; Andrew Donaldson of special projects, who left early this year; Kenneth Brown, the Chief Procurement Officer, who left the Treasury at the end of 2016, and Ismail Momoniat who heads the tax and financial sector unit. The Treasury team has helped to steer South Africa’s economy through turbulent times and kept at bay prospects of sovereign risk downgrade. Treasury is likely to lose critical skills, and with no prospect of replenishing them. This institution’s place in South African politics has now been significantly devalued, a situation that is reflective of generalised political decay. Possibly institutions such as the Financial Intelligence Centre and the South African Reserve Bank will be next on the firing line.

Third, apart from grim developments on the institutional front, there will be serious political implications that could potentially bring about a ray of hope. Currently, the ANC is deeply fractured and wounded. It has not been a cohesive force for some time. However, the probable political counter-movement to follow Zuma’s Cabinet reshuffle includes strengthening and consolidation of the anti-Zuma faction across the tripartite alliance. The anti-Zuma bandwagon is likely to grow in the run-up to the ANC’s policy conference and beyond.

Fourth, efforts will likely be made to frustrate Zuma through parliamentary processes. The ANC in Luthuli House, in particular the Secretary-General, and the Chief Whip in Parliament are probably conferring on their next move in clipping Zuma’s wings. A lot of what could follow is uncharted territory, with the ANC in parliament voting for the first time with the DA in a no-confidence vote. If this succeeds, it could have a game-changing effect on our politics. This would be a better route to holding the president accountable rather than relying on the secretive ANC processes that have in the past failed to remove Zuma. The net outcome would be an emboldened Parliament and a stronger democracy.

The success or failure of the vote of no confidence will depend largely on the maturity of the opposition parties, especially the DA. The DA would need to think carefully about how it mobilises support for this move. Instead of aiming to score political points for itself, it should aim to find common ground with both the anti-Zuma ANC MPs and the Economic Freedom Fighters. This will be another test of leadership and maturity for Mmusi Maimane, the DA leader. The ANC MPs should be aware that their time as parliamentarians is nearing an end, and they have an opportunity to redeem their credibility and catalyse the looming change in South African politics.

It should be possible for both the opposition and the ANC MPs to agree on installing Cyril Ramaphosa as a caretaker president until the 2019 general elections. This could allay the fears of those in the EFF who are wary of him. Julius Malema would need to suspend, temporarily, his hostility towards Ramaphosa and focus on the bigger goal, which is to stem the tide of institutional dysfunction and corruption. Importantly, Ramaphosa’s installation could help in halting further damage to public institutions, and bring about much needed stability in the country. However, he would need to seize the moment urgently and speak out, boldly take on Zuma publicly, and be counted as a leader that many South Africans expect him to be. In a sense, how the triple M – Maimane, Malema, and Mthembu – conduct themselves as mature and forward-thinking leaders could help in redefining the relationship between Parliament and the executive, and in restoring the credibility of South Africa’s democracy.

Finally, South Africans cannot rely solely on party political or parliamentary processes for democratic renewal. Civil society is the ultimate agency for change. Zuma has declared war on society and the economy. The ultimate battle can only be won on the streets, through conscious organisation, and waves of protests that are designed to make it difficult for Zuma’s government to function. Civil society will need to be disciplined and avoid turning this moment into narrow politicking or a platform for cult leaders to shine. There is a lot that is at stake, and the future is still in our hands.

Looking beyond the travails of 2016

Looking beyond the travails of 2016

2016 was a politically consuming year. This year will be no different as our politics promise to be dramatic, with the ANC’s succession battle reaching a fever pitch as the policy conference in June and the elective conference at the end of the year draw closer. Meanwhile, the ills afflicting public institutions persist: the public education system remains in a crisis mode. Government leaders are reeling from one crisis to another, putting out fires rather than doing the actual work of governing. Fissures in state-society relations are growing wider and deeper, as expressed in the fallout over the death of over 100 mentally ill patients between March and December 2016, as a result of government negligence. This reflects wider public service failures and inability of government to fulfill its responsibility towards citizens, especially the weaker in society.

Young people are the most marginalised in society with unacceptably high unemployment rate at over 50 percent. Herein lie the seeds of social discontent. There is little hope that the tide will turn any time soon since the GDP growth forecast for 2017 remains subdued, and there is no evident strategy to turn the tide around.

While there is heightened excitement and curiosity about the ANC’s national policy conference and elective conference, the fundamentals on the ground are looking ugly, and there is a social ferment in the making. So, what exactly are we to expect in the months ahead?

