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South Africa is reviewing its foreign direct investment (FDI) posture in a move that might see national security considerations influence how authorities view investments by international players in the domestic economy.
“International political concerns over national security have led to the implementation of a government review mechanism for foreign mergers and acquisitions in certain sensitive sectors,” the Companies & Intellectual Property Commission (CIPC) said in its annual performance plan.
“This means that the CIPC and related bodies must consider national security implications when a foreign firm is involved in a transaction, adding layers of regulation to cross-border investments.”
The CIPC and the department of trade, industry & competition (DTIC) could not be drawn to shed light on which industries are sensitive and what national security risks would be assessed when considering transactions.
According to a study by corporate law firm Hogan Lovells, FDI is increasingly viewed through a national security lens, with governments around the world — including key jurisdictions such as the US, EU and Japan — tightening screening regimes.
Driven by technological competition and supply chain vulnerabilities, regulations now cover more than just defence, encompassing critical infrastructure, AI, data and biotechnology.
In the US, foreign investments are regulated under the Foreign Investment & National Security Act of 2007, geared to ensure national security while promoting foreign investment.
DTIC minister Parks Tau has increasingly been putting national security imperatives at the top of South Africa’s trade agenda.
Earlier this year, he proposed amendments to the International Trade Administration Commission of South Africa (Itac) Act to give the commission more teeth, which will include the watchdog investigating imports that may hurt national security interests.
FDI is increasingly viewed through a national security lens, with governments around the world — including key jurisdictions such as the US, EU and Japan — tightening screening regimes
The proposed amendments to the Itac Act of 2002 come at a time of rapid change in the international trade regime, with protectionism and unilateralism in the forefront.
The proposed amendments are anchored on four themes: international trade-related measures, improvements to Itac’s investigative framework, enhancing the commission’s enforcement and administrative enhancements.
They would introduce new provisions enabling the minister to ask Itac to investigate imports that may adversely affect the national security interests of the republic and to investigate discriminatory or unreasonable foreign trade practices that adversely affect South Africa’s trade or economic interests.
The amendments state that Itac will consider, among other things, South Africa’s defence capabilities and interests; the economic and social stability of the country; and the security of infrastructure, including processes, systems, facilities, technologies, networks and assets.
Other jurisdictions around the world have historically taken measures to identify imports that threaten their national security interests, such as the US through its Trade Expansion Act of 1962. The US act identifies materials critical to defence and infrastructure; steel, aluminium, vehicles and automotive parts, semiconductors, and specialised materials such as copper and timber are among items falling under this category.
South African sectors worst hit by imports include the steel, automobile and sugar industries.
Business Leadership South Africa (BLSA), in an unprecedented step, accused the DTIC of driving away investments in an FDI-poor country.
“The DTIC should be the part of government that welcomes manufacturers and helps them succeed. Instead ... Tau’s department is seemingly becoming a source of policy uncertainty that is actively driving investment away,” BLSA CEO Busisiwe Mavuso said in her weekly letter.
Mavuso in particular took aim at the DTIC’s proposed broad-based BEE amendments, saying if implemented, they would strip many companies of B-BBEE status because suppliers are not 100% black-owned, despite years of building these supply chains.
“Government needs a clear plan to save our industrial base. Establish a manufacturer task force and recognise manufacturing as a whole-of-cabinet responsibility spanning energy, logistics, ports and security,” she said.
“Every month without action means more boardroom decisions in Detroit, Tokyo, Stuttgart and Shanghai choosing Egypt, Vietnam and Mexico over South Africa, with more factories closing, jobs lost, and supply chains dismantled.”
Business Times
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