South Africa Scolded by the European Union

By Nicolette Chinomona    23-Jul-2013 12:18 UTC+02:00

This past week South Africa and its biggest trading partner, the European Union (EU), held their annual summit. South Africa was keen to show that it can play nice, despite biting Europe‘s hand over investment agreements with Belgium, Spain and Luxembourg during the past year. While the Europeans were the po-faced disciplinarians warning South Africa that too much independence from the EU would spell disaster for the economy.

What earned South Africa the “Naughty kitty” talk from the EU were recent cancellations of Bilateral Investment Treaties (BITs)with Belgium, Luxembourg and Spain, two of which were unilaterally swiped off the table a week before 2012’s SA/EU summit- setting an icy, brittle tone for that gathering of friends. South Africa has put its chin up in defiance, determined not to kowtow to anyone, the Trade and Industry minister at the time sending a message to the EU that sounded something like “If you don’t like the way we do business, too bad- so sad, someone else will do business with us.”

Sounds brave, valiant and revolutionary, except South Africa might find it difficult to replace the 80% of its foreign direct investment contributed by the EU. If there is another investor out there willing to flood South Africa with investment, their absence on the economic scene is quite evident. Can the real fat cat, please stand up!

The Europeans, ever the diplomats, put their top economic gun on the case and Karel de Gught, the European Commissioner for trade, came out using terms like “bad policy” and told the South Africans that they were lagging behind other emerging markets. Compared to countries like Malaysia, Turkey and Nigeria (Which is poised to snatch the top space economically from South Africa), the commissioner doesn’t believe that South Africa should be alienating it’s biggest investor and frankly can’t afford to do so.

There has been a steady decline in South Africa’s FDI- 24% in 2012 alone, some of which has been attributed to the recent negative headlines in the world’s media, especially regarding labour disputes which turned bloody at Marikana, and the scraping of agreements. South Africa is not the only emerging market that investors can put their money into and it is competing on a global stage- one cannot help but imagine that the 24% FDI that wasn’t put into the country was put elsewhere. As unmoved as the trade big-wigs might be, that odd $1bn would have been pretty handy considering economic conditions in South Africa at the moment.

Mr. Karel de Gught advised that the South Africans should rather have come back to the table with the treaties and renegotiated the terms they were unhappy with, than just walk away. Whether or not the South Africans will heed his stern warnings is yet to be seen, though the indications are that all 13 treaties with the EU will be scraped as they come up for renewal.

Many analysts agree that South Africa should be extremely wary of creating a trade persona that is nonchalant in regards to trade agreements and relations. The EU trade commissioner pointed out that there is a lot of uncertainty regarding South Africa as an investment destination. One thing investors loath is uncertainty and the numbers don’t lie, investors are diverting funds elsewhere because of it. Now the onus is on the South Africans to re-evaluate their “take-it or leave-it” stance and decide whether to go rogue or come back to the table with the EU.

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