There was little excitement about President Jacob Zuma’s State of the Nation Address (SONA) beyond the hour and a half interruption before the actual event. In the past 7 years, it has been disappointing, setting out commitments that are never fulfilled. This address has also gotten into the habit of trying hard to shift perceptions about the weaknesses of the economy, straining to convince the public that the country is a victim of events that emanate from outside and over which it has no control. The SONA contained empty promises and regurgitation of previous rhetoric around radical economic transformation to appeal to the poor and marginalised. What is important to note is that this was Zuma’s last state of the nation address as ANC President. The outcomes at the elective conference at the end of 2017 could potentially make it all meaningless in exactly the same way that former President Thabo Mbeki’s last SONA was full of rhetoric, focused on 22 ‘Apex projects’ that signaled government’s sense of urgency, but ended in the ether in the wake of his forced ejection from office. So, there is not much to learn from Zuma’s SONA.

The urgent challenge for South Africa is to reignite economic dynamism, otherwise the country is headed for a tailspin, especially if a credit downgrade becomes a possibility this year. Yet there are many political choices that throttle economic resurgence and also undermine efficiencies in the public service. This is borne out by lack of a coherent narrative on economic policy, combined with absence of significant political capital or support from the top, and lack of consensus on a lead institution that can drive the next phase of economic change. Instead, Zuma has aimed his arrows at the National Treasury, which is one of the very few government departments that is still trusted by the public, and has sought to undermine the leadership of this institution. Zuma’s firing of a top performing minister Nhlanhla Nene in December 2015, and his replacement by a little-known and inexperienced ANC-factionalist Des van Rooyen, set the country back and destroyed whatever little goodwill remained between big business and government. Although Zuma reversed his decision after a few days and brought back the technocratic Pravin Gordhan, he did so grudgingly and by then the damage had already been done.

Since Gordhan took over at the end of 2015, and for much of 2016, he has endured attacks from the law enforcement authorities with frivolous accusations levelled at him. He has also been a target of Zuma’s friends, the Gupta family, who wanted him to intervene on their behalf in their troubled relationship with the banks. Two top officials at the National Treasury, with responsibility over critical positions, have since left. For the National Treasury to perform its role as a guardian over economic policy, and to provide leadership on economic change, it requires explicit support from the President. It also needs a significant degree of independence to temper predisposition towards unhinged expenditure by other departments.

In any case, Gordhan looks set to be dispatched to the wilderness now that the Budge Vote is out of the way. The desperate tone of the budget about the macro-economic challenges South Africa faces, and fiscal vulnerabilities that are beginning to emerge, suggest that Gordhan will no longer be seen as indispensable. The likelihood of his removal is becoming more real as Zuma’s allies in the ANC Youth League and the ANC Women’s league are calling for Gordhan’s head. Zuma and those close to him likely view Gordhan as an obstacle to large-scale procurement projects, since the National Treasury must approve many of these. It has in the recent past gone head-to-head with the public electricity utility, Eskom, whose Chairman Ben Ngubane is close to Zuma, over how the latter negotiates coal contracts, with businessmen close to the president entangled in conflicts of interest. Poorly run state owned enterprises such as the South African Airways, whose Chairwoman has also been involved in some of Zuma’s foundations, see National Treasury as a life line with deep pockets, and consider Gordhan as the one who is closing the tap for resources they could use to dispense patronage.

Then there is the widely publicized nuclear procurement programme likely to be a treasure trove for politically connected cronies, which experts estimate could cost upwards of R1 trillion, and which will require sign off by the National Treasury before it can go ahead. Given his battered reputation, his lack of appreciation of the importance of institutions, and poor judgement of the economic implications of political choices, Zuma’s last card will not be in the direction of preserving political and economic stability, but of ensuring his personal survival – or self-destruction – at all costs.

As a country, there are many important challenges that we could be addressing – working across party political or ideological lines – including tackling our urgent economic challenges, the floundering education sector, the weak public health infrastructure, and rise in corruption -but we are unable to grapple with these challenges effectively in the face of generally weak political leadership. There is a trust deficit in society, the ethical foundations in governance are eroded, and the political system is fractious, with both the governing party and the opposition on a permanent war-path. As such, our major socio-economic problems will remain frozen while we battle with corruption and an unaccountable political elite. Overall, the year 2017 promises to be a tumultuous year on the political front, and certainly a dark one for the economy.



