HERALDLIVE / 05 JULY 2019 - 13.09 / NOMAZIMA NKOSI
Risks simply too big in SA’s volatile mining sector for investors to carry 30% empowerment component, says senior economist
Among the biggest deterrents to investing in SA are economic policies and the volatile mining industry where Black Economic Empowerment is imposed on potential investors.
Speaking at a post-election breakfast hosted by the Nelson Mandela Bay Business Chamber, Nedbank senior economist Nicky Weimar said the government needed to rethink its BEE policies and to possibly lower the empowerment ratios to attract investors.
Nedbank senior economist Nicky Weimar says serious steps need to be taken to l
ower the risk of investing in South Africa
“When looking at the mining industry, you’re asking people to invest in one of the most volatile industries in the world.
“Then you say to them ‘I want your money but you must carry this 30% of transformative or BEE policy’.
“It just doesn’t make sense to them because when they get home and do the sums, they don’t see the point of investing because the risk is too big and the industry is so volatile,” Weimar said.
She said the government needed to revisit its BEE policies and decide if it was worth having 10 companies carry the 30%-40% BEE ratio, or instead have 100,000 companies with an empowerment ratio of about 5% or 10%.
Over the past few years, political parties have been debating whether or not broad-based black economic empowerment had achieved its required objectives, with some suggesting changes were needed.
Weimar said SA’s ailing economic infrastructure did not bode well for investment or the country’s ability to increase its revenue.
“We’ve got unreliable and expensive economic infrastructure, from power [Eskom] to rail, port and telecommunications. All of this adds to the cost of production.”
Statistics SA’s latest Labour Force Survey revealed that about 14,000 more people had lost their jobs in Nelson Mandela Bay in the second quarter of 2019 compared to the same period in 2018, pushing its unemployment rate to 38.2%.
Nationally, unemployment increased from 27.6% in the first quarter of 2019 to 29% in the second quarter.
Weimar attributed this to a dysfunctional labour market.
“If you have an unemployment rate of 29% (nationally) you have a dysfunctional labour market where wage growth outweighs productivity growth,” she said.
“According to the South African Reserve Bank, productivity growth has declined and wage [growth] has increased.
“We have high levels of unemployment and inequality and that breeds social instability, which leads to crime.
“The crime levels have undoubtedly something to do with high levels of poverty and inequality,” she said.
With the country’s economic growth at the low level of 0.6%, Weimar asked if SA had a plan to dig itself out of the “fiscal pit we’re in”.
“Because not everyone is pulling in the same direction, we’re going to accept that unfortunately there will be casualties and one of those is fixed investment.
“This year, fixed investment will probably shrink further and that will have implications on job creation.
“But next year we do see it slightly recovering slowly because we’re not doing enough, quickly enough, to bring the cost of production down so we can improve our expected revenue.
“We’re also not dealing convincingly enough with the expected risk attached with investing in SA,” she said.
But it was not all gloom and doom, Weimar said.
“For now, we see very slow recovery and that means we’ll probably see more jobs being lost but next year the picture will start to stabilise.
“It won’t stabilise for government . . . because the state is simply too big, but the private sector will probably employ a little bit next year, but it’s not fantastic,” Weimar said.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER