Head of Tax and Asia Practice
Making the most of the China deal
8 February 2016
At this point in SA's history, it is all about the economy, business confidence and jobs — we desperately need some good news. In attracting foreign direct investment, SA must seek to align the foreign investor's agenda to its own.
The results of the Forum on China-Africa Cooperation have been met with support, scepticism and suspicion, but the deal could be of huge economic significance for SA if we can leverage it correctly and navigate the complexities that accompany doing business with China.
There will be debate on the benefits and the disadvantages, addressing the hard economic issues — job creation, skills transfer, technology transfers and new cash inflows into the country, as well as moral issues such as China's human rights profile.
Sentiment will vary but the bottom line is: will the promised foreign direct investment benefit SA and provide the much-needed kickstart to our ailing economy?
When attempting to attract investment, SA must seek to align the foreign investor's agenda with its own. It is not a given that the agendas of the foreign investor and the target jurisdiction are the same. Foreign direct investment is not a panacea or magic bullet for a country's problems but a catalyst for growth and development to address the problems.
It is up to SA to negotiate the best deal for the country. It is one thing to sign memorandums of understanding and economic cooperation treaties, it is quite another to negotiate, bed down and conclude the envisaged commercial transaction.
Language and cultural differences will come to the fore when dealing with Chinese multinationals and state-owned enterprises. These differences will manifest themselves early in the commercial negotiations.
Dealing with a Chinese project team means that mega deals require your legal adviser to have an experienced team based in SA and China. Chinese state-owned enterprises often stipulate that the preferred South African legal firm must have offices in China.
One major challenge when dealing with Chinese project teams is to identify who you are actually dealing with. Who is the decision maker? While the lead person that you are dealing with in SA is the designated project leader, that person may only serve to report to the main decision maker in China. This is why it's important to have an experienced adviser with a strong presence in China; someone who understands how negotiations should be handled and has access to the decision maker.
The Chinese foreign direct investment legal team will not necessarily liaise with the finance team, so be prepared to have meetings that repeat ground you thought had been covered. These frustrations are common. To avoid them, one has to understand and manage the disconnects caused by cultural and language barriers.
The Chinese investors that I have advised in their South African investments have respected South African laws and regulations and seek to comply, whether it is black economic empowerment or employment law. The Chinese appreciate SA's competitive advantages, including:
- Strength of auditing and reporting standards;
- Protection of minority shareholders' interests;
- Availability of financial resources;
- Soundness of banks;
- Efficiency of legal framework in settling disputes; and
- Judicial independence.
We should make it a point to convince Chinese investors to use SA as the regional base to the rest of Africa. However, there are issues that SA must address to encourage and sustain foreign direct investment:
- Greater co-operation in labour market relations;
- Improving the quality of the education system;
- Addressing the business costs of crime and violence;
- Improving the reliability of police services (the Chinese are particularly sensitive on the personal safety of their personnel); and
- The issue of work permits (if the Chinese cannot travel to SA because of work permit issues, the Forum on China-Africa Cooperation will be an academic exercise).
My wish is that SA holds an economic Codesa to set an agreed clear strategy of how we can progress and improve the opportunities that the forum's conference has provided.
Head of Tax and Asia Practice