South African investors believe regulatory policy is inhibiting investment in Internet companies.
This is according to the 2016 Fifth Era Report - The Impact of Internet Regulations on Investment - launched in Johannesburg today.
The survey, commissioned by Google, found 100% of South African Internet investors believe the legal environment had a negative impact on their investing activities.
Fifth Era surveyed 475 investors in 15 countries to assess the degree to which the future legal environment might impact their investments in Internet companies. In Africa, 60 investors were polled in Nigeria and SA, 31 of which came from SA.
Globally, 89% of investors view the legal environment as having the most negative impact on their investing activities, while it was a worry for 81% of Nigerian investors.
Results for SA found 74% of those surveyed said they are not comfortable investing in business models where the regulatory framework is ambiguous. Globally, 75% of Internet investors agreed this was a worry, while Nigeria was in line with SA, with 74% of investors finding regulatory ambiguity a problem. In the US, this was only a worry for 69% of investors.
"These findings highlight the concern of many lawmakers that unintended consequences might result from potential new Internet regulations. Further, the research findings illustrate there is a risk that potential regulations might greatly curtail or cut off capital from the Internet companies that are driving global innovation, GDP growth and new job formation," Fifth Era says.
Almost 60% said they would be uncomfortable investing in Internet or mobile businesses if regulators apply traditional telecom regulations and tariffs to mobile messenger and free online content services such as WhatsApp or Viber. Conversely, 77% would be interested in investing more in Internet businesses if SA adopts policies that reduce regulation in the mobile apps ecosystem.
Liability and tax
In SA, 87% of investors said they would not be comfortable investing in Internet businesses if intermediaries could be held liable for third-party content or actions (for example, Internet service providers or user-uploaded content hosters).
The risk of secondary liability and exposure to large damages was also of concern to 84% of local investors. Conversely, 87% said they would like to increase their investment if SA adopted anti-piracy laws similar to those in the US.
Over 80% of those surveyed would not be comfortable investing in Internet companies if SA applied tax rules that make Internet companies liable for double taxation.
Nine out of 10 investors said they would be less inclined to invest if country user data is retained and disclosed to law enforcement on request, unless international baseline standards are followed. Allowing security agencies to install their own equipment on ISP networks would deter 77% of investors.
Seeking stability
The report's authors note countries that introduce regulatory policy, with respect to the Internet, without considering the potential adverse impact on foreign direct investment (FDI), may experience significant decreases in capital inflows with a resulting loss of innovation, GDP growth and job growth.
Fifth Era says that for developing economies like SA's, where Internet businesses offer huge potential for GDP and job growth, a stable and predictable regulatory environment is critical to encouraging investment.
It says government's plans to drive growth in the digital economy need to ensure policy doesn't unintentionally stifle investment.
There were a number of regulatory adoption areas that would cause investors to invest more in Internet businesses. These included government adopting policies that are supportive of new business models, like the sharing economy, and policies that protect freedom of expression online.
More investment would come if government invests in education and digital skills, and Internet and mobile infrastructure, and if it enables policy that reduces taxes and fees for Internet and mobile end-users and liberalises mobile payments.
Investors would also feel more secure if government enables access to backhaul and spectrum, releases transparent regulatory roadmaps and holds public consultations on all new Internet/mobile-related legislation and regulation.
The survey was taken by investors in 13 countries in Asia, Africa and the Middle East. These were Australia, India, Indonesia, Israel, Japan, Korea, Nigeria, Saudi Arabia, SA, Thailand, Turkey, UAE and Vietnam ? representing a spectrum of more to less developed Internet economies. The UK and US were added to the survey respondents to provide a perspective on overseas investors.
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