An Unsettled South Africa in a Turbulent World: A Tour d’Horizon

An Unsettled South Africa in a Turbulent World: A Tour d’Horizon

January 17-20 marks the annual World Economic Forum gathering of the (largely western) globalised elite. Davos man faces a turbulent world in 2017. A selective listing of issues encompasses globally significant countries/regions in transition, notably Donald Trump’s impending US Presidency, Brexit, the European Union, Russia, China, Japan, the Middle East; and ongoing global driving forces, especially the “fourth industrial revolution”, cross-border production chains, the largely western backlash to globalization, and cyber warfare.

These times would test any government and country, but South Africa faces its own domestic challenges that in the best case will inhibit its responsiveness, and in the worst case exacerbate the domestic political impact of these global currents.

A backlash against economic globalization is the thread running through what some commentators are calling the crisis of the industrialized West. It manifests in rejection of economic, cultural, and political openness, particularly in the trade, immigration, and democracy terrains. It partly explains the rise of Donald Trump and his anti-trade openness, anti-immigrant, ostensibly anti-elite, agenda. It also explains part of the Brexit phenomenon, notably its anti-immigration component, although, unlike Mr Trump, the so-called “Brexiteers” are free traders at heart. And it explains the fault lines in the forthcoming, and highly consequential, French and German elections.

These trends coalesce into a progressive weakening of Western consensus on approaches to managing the global economy, as “the rest” rise to economic prominence yet do not yet possess the capacities to assume global leadership. Consequently, there is an uneasy interregnum in the management of global affairs, dubbed the “G-zero” world by the Eurasia group.

On the geopolitical stage there seem to be two clear winners from these developments: Russia, and China. Neither are friends of western free-wheeling democracy so, to the extent they benefit, other leaders with less liberal mindsets, such as in Eastern Europe, will be encouraged. To the extent that authoritarian tendencies are present in South Africa, they too will be encouraged, and perhaps reinforced via our membership of the BRICS grouping.

Russia stands to gain, geopolitically, from Mr Trump’s Presidency, although whether and to what extent this will materialise, given institutional and Congressional resistance to Mr Putin in the US, remains to be seen.

China looks likely to be the target of a concerted US trade offensive. At first sight this would harm China’s highly export-dependent economy, exacerbating domestic political tensions. However, President Xi Xinping has one eye firmly fixed on the Chinese People’s Congress scheduled for the final quarter of this year, at which he is keen to cement his hold on power and, perhaps, launch a new wave of economic reforms necessary to address mounting domestic economic challenges by rebalancing the Chinese economy towards domestic consumption. Compromise with the US could be interpreted as weakness, and will consequently be relatively low down his radar screen.

As many globally minded leaders recoil from Mr Trump’s inward-looking trade and investment policies, so new global leadership will be sought, and China has already signaled its willingness to fill the potential void. Depending on how China comports itself in its East Asian region, this dynamic, coupled with Mr Trump’s general scepticism of the US military alliance system, could lead to a rebalancing of political power in that region, provoking Japan into action, with unpredictable consequences. Throw in the volatility associated with North Korea’s erratic leadership and it is clear that tensions in the East Asian region – the crucible of the twenty first century – will sharply ratchet up this year.

These dynamics highlight what is at stake at the global level: the future of the Post World War Two Liberal International Economic Order. Given domestic resistance Mr Trump is unlikely to tear up the multilateral institutional arrangements crafted over more than seventy years by successive US Presidents. However, from trade, through climate change, to Western security, he is likely to at least disrupt them, if not overturn them.

The more his destructive instincts are brought to fruition, the more erstwhile critics will come to appreciate just how crucial these institutional arrangements have been in maintaining international peace and security amongst the great powers (and therefore for the planet), and just how they have anchored post World War Two economic growth and development.

Which is not to deny the many problems they contain, such as locking in distorted agricultural trade regimes. However, to the extent that “the rest” depend on Western markets and investment, the gathering western backlash against globalization will compromise the developing world’s economic prospects and compel them to diversify their trade interests by setting up, or strengthening,  parallel governance structures, particularly at the regional level. In this light, while the prospects for Africa’s grand trade project, the Continental Free Trade Agreement, are not great, they may receive a fillip.

Overall, the world seems set to take a ride down the roller coaster of deal making based on raw power politics, away from the more genteel power politics, buttressed by international rules and institutions, which we are used to. In this, mercantilist, world we are heading into, the wielders of cyber warfare will thrive, and their actions will exacerbate already inflamed nationalist passions and illiberal reactions.

