If you value your wealth, then you must rage against the possibility of South Africa striking a “special deal” for Elon Musk’s companies to invest in the country without complying with BEE rules.
The relatively new and highly respected US news platform Semafor reported on Monday that South African government officials are mulling the idea of a workaround for Musk’s companies so they don’t have to comply with the rules that every South African entity is subject to. A proposal on the table is to use an “equity equivalent” option, such as social investment, Semafor said.
“They [Semafor’s sources] said this approach, which could include free internet connection to government schools and police stations, was first touted after President Cyril Ramaphosa met with Musk on the sidelines of the UN General Assembly in September.”
It’s a decent proposal. But it’s a terrible idea. The reason is simple: for South Africa to thrive it must lay down reasonable, clear, transparent and enforceable policies that apply to everyone. If Ramaphosa jets off to Saudi Arabia and invites that country’s serious businesspeople to invest in South Africa, he does so on the understanding that they will analyse the South African market, understand the rules and decide whether there is room for profit here. Investors from Pampierstad, Pretoria, Joburg and Stellenbosch make the same assessment. All investors want to understand the rules of the game — and decide on that basis.
If investors don’t like your rules, they will say so or, more powerfully, withdraw their cash. If they like the environment, they will invest. They want to make money, and they need policy certainty so that they can get on with their investment without worrying that things will change midstream. They want the rules of the game to be clear.
No-one wants to invest in a country where the rules of the game change depending on who you are
This, I presume, is why Ramaphosa signed the Expropriation Act: to make it clear for everyone that South Africa will expropriate land under certain circumstances following the procedure set out in the law. If the rules are clear and the process is just and equitable, those who want to buy a piece of land here will do so knowing the risks and rewards.
This is the holy grail of building an attractive investment climate: openness, transparency, clarity, certainty and enforcement of rules. That is why an investor would put in a bid for a business such as Barloworld, for example.
Is BEE, or whatever version of it we are on, a good policy? Opinions will vary among FM readers. Should South Africa’s history of apartheid dispossession and oppression be addressed with such instruments? We can finish several crates of sauvignon blanc debating this. At the end of the day, we need to know whether it is the law of this land or not. If we don’t like it, we take steps to rectify the situation. But we know it’s the law of the land and it applies to everyone.
Now, imagine if we were to run a country that had special provisions for Musk’s companies and different rules for Johann Rupert’s companies. Why should Rupert, a white South African investor whose companies employ thousands of South Africans, be subject to BEE laws while Musk’s companies are not? Can Rupert ask for an exemption? What about the owners of Walmart? What about Patrice Motsepe — should his TymeBank be exempt from financial sector rules because, well, he is special?
The suspension of a law of general application, such as BEE legislation, would need a seriously persuasive argument behind it. Why should Musk get a waiver while the struggling white-owned maker of bakkie doors in Gqeberha doesn’t get the same treatment?
No-one wants to invest in a country where the rules of the game change depending on who you are. If BEE is terrible, then the government needs to change it or dump it. It cannot be made to apply to Capitec and Anglo American while others such as Musk are given a free pass. The same applies with any other law.
The alternative is uncertainty, unhappiness and an investment climate that will deteriorate rapidly.
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