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The Democratic Alliance (DA) notes with concern the submission made by the Director General in the Department of Economic Development, Mr Richard Levin, to the Economic Development Portfolio Committee’s hearings on the Walmart-Massmart merger. This submission, which suggests that government should attempt to channel foreign direct investment (FDI) by legislating for capital inflows to occur in a specific way, underscores the problematic approach being taken by the Economic Development Department in attempting to exert centralised control over the country’s economy. 

At its heart, this issue is about the state’s place in our economy – and about finding the best possible way the state can contribute to improving people’s lives. The Economic Development Department clearly sees central control over economic expansion as an appropriate role for the state. This is evident in Minister Patel’s New Growth Path, where the state seeks to dictate which people are allowed to receive salary increases; it is evident in the Department’s decision to appeal the Walmart-Massmart merger; and it is evident in the submission made by Mr Levin, which proposes that the state should identify growth sectors and channel investment towards those sectors. This is therefore about central control by the state; and it is based upon a deep distrust of business and profit seeking in general. 

The reality, however, is that private actors have always been most proficient at identifying opportunities and extracting the maximum profits from those opportunities. That is a good thing. If companies are more profitable, they hire more people, they pay more taxes and invest even more. Investors should be allowed to choose where and how to invest their money, as this approach has always produced the best economic outcomes for all involved. This helps to drive innovation and growth and is a prerequisite for achieving a much higher rate of economic growth and social development. 

Furthermore, forcing private actors to invest in specific ways in order to serve the Zuma administration’s social objectives simply adds additional costs to investing in South Africa and will drive away foreign investors. If we maximise investment instead, the resultant increase in tax revenues and job creation will far outweigh the advantages from centrally controlled investment. 

The DA’s alternative to the centrally controlled channelling of investment is to create positive incentives for investment in strategic areas through the establishment of industrial development zones and export processing zones. Investors can then, after scrutinising the incentives made available to them, freely decide where they believe the most profit is to be had. Positive incentives to invest in specific regions are much more constructive mechanisms than legislating compliance with certain social objectives. These will simply make more onerous and expensive demands of businesses, and are likely to further drive away the foreign investment that we need to grow our economy, stimulate job creation and deliver opportunities for all South Africans.