Where can South Africans look to for hope in this gathering gloom? Notwithstanding the backlash against globalization, the most positive integrative forces, especially technological change, are likely to retain much of their potency. However one, cross-border production networks, is already under substantial attack in the US while the other, the information technologies that underpin the “Fourth Industrial Revolution”, are principally to blame for the populist phenomenon that gave rise to Mr Trump and show no sign of abating.

The first is more relevant to us. In case South Africans have not been watching, President-elect Trump is engaged in a twitter war with the international motor industry, threatening “border tax adjustments” if they relocate production to Mexico (today, tomorrow it could be SA). This pressure is likely to intensify, with the US Treasury expected to designate China, Japan, and perhaps Germany, as “currency manipulators”, justifying additional border tax (import tariff) adjustments in the form of countervailing duties.

Retaliation is certain, but the extent and contours are unpredictable. Global uncertainty, characterised by outbreaks of trade wars, increasing national security contestation, hostility towards “them”, and an increasingly fraying institutional fabric, seems set to increase.

The already fragile global economy is likely to suffer in this environment, notwithstanding frothy financial markets punting on Reaganesque supply-side economic policies emanating from Washington. Sooner or later the political, and economic, limitations, as well as contradictions, inherent in the emerging Republican economic policy package will become apparent. If there is one thing that markets do not like, it is uncertainty. Unpredictability corrodes investment confidence, particularly of the real economy type.

Therefore, after the initial euphoria of Mr Trump’s first one hundred days, it is likely that a reality check will set in and, if accompanied by highly conflictual trade and investment relations, investment plans will be recalibrated, with a view to shortening supply chains so as to minimise the risk of policy or security induced disruptions. The search for premium business environments that stand better chances of maintaining good relations with the US will intensify.

As the Trump administration warms to its task of blocking Chinese economic expansion, and China retaliates, countries will increasingly be placed under pressure to choose sides. It is very difficult to see the Trump Administration, with all the prejudicial baggage he brings, winning this contest for hearts and minds in South Africa.

When the ANC dominated our politics like a colossus these geopolitical tensions, while present, were quite manageable. Now, as political power within the governing alliance, but also in the country, is more contested, the foreign policy terrain has become more fluid and may also become more politicised. The Tshwane Mayor’s recent Taiwan foray consequently assumes more significance.

The US, and the West, have generally been convenient, if historically-deserved, targets for various tripartite alliance factions even as the economy depends on Western markets for our value added manufactured goods exports, and Western investment to drive economic growth more broadly. “White monopoly capital” in South Africa, with its obvious western linkages, is a natural extension of this safety valve, and so more anger will be directed towards it, particularly the Davos elite, by factions of the tripartite alliance as the ANC’s succession battle intensifies. Depending on who wins, there could be serious legislative consequences for the private sector, both domestic and foreign, operating in South Africa.

Therefore, the “investment strike” by South African business is likely to continue until the succession dust settles, and will compound the negative international environment to deliver structurally slower, and perhaps negative, growth this year. With ratings agencies poised to deliver downgrades, the time to fasten seatbelts – again – is upon us.

Article originally published on BusinessDay Live, 13 January 2017. Please note that a premium content paywall might be in effect.

Photo credit: World Economic Forum via Visual hunt / CC BY-NC-SA

Regulations for foreign investor act weighted towards dispute settlement

Regulations for foreign investor act weighted towards dispute settlement

On December 15 2015, President Jacob Zuma assented to the controversial Protection of Investment Act when much of the South African public was on a festive holiday break. This piece of legislation is meant to replace the bilateral investment treaties that SA terminated in 2012, resulting in consternation and outcry from the international investment community based in the country.

Zuma’s approval of the act brought the policy debate about the termination of these treaties one step closer.

On December 30 2016, Trade and Industry Minister Rob Davies published the long-awaited investment regulations that will bring the act into force.

Regulations lie within the purview of the Department of Trade and Industry and are not subject to a parliamentary process, so Davies is empowered to exercise his discretion on what to include in or exclude from the regulations. These regulations have been published for public comment, open until the end of January.

All investors should seek to understand what the regulations entail, and to what extent they ease or worsen investment regulation.

On the face of it, the new investment regulations seem to be of a general nature, aimed at explaining or putting into operation the entire law, as is the norm.

However, a closer look reveals they are actually aimed at putting into operation only a section of the Protection of Investment Act, section 13, which deals with dispute settlement. It is unusual to find regulations that are only focused on a particular aspect of legislation.

The reason for this focus lies in the political economy surrounding SA’s review of its international investment regulatory framework. At the core of this review, which ultimately resulted in the termination of bilateral investment treaties, was the dispute-settlement mechanism, which afforded foreign investors recourse to investor state arbitration.

Dispute-Settlement Access

This meant a foreign investor could sue the South African government outside the country at an ad hoc forum made up of independent arbitrators. The government’s decision to review its policy was informed by the 2010 Foresti case in which the government was sued by a group of Italian investors who were challenging the country’s black economic empowerment legislation.

The termination of bilateral investment treaties removed the right of foreign investors to access investor state dispute settlement. This led to serious concerns among foreign investors about the protection of their investments if they are left at the mercy of domestic courts.

While SA has a well-functioning and independent judicial system, investors have a genuine concern that since SA is still a relatively new democracy, there is a possibility the courts could be compromised for political expediency, especially in the context of SA’s neighbourhood and history.

While the act already indicates that the department will be the institutional home for the mediation process, the provisions in the recently published regulations reflect a disturbing scenario in which it will have access to the documents presented in a confidential mediation process.

The department’s access to such documents might create a negative perception that it, as a government agency, could be tempted to look at the documents.

Considering that some of the documents presented could include privileged firm-level information, the department might be faced with a conflict of interest or, at the very least, a perception thereof.

The investment rules provide that all documents presented during the mediation process will be embargoed and never used for any court process, but this is not convincing if the department has custody of the documents.

The regulations state that the evidence and arguments presented at the mediation process cannot be used in a court process that might emanate from the dispute.

While this is standard practice in mediation, the fact the documents will be kept at the department, which is not a court, raises concern about the maintenance of strict confidentiality. Instead of having the department as the custodian of the mediation process, it would have been best to have court-annexed mediation.

Legal Integrity

Court-annexed mediation is quite popular in jurisdictions such as Australia and was incorporated in the South African justice system a couple of years ago. It has proven to be quite successful in family and divorce courts. Besides the integrity of the courts adding weight to the process, court-annexed mediation would have remedied the shortcomings of the dispute-resolution mechanism.

Another disturbing provision in the investment regulations is that the mediator does not necessarily have to be a lawyer. Notwithstanding the fact that mediation is a specialised skill, one would have expected that in the complex field of investment regulation, the mediators would at least be lawyers who specialise in trade and investment.

Mediation is meant to reach a consensual decision, with a mediator playing a facilitative role. A mediator as opposed to an arbitrator or judge cannot impose a solution or judgment on the parties.

It is difficult to imagine that in an investment dispute where there are allegations of expropriation, the parties could reach a decision by consensus. It is therefore disturbing to note that a process best suited to family disputes is being employed for resolution of investment matters.

The regulations also present a flaw in the sense that the mediation is not linked to any other dispute-resolution mechanism. In addition to court-annexed mediation, the department should have linked the mediation process with the most important dispute-resolution mechanism — arbitration.

The government could have created specialised investment courts in which mediation would be the first process, followed by arbitration should the former fail.

Arbitration would help facilitate reaching a final decision in a more expeditious manner. Decisions emanating from arbitration could then be appealed at higher courts, as is the case with labour disputes at the Commission for Conciliation, Mediation and Arbitration.

Can it be argued that the department is far off the mark in dedicating so much time to developing mediation in investment disputes? The answer is yes and no. It is highly probable the department is trying to follow the advice of the World Bank’s investment climate facility, which is led by alternative dispute-resolution enthusiast Roberto Echandi.

The facility has been advocating for the use of mediation in resolving investment disputes at a domestic level. These efforts ignore the reality that the World Bank’s own International Centre for Settlement of Investment Disputes (Icsid) seldom uses mediation. There are dozens of mediators on the World Bank’s Icsid list who have never been used as mediation suffers from benign neglect.

Investment disputes are a high-stakes game and due to the adversarial nature of the parties involved, mediation becomes an extremely unattractive option.

Public Comment Sought

The investment regulations published by the department can, however, provide an inclusive point of departure on how best mediation, together with arbitration, could be utilised to resolve investment disputes at a domestic level.

It is important to commend the progressive spirit of the department and, by extrapolation, the World Bank’s investment climate facility, in striving to adopt alternative dispute resolution in the investment sphere.

Considering that the department has published the investment regulations for public comment, foreign investors and other stakeholders should not miss the opportunity to submit their concerns.

It is hoped the department will be open-minded and creative in this process, for the benefit of investors and SA.

The regulations could be either a bane or a boon for foreign investment in SA, depending on the quality of the comments submitted and the department’s reaction to them.

As things stand, the regulations do not improve the status of foreign investors.

Article originally published on BuisnessDay Live, 11 January 2017