Indifference+to+FDI,+SA+goes+it+alone,+Thebe+Mabanga,+S+Times

Sunday Times, Business Times, Johannesburg, 22 October 2006
=Growing indifference to FDI as SA goes it alone=


 * Thebe Mabanga**

SOUTH Africa has, over its first decade of democracy, developed a curious and ambivalent attitude towards securing foreign direct investment (FDI).

The country has moved from seeing it as the panacea for all its ills to regarding it with a nonchalance that borders on indifference. This may be in part because it has achieved relative economic success without the huge FDI inflows it had initially tried to attract.

Which is why this week’s findings by the United Nations Commission for Trade and Development (Unctad) that South Africa attracted more FDI than any other country in Africa last year was met with only mild celebration.

The Unctad “World Investment Report” found South Africa attracted $6-billion in 2005, up from $800-million the year before.

Unfortunately, the bulk of the money was from once-off events, such as the Barclays-Absa and the Vodafone-VenFin deals. Another year that SA had a spectacular performance was in 2001, the year of the Anglo/ De Beers unbundling. In years where there are no big deals, FDI levels tend to be muted.

Worldwide FDI flows for 2005 were up 29%, to $916-billion. Africa received its highest levels ever at $31-billion, but this is still only 4% of global FDI.

The continent should take, at best, mild cheer from the performance. China, on its own, managed to attract double that amount of FDI — $70-billion. The continent should also be mindful of the fact that the performance is driven by a commodities boom whose strength and sustainability is suspect.

The view that SA has grown indifferent was tacitly confirmed by Alan Hirsch, head of economic policy unit at the Presidency. He highlights that SA attracts 15% of developing countries portfolio inflows. Portfolio inflows are basically money which quickly flows in and out of stock markets. FDI is used to build factories and create jobs on the ground.

Hirsch asks whether the country should be celebrating its dominant portfolio inflows performance, rather than bemoaning poor FDI performance. But surely the Presidency knows that having Barclays pump R33-billion into the economy is preferable to attracting flows that can be reversed at a push of a button?

South Africa starts at a disadvantage in the international battle to attract FDI. The countries that have over the past decade succeeded in attracting more FDI are those that have oil and gas. Arzabeijan improved the most in 2005 because of foreign investment aimed at developing its energy resources. While SA has significant mineral resources, much of it is already under development and their are relatively few new investment opportunities.

The second category of countries that have succeeded in attracting FDI are those that have improved their competitiveness, such as Singapore.

A country’s competitiveness is measured in terms of things like ease of doing business, labour costs, human resources and infrastructure.

The message to SA is clear: the country needs to improve competitiveness to attract FDI, especially to its service sectors. As services become an increasingly more important part of the global economy, it has become the most important destination for FDI.

Also, the Unctad report points out that factors such as escaping competition and regulatory pressures, and lower production costs, play a dominant role in company decisions about where to invest their money.

One of the most intriguing findings of this year’s report was the increasing role of multinationals from developing countries. In 1990, there were 19 companies from developing countries in the Fortune 500. Today, there are 57 and SA contributes 10 multinationals to the top 100 from developing countries. Thus, a strategy for world domination is now as likely to be plotted from an air-conditioned office in sweltering Mumbai as it is from New York.

One of the authors of the report, Ann Miroux, points out that developing-country multinationals tend to be seen as a threat in many of the countries in which they want to invest. They are regarded as having the advantage of being based in low-wage economies with relatively weak regulