One of the key factors of driving any country’s economy is investment. Without it, an economy can become stagnant, which is why the investment climate in a country needs to be both sound and inviting.
In a recent report issued by Google and startup investor and incubator Fifth Era, titled ‘The Impact of Internet Regulation on Investment in South Africa’, one of the biggest stumbling blocks when it comes to investment around the world is each country’s legal ambiguity when it comes to regulation.
“Globally, investors view the legal environment as having the most negative impact on their investing activities, with 89% of the investors surveyed saying it had a modest or strongly negative impact,” the report states.
The other single biggest factor that adds to investor fears is the regulation of the internet. South Africa recently had a a brush with internet regulation, as some mobile operators called for some Over-The-Top (OTT) services like Skype and WhatsApp to be regulated.
Regulations regarding copyright and Intellectual Property; privacy and security; and mobile infrastructure in particular are the major sticking points. But why?
Well, according to Matthew Le Merle from Fifth Era, internet regulations can destroy a business.
Le Merle explained that in this case, South Africa should actually be lazy when it comes to internet regulation.
“Don’t move fast, and let other countries make the mistakes – and then pick the best practices from that. South Africa needs to be more laissez-faire [leaving things to take their own course, without interfering], making investors and entrepreneurs want to be in South Africa,” he said during a media briefing in Johannesburg.
In the case where the Parliamentary committee in South Africa discussed the regulation of OTT services (as an example), Le Merle had some words of advice when it comes to regulation and policy.
“If you are a regulator, don’t put in place a policy until it’s been tested by a tech entrepreneur. When new regulations come into effect, large companies can cope better and have more resources. But it’s often the tech entrepreneurs who suffer.”
And that is also something echoed by the Fifth Era report, as almost all respondents said they wouldn’t invest in a country due to regulation and policy changes.
“In some cases more than 80% of investors say they would reduce their investing activity, as such regulations would be highly likely to reduce their interest in investing their capital in Internet businesses in their own countries,” the report noted.
Including the above findings, South African investors in particular are also concerned about taxation. Of the 31 entities surveyed for South Africa, more than 80% said that they would think twice before investing in an internet business – if those businesses who operate overseas would be subject to double taxation.
But it is not all doom and gloom, as there are some factors that will increase investment in an internet business too.
If government took a tougher stance on piracy and adopted an anti-piracy law similar to the US copyright regime, 87% said that it would increase their interest to invest in an internet business.
“South African and overseas investors agree that there are many ways in which government can support the local investment environment which would make them willing to bring additional capital and invest more in local Internet businesses,” the report said.
From the report it is rather clear that investors, who often have millions of dollars at their disposal, are acutely impacted by regulations and fluctuations in policy, something that could very well swing investment decisions away from South Africa’s favour.
The smallest of ripples in the system potentially have the power to drive global innovation, GDP growth and new job formation.[Image – CC BY/2.0 anna carol]