Last month saw South Africa at the bottom of the foreign direct investment (FDI) log for the third consecutive month, as fund managers polled by Bank of America Merrill Lynch continue to point to South Africa as the least-favoured global emerging market.

While electronic financial content provider I-Net Bridge partly attributes this to a negative outlook on commodities, local law firm Routledge Modise commercial head Warren Drue also attributes it to scepticism about Africa, as a continent, which still runs deep.

Addressing industry stake- holders at the yearly Routledge Modise Mining and Regulatory Update Seminar, held at the firm’s offices in Johannesburg, last month, Drue discussed the world’s negative investor sentiment towards Africa as a continent.

“There is an outdated image of Africa as a poverty-stricken and disease- and conflict-ridden basket case. Many don’t know how much Africa has to offer, which is a sad state of affairs if we don’t start portraying ourselves in a better light to the world.”

Focusing on South Africa, Drue mentioned that it continued to attract large amounts of FDI, “as investors look at Africa as the next emerging market” and saw South Africa as a stepping stone to the continent.

Still, FDI was steadily decreasing and, though this was an inter- national trend that aligned with the global economic crisis, Drue identified several key issues in South Africa that contributed to the poor investor sentiment concerning the continent as a whole.

He highlighted labour unrest in the country, which last year culminated in fatal incidents at Marikana. This tension had, almost a year later, unfortunately, not eased, as mining companies approached the yearly wage negotiations, with labour unrest threatening to reach a tipping point again.

“These features are so prominent in news reports all over the world that anyone looking to invest in South Africa is immediately put off,” he said.

Drue further pinpointed a lack of adequate infrastructure as a key contributor to negative investor sentiment, as it had put significant lucrative projects on hold.

He mentioned one specific inter- national mining company, represented in South Africa by Routledge Modise, which was recently looking to acquire an operating coal mine, as well as garner certain mining rights in the country.

The transaction – worth several billion rands – was, how-ever, not completed, as the com- pany in question was unable to secure capacity within South Africa to export product from the mine.

“This saw the company moving on to [a country in] South America where, within two months, they invested about R2-billion,” said Drue, adding that, despite willing- ness from both parties, inadequate export infrastructure made it impossible for the company to conclude the deal.

“Bribery and corruption also remain a key issue, even where policies exist to mitigate them, as these are seldom implemented effectively,” he averred.

As a result, investors did not believe that the playing fields will level when it came to doing business in South Africa. “This is a difficult perception to overcome and it’s something that we, as a nation, have to deal with. I’m not saying that it’s not a problem anywhere else in the world, but it certainly does not make it right in our jurisdiction, and it definitely adds to negative sentiment.”

Further, nationalisation remained a key issue hampering investment, said Drue. This was despite the African National Congress’s outright rejection of the concept at its five-yearly elective conference in Mangaung last year.

“It’s still a concern that resonates in any discussion that Routledge Modise has with foreign offshore companies,” he said, adding that drawn-out bureaucratic processes within the Department of Mineral Resources (DMR) had also warded off foreign investment.

Drue explained that consent from the DMR to transfer a mining licence, for instance, could take up to 18 months, which was why investors headed to other mining economies, such as South America, where it took between 60 and 90 days to transfer a mining licence.

He added that the weakening rand – which reached a “fresh low” of R9.70 to the dollar on the day of the seminar – was further impacting on investor confidence. Subsequently, the rand weakened to R10 to the dollar for the first time in four years on the same day that President Jacob Zuma called a press conference to address the state of the economy.

“We currently have one of the worst-performing currencies in the world, which is not indicative of anything other than a perception that the economy is sick. We have to realise that the rand is a barometer for the way foreign nations perceive us and, currently, this is not a healthy state of affairs.”

Drue highlighted that companies earning in rands but reporting in dollars or pounds would not be happy with their return on invest- ment and mentioned that South Africa needed to try to establish a stable currency to ensure that investors felt comfortable with their investments.

“We need to ensure that they’re going to be remitting those rand profits back at a rate which is stable and corresponds to the rate at which they made their investment,” he said.

Rigid labour laws coupled with local content and ownership requirements were also warding off investment, said Drue, who added that international investors were not familiar with the extent of employee protection in South Africa.

“We have a very protected labour force in South Africa and, while I don’t necessarily agree with the negative sentiment this attracts, it’s something that foreigners have difficulty coming to grips with, and it’s something we need to try to mitigate to attract foreign capital,” he says.

He added that ownership require- ments and broad-based black economic-empowerment (BBBEE) policies were also discouraging capital inflow.

“We all realise that BBBEE is an imperative – that the policy of apartheid was wrong and that there has to be a redress. It is, however, difficult to explain to a foreign investor that, before he is able to move into the economy, he has to give up 26% of the equity in his investment and fund the empowerment component on behalf of black participants. There is also uncertainty in terms of what the law entails and how policy is applied,” Drue concluded.