Johannesburg: South Africa's positioning relative to foreign direct investment flows needs to be more clearly defined. Increased levels of FDI into SA could be a critical driver of longer-term socioeconomic development — in terms of the capital it injects into an economy and because of positive ripple effects, most notably as a result of job creation. The current picture in terms of FDI flows to SA is a mixed one.
The United Nations Conference on Trade and Development’s latest World Investment Report indicates that FDI into SA shrank last year, and its release was accompanied by media reports suggesting that SA is losing ground relative to other African investment destinations, perhaps most notably Nigeria.
The reality, however, is more complex. Although Ernst & Young’s analysis, as part of our Africa Attractiveness Survey, reveals that SA is only seventh on the list of African countries in terms of foreign capital investment over the period 2003-2010 (behind Nigeria, Egypt, Algeria, Angola, Libya and Tunisia, in that order), capital invested into SA has grown by a solid 6% over that period (ahead of both Nigeria and Angola).
More revealingly, when measured by the number of FDI projects, SA is far and away the leading investment destination in Africa. This is largely because investment into SA tends to be into less capital-intensive tertiary-sector projects, while investment into many other African markets is often focused on capital-intensive sectors such as oil, mining and other extractive industries. This also reflects the fact that, despite mining and agriculture remaining important sectors in our economy, the service sector today accounts for more than 65% of South African gross domestic product.
SA therefore remains very competitive from an FDI perspective in the African context. However, SA is also competing in what is a fiercely competitive global market for FDI. More work needs to be done to clearly articulate and market the South African investment proposition to international investors to grow what remains a relatively low share of global FDI flows.
This point about (re)positioning SA is partly a mind-set challenge. It, first, requires a more global perspective from South Africans themselves. The primary focus is still often on transforming the domestic economy, as if it is somehow isolated from a rapidly changing global economy. The reality is that SA is tightly integrated into the global economy, and it is a global competition for the capital and resources needed to drive the kind of economic growth required to have a substantial developmental effect.
Second, it requires South Africans and foreign investors to embrace the fact that SA is an "emerging market" and should be benchmarked against the other Brics countries, as well as the likes of Mexico, Indonesia, Malaysia, Thailand, Turkey, Argentina and Poland.
Finally, and perhaps most importantly, it requires an emphasis (perhaps even overemphasis) on what is positive about SA; to be clearer about our competitive positioning and where we have comparative advantages. South Africans need to pull together (across business, the government and civil society) in selling a compelling investment proposition that attracts the capital, skills and technology from other parts of the world that will considerably accelerate our growth and development agenda.
The broader African continent should form a key part of that proposition. While SA’s own economic growth is likely to be modest for the foreseeable future, our most recent Rapid Growth Market report forecasts that sub-Saharan Africa will be the second fastest-growing region in the world over the next decade.
A diverse group of African economies, including the likes of Nigeria, Ghana, Angola, Ethiopia, Tanzania, Mozambique and Zambia, is among the fastest growing in the world, with growth of more than 7% over a sustained period.
This rapid economic growth, combined with strategic natural resources, population growth, maturing political systems and a rapidly improving environment in which to invest and do business, means that Africa is increasingly on the investment radar screen.
In the context of the shift in the global economy and capital flows towards rapid-growth markets, and with SA increasingly integrated with the rest of Africa, providing a stable platform for expansion and investment into the continent could rival the Brics in the imagination of international investors.
- Lalor is director of Ernst & Young’s Africa Business Centre.
