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The irregular supply of water and electricity has “wreaked havoc”.
- European companies are delaying investment in South Africa due to lack of electricity and water supply.
- They also point to the costs of complying with Black economic empowerment legislation.
- This illustrates the challenges President Cyril Ramaphosa faces in a push to attract investment.
European companies are holding back investment in South Africa due to power and water supply shortages and the costs of complying with black economic empowerment legislation, representatives of an industry body said.
South Africa has suffered intermittent power outages since 2008 after the state electricity monopoly failed to adequately invest in new generation capacity and the provision of other services such as water deteriorated.
At the same time, laws forcing companies to be partially owned by black South Africans and to purchase goods and services from black companies to help correct apartheid inequalities are too bureaucratic and expensive to enforce, representatives said.
The hurdles illustrate the challenges as President Cyril Ramaphosa backs a push to attract investment to help the economy rebound from what the government forecasts as the biggest contraction in nine decades this year. Ramaphosa is scheduled to hold an investment conference in Johannesburg next week.
The inconsistent supply of water and electricity has “wreaked havoc,” said Shane van der Nest, director of Huhtamaki Oyj’s South African business and a board member of the European Union Chamber of Commerce and Industry in South Africa. Our shareholders say “look at the amount of money we’ve had to spend trying to get alternative energy supplies. So that’s the delay.”
The Finland-based packaging company sued the city of Ekurhuleni, which is located east of Johannesburg, after an electrical substation on which it depended blew up twice and affected production and delayed an investment of 70 million euros ( $ 83 million) in new machinery. van der Nest said.
“Until we see comfort in terms of providing public services, we are relatively cautious,” he said, listing six companies that have delayed investment.
Tyrone Seale, a spokesman for Ramaphosa, referred the inquiries to the Department of Commerce and Industry. Sidwell Medupe, the department’s spokesman, requested email inquiries and has yet to respond. Calls to the Ekurhuleni city communications office were not returned.
The government has said it is working to solve power supply problems and plans to acquire electricity from private companies.
European companies are also struggling to comply with empowerment laws, said Marc van Pelt, managing director of Pepperl + Fuchs GmbH, a German producer of photosensors with facilities in South Africa.
While 1,100 European companies operate in South Africa, of which 600 are German, many are family-owned and have difficulty meeting black ownership requirements, he said. Legislation on procurement and training is too complex and this drives up costs, he said.
South Africa’s empowerment laws are meant to extend the country’s wealth to the largely impoverished black majority, who were excluded from the mainstream economy during apartheid. Both Van Pelt and Van der Nest said they are committed to meeting the empowerment criteria, but complained about the associated costs.
“The economic empowerment of blacks has certainly had its massive costs for business,” Van der Nest said. “I have a dedicated resource that only focuses on administration and functions, collecting paper and measuring, doing all the things we need to do. And really if I were to open a business in South Africa and start as a small or medium business, I would seriously do it. I would think twice. “
Van der Nest is exploring expanding into Botswana rather than South Africa, while Van Pelt has chosen to import some products rather than invest in local production.
