AMERICAN CHAMBER OF COMMERCE IN SOUTH AFRICA

RE : Submission to the Portfolio Committee on Trade and Industry

Parliament, Cape Town, September 13 1999

Good morning ladies and gentleman. My name is Simon Steward. I am a Director of the American Chamber of Commerce and a past Regional MD, and now consultant, to a major US International Bank in South Africa. I am a resident of the Western Cape. I am representing the Chamber today as our President, Dr. James Myers, has chosen to recuse himself due to the press implications that he is some manner directly associated with one of the bidders in the Western Cape Metropole Casino License bid. On behalf of the American Chamber of Commerce in South Africa, we appreciate this opportunity to address you.

The American Chamber of Commerce in South Africa (AmCham) was formed in 1977 as a non-profit association of US companies with investments in South Africa and of South African companies with vested US interests. As such, it represents the interests of over 200 members who employ more than 125,000 people in South Africa. Our investment base is over ZAR 14 billion since 1994 with five of the top 15 foreign investors in South Africa being American Corporations.

Of this membership, 70% are local subsidiaries of US companies; 15% are SA companies with strong US ties (sole agents, distributors, or with US equity participation or management control); and 15% are purely SA companies. Collectively, these members spend over R500 million annually on social responsibility issues directly related to training and education.

AmCham's members span the broad cross-section of the South African economy with interests in banking and insurance, retailing, advertising and marketing, liquid fuels and chemicals, information technology, tourism, training, automotive manufacturing and telecommunications.

In addressing the Honorable members of this Portfolio Committee today, I, on behalf of the American Chamber, would like to emphasise the fact that our objective behind this submission is to raise generic issues which could seriously affect inward investment decisions as a result of the Gambling Matters Second Amendment Bill being passed and any reference to any of the parties involved does not indicate an attempt to influence the ultimate decision as to which group wins the tender.

AmCham is of the opinion that the implications of the Gambling Matters Second Amendment Bill extend beyond the gaming industry. As the representative body of US investors in South Africa, we are therefore grateful for this opportunity to voice our concerns about this issue and are keen to continue to participate in this process in the interest of protecting South Africa's image as an investment destination.

AmCham, it's members and potential US investors are deeply concerned about the implications and implied messages associated with the Gambling Matters Second Amendment Bill. In fact, the direct foreign investors community as a whole is watching this issue closely and regards it as a test-case of the transparency and investor-friendliness associated with the recently elected government.

In the eyes of the direct foreign investor community, and according to a reported statement by the Department of Trade and Industry's director of gambling, lotteries and liquor legislation, the Amendment is fast-tracked "to prevent massive job and financial losses for the North West Development Corporation" (Business Report 2 September 1999). To foreign investors, this signals Government's willingness to intervene in an established process to protect the interests of a preferred local investor to the detriment of foreign investors and other local investors. As such, the Gambling Matters Second Amendment Bill contradicts the principles of open competition and fairness associated with a government keen to attract foreign direct investment.

In general, the retroactive amendment of legislation poses a similar, serious concern to investors. Investment decisions are based on a risk to profit ratio-analysis within the context of a specific legislative framework. Because retroactive changes to legislation can affect the risk-profit ratio after an investment is made, such legislation poses a serious risk in itself. We state for the record that Government's apparent willingness to retrospectively enact amendments to legislation in this case unfortunately exacerbates perceptions of South Africa as a high-risk investment destination. Although we have been told that this amendment is designed to correct a technical flaw in the original bill and first amendment, it raises questions concerning the timing and classification of changes to any bills as simply "technical corrections". Multinational investors want certainty around their risk to profit calculations. Retrospective legislation of any nature signals to the foreign investor the government may choose to modify other legislation on "technical" parameters. As such, this action may increase foreign investor concern around transparency and fairness and thus will influence this country's ability to attract future foreign direct investment.

The specific implications and purpose of the Gambling Matters Second Amendment Bill deepen our general concern about the implications of retroactive amendments. In addition to changing the provisions relating to State ownership in gambling concerns, the amendment sets out to remove "any legal disability such as provisional judicial management or any form of winding-up as provided for in the Companies Act". As no other relevant concern fits these criteria, the Amendment is clearly, and specifically, aimed at removing any legal impediment on the North West Development Corporation's interest in the Western Cape casino license bidding process. As such, AmCham and other foreign investors cannot avoid regarding the Amendment as an extraordinary and inappropriate intervention in the interest of a specific company.

In the case of the Western Cape casino license bidding process, we have been informed that bidding consortia based their proposals on set legislative criteria and incurred significant expense in the process. Therefore, the proposed amendment not only compromises the transparency of the bidding process, but also is regarded as a gross intervention of the process itself. Simply put, the rules of the race are changed, after the race has been run, to suit one contender. This cannot be considered as within the bounds of transparency and fairness.

AmCham and its members, who are all keen to see South Africa's economic advancement based on sound business principles, find further cause for grave concern in the fact that the Amendment is ostensibly tabled to protect a financially troubled parastatal (Business Report 2 September 1999). The undisguised legislative protection of North West Development Corporation's interest concerns us for three reasons:

· Financial health was a key requirement for all bidding consortia. The removal of this requirement favours only one consortium to the detriment of all other consortia. Such outright favouritism will severely hamper South Africa's future ability to attract high-caliber foreign investors in any bidding process. As such, it jeopardises, among others, the continuing process of privatisation of government interests.

· There are strong indications that the proposed Amendment will not be enough to restore financial health to the North West Development Corporation. A report by the Board of Executors, commissioned by North West's judicial managers, had found that even under the most optimistic projections for Sun International's casino operations in SA, the parastatal would still "yield a net present value loss of R 200million to government".

· The continued financial trouble of a key investor in the proposed casino development puts the casino development, and its envisaged economic benefits, at risk.

The proposed Amendment is not a mere technical correction, but an intervention in an established process. It will have significant effects on perceptions of the Western Cape and South Africa as an investment destination. As such, we urge members of the portfolio committee to recognise the detrimental effects of this legislation.

The American Chamber, representing an already significant investment base in South Africa, has initiated creation of working committees with the key Ministries involved in creating an attractive destination for foreign investment. We welcome the opportunity to participate in creating the appropriate environment to facilitate an increasing rate of investment from the business community we represent from the United States and would look forward to expanded dialogue with your Committee if you deem it appropriate.

On behalf of the American Chamber of Commerce in South Africa, thank you Mr Chairperson and thank you ladies and gentleman for your attention.