EU Again Hits Out at Davies Over Scrapped Investment Protection

South Africa’s sudden and ill-mannered decision to scrap a series of bilateral investment treaties with a number of EU member states has come under fresh fire from the EU’s Ambassador in Pretoria Roeland van de Geer. The move was slammed during a recent visit to Pretoria by EU Trade Commissioner Karel de Gught, with a warning that it might have an impact on foreign investment in ZA. Within months, German car giant BMW announced that it was not going to open a new production line at its South African plant, as had earlier been hoped for. The main reason given was the month-long strike in the automotive sector, which caused production to halt and exports to plummet. However, some trade watchers believe that South Africa’s rudeness and arrogance over the investment agreements also played a part in scaring off the Germans. At a media breakfast in Johannesburg today, the Ambassador and his trade sidekick explained why they were so upset with Davies’ announcement that the Bilateral Investment Treaties (BITs) would be scrapped. Said the Ambassador: “We feel there is a partnership. If one of the parties says we will stop with this, you expect a consultative procedure. What has happened literally is that ambassadors were called in the morning, and received in the afternoon a note saying: “it’s over”. It was the way in which it was done which we all agreed in the diplomatic field – you don’t do it in that way. It was an unnecessarily heavy-handed approach. I spoke to investors in Europe and they (spoke their concerns about) Marikana, and then while this was happening, the BITs were thrown away as well. It was the approach and the timing. To be competitive as an investment destination you have to compete with everybody out there, and tick all the boxes. To voluntarily weaken your position- why do you do it? We felt obliged say to the government: don’t do it this way….this is not the way you should proceed.” The Ambassador said he could not comment on detail on the BMW decision to walk away from a new investment in South Africa. “I have to say from my position I would have hoped they would have bid,” he said. “They feel under the current circumstances there is a risk they may not perform. They feel: if they have to present the bid in an international competition, they might not be able to deliver. There is an element of (what is happening in) SA, but is there something internal to BMW? It is not the sign that we need. I would have hoped they would bid for that. I know the Mercedes factory in SA is in the top of the Mercedes factories in the world – so it can be done. Foreign investors look at the global map and choose the most cost-efficient place. Investors hate uncertainty. It is a very delicate, subtle, sensitive, issue to deal with. The EU accounts for 70% of past FDI into ZA.”
On other issues, the Ambassador expressed his optimism that a new Economic Partnership Accord (EPA) would be negotiated between the EU and Southern Africa before the end of this year. This would give ZA extra access for fresh and tinned fruit to Europe, but ZA is under pressure to also make concessions to European exporters. Meanwhile, discussions continue on a disease called citrus black spot, which has caused the EU to monitor imports of citrus fruit from ZA, has already led to some restrictions, and could lead to a ban. The EU is expected to scale down its development funding to ZA, but details are not clear as the new 7-year European spending plan has yet to be decided by the EU authorities, and notably the European Parliament.
The Ambassador said that ZA has begun investigations into chicken imports from Europe, following the recent tariff increases on imports from many other countries,. The EU was not affected because of its existing trade deal with ZA, but Davies wants the right to trigger so-called safeguard measures, if there is a surge of European imports. The Ambassador warned that inefficient ZA chicken producers must not be cushioned. He said: “Protectionist measures can’t be seen as a solution to the competitiveness problems of the South Africa industry – which include the price of electricity, labour productivity, and the level of the rand.” He said it would be tempting to bring in new measures to support the ZA poultry producers “to give a breathing space to the industry, but that will not solve the long term problems which need to be dealt with.”

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2 responses to “EU Again Hits Out at Davies Over Scrapped Investment Protection

  • Mario Pretorius

    Sir

    When the ZA Government announced their intention to disengage from ALL bilateral treaties, it took nanoseconds to figure out why: looming and inevitable stripping of ownership of South African and international ownership of assets. Michael Duerr, the shareholder activist of the SA Reserve Bank, lodged a case at the German Ministry for the infringement of his shareholders rights when the SARB was castrated by its Amendment Act – and in response Davies announced the non-renewal of the SA- Germany treaty, QED. So this portends bad news – as now becomes apparent in the Green Paper on Land Restitution where ”property” is defined much wider than land. Foreigners’ assets are treated like SA citizens’ under such treaties. This now becomes a footnote. Are we in the Zim shadow? The latest 40% BEE requirements is ratcheting up to the inevitable 51% “‘local black African” unfunded ownership. So beware the Poms who hold and control many mineral operations, the Germans in the car industry, the various other investors who heeded the Pied Piper’s call to bring their money to sunny SA. The reason they probably can’t see the writing on the wall is because they have their backs to it. When will we draw that line in the sand?

  • Peter Draper

    Hi John,

    Interesting piece as always. However, I think it is a bit too simplistic, for reasons spelled out in one of my recent blog posts, which can be accessed here:

    http://www.tutwaconsulting.com/south-africas-termination-of-bilateral-investment-treaties/

    At some point analysts and commentators will have to delve into the actual content of these treaties if they are to give really informed, as opposed to emotional, opinions on them such as Mario Pretorius’s comment above.

    Best regards,
    Peter

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