European investor confidence in South Africa has been declining over the past 18 months or so, something most South African business acknowledges. South African business also understands the reasons for this. However, over the past couple of weeks European investor relations with South Africa have really plummeted.

What reflects this was a speech by European Trade Commissioner Karel De Gucht to the annual Africa - EU Business Forum hosted by the Department of International Relations and Cooperation in Pretoria a fortnight ago. From experience one knows that these events - at least from a public point of view - are bonhomie affairs with some discussions and lots of good food and wine, and from which everybody is seen to go away happy and content with the pre-determined results. That this didn't happen last fortnight is quite unusual and significant and we will argue in the next Insight (3 October 2013) represents a major setback to South Africa's commercial and investment relations with its biggest trading partner. De Gucht is a senior Belgian politician, a member of the European Commission, the EU's executive arm, and a man as a tough negotiator especially on trade issues. This was evident in his remarks in Pretoria, which amounted to a tongue-lashing of South African trade policy. His warning to South Africa - "European investors are watching South Africa carefully" - was robust and significantly directed at South Africa's unilateral decision to end bilateral investment treaties with some of the EU's' 28 member-states, an action which he described as “bad policy” which would lead to “uncertainty”.

Bilateral investment treaties are binding international treaties between two states which each country undertakes certain reciprocal obligations in respect of any investments made within its territory by nationals of the other state. These treaties generally oblige each State party to provide "prompt, adequate and effective compensation", usually at market value, if the state expropriated property in its territory of a national from the other state. In other words, it is an additional insurance policy for investors in another state and is obviously an incentive to foreign investment. It is puzzling why South Africa took this action because all its formal explanations have fallen flat. We will suggest in a fuller brief that there is a reason, and it is ideological.
Trade Commissioner Karel De Gucht would have made his remarks also against the background of South Africa's response to the Zimbabwe election, and specifically Ms Lindiwe Zulu’s post-election remarks.  Ms Zulu, is one of President Jacob Zuma's senior advisors on Zimbabwe. While not a senior government spokesperson, she is nonetheless a South African government representative. Though highly critical of the election process and the election itself, she had a change of heart and mind after the election when she said that it was time for the US and Britain to recognise Mugabe and, surprisingly, endorsed Mugabe’s policy of indigenisation, whereby foreign and white-owned businesses in Zimbabwe will be required to give black Zimbabweans a controlling stake in their local units. “It is time that the economic rewards from our countries benefit Africans as well” - Incidentally, her statement came on a day when the Zimbabwe Stock Exchange (ZSE) slumped back into negative territory.

Obviously, the slightest whiff of South Africa adopting something similar to indigenisation - particularly when the South African government has of its own accord removed the assurances given in bilateral treaties - must be worrying to investors, whether local or international.

Another matter that would be on the Trade Commissioner’s mind is just what is going to happen to the National Planning Commission and the National Development Plan.

Notwithstanding the ANC’s support for the Commission and the plan at its December conference, there are elements within the governing alliance who dismiss the Plan as neo-liberal and have set to neutralise the commission by bringing it into the executive branch and abolishing its advisory role. In fact, a respectable international research agency has concluded that the NDP “looks set to die a premature death”.

We don’t claim that the plan is perfect but as regular readers of Insight will know we believe this is an instrument for moving South Africa into the future. In fact, it is a very essential instrument given that our political economy is in much worse state than most of us acknowledge. That is why the NDP and its commission in its present form are so widely and strongly supported, not only by South African business, but also by international companies. They realise that if this political instrument of social and economic change goes down the drain, the consequences for this country and its people will be extremely serious - because then we really would drift. Europeans are right to be concerned because this is not the result - as are so many other weaknesses in South Africa - of a lack of leadership but is the consequence of certain elements within the ANC alliance pursuing a specific agenda.

When he spoke a fortnight ago, Trade Commissioner De Gucht would also have been aware of the amendments before Parliament to the Mineral and Petroleum Resources Development Bill which, if passed in its present form, will effectively end competition within the fossil fuel market by designating Petro SA the custodian of the states allocation for onshore, conventional and unconventional recourses.  Petro SA would have complete control and determination over all the countries’ gas resources, including shale gas extraction.

So should the Europeans be concerned? We would like to debate that in the next Insight.