JULY 28, 2011, 5:40 A.M. ET
-- Disconnect between government and business threatens investment - CEO, Frontier Advisory
-- Templeton's Mark Mobius says debate over nationalizing mines is worrisome to foreign investors
-- Foreign investment inflows to South Africa in 2010 fell to a quarter of 2009 levels -- U.N. study
By Jenny Gross
Of DOW JONES NEWSWIRES
JOHANNESBURG (Dow Jones)--Nationalization talk and the growing divide between government and business leaders could badly deter needed foreign investment into South Africa.
"There's an extreme disconnect between government and business," said Martyn Davies, chief executive of Johannesburg-based Frontier Advisory. "The [ruling African National Congress] will say we're open for business, and at the same time you have the second government (unions), which is making the country a far less attractive investment destination relative to our emerging-market peer economies even in Africa."
To make matters worse, recent fiery rhetoric on nationalizing South Africa's mines only serves to shatter the confidence of foreign investors, Davies said.
The influential youth wing of the ANC said it wants to take 60% of private mining assets without compensation to create jobs.
Declining investment has already caused concern. The U.N. Conference on Trade and Development said in a report this week that South African foreign direct investment slumped over 70% to $1.6 billion, a level one-sixth of the country's peak in 2008.
"We need to do better and work harder to create the right climate," Finance Minister Pravin Gordhan said in a March forum on investment, according to local media.
The statistics raise questions about South Africa's status as the gateway to the continent, Frontier's Davies said.
"South Africa has tremendous opportunity and great resources, but they're not getting the level of foreign investment," Mark Mobius, the executive chairman of Templeton Asset Management, told Dow Jones Newswires in a recent interview.
"You have workers who cannot be fired and they're not working," said Mobius, who oversees about $50 billion in emerging-market funds. "Any investor who goes in there and looks at South Africa has to take that into account."
The U.N. report said half of the top 20 destinations for foreign investment were developing and transition economies, up from seven in 2009. In Africa, though, foreign investment has been falling since 2009. Unrest earlier this year in North Africa deterred investors from injecting money there.
A World Bank report published last week said South Africa's negligible foreign investment is a paradox for a country with long-term returns as high as China. In addition, South Africa is the highest-ranking sub-Saharan African country in global competitiveness, the World Bank said.
The government, meanwhile, worries that a drop in incoming capital investment could retard the country's economic recovery, already suffering from the rand's strength on foreign-exchange markets.
The government has to encourage foreign investment and now foreigners are afraid to enter the market because of talk of nationalizing mines, Mobius said.
-By Jenny Gross, Dow Jones Newswires; +27 11 784-8347; jenny.gross@dowjones.com
