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What SA needs to attract FDI

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In the past, South Africa attracted significant foreign direct investment (FDI) as global companies saw the country as a gateway to Africa, and a key territory for commodity export. This trend has now come to an end.

This is the view of Francois van der Merwe, head of Offshore Investments at Novare, who says: “FDI into South Africa plunged in 2015. This reflected a similar trend witnessed in Latin America, which can be ascribed to the drop in commodity prices. However, in addition to this, the weak economic environment and power supply issues contributed to the decline in FDI into South Africa. In contrast, developing Asia was the largest beneficiary of FDI in the world.

“Investors are not fond of uncertainty, and the fragility of the global economy, uncertainty around central bank policies and elevated geopolitical risks have all weighed against global FDI. There has also been a marked shift in the type of FDI that takes place as investors moved away from commodity and commodity-related investments towards those that are focused on the consumer.

“In South Africa, the consumer-orientated investment landscape is rather saturated and with economic growth weak and on the decline, it has not been an attractive destination for FDI. The local consumer also faces an uphill battle against high unemployment, rising inflation and elevated debt levels. Political uncertainty and the perception of corruption has further clouded investor sentiment towards South Africa.

“Developing countries that have been successful in attracting continued FDI are those with high economic growth rates, strong demographics and which are benefitting from structural reforms or are in the process of reforms,” says Van der Merwe. “Examples include India and Mexico. A general theme has also been countries with large populations (part of the demographic theme). These large populations provide many opportunities, ranging from growing purchasing power, demand for pharmaceuticals and healthcare to education, for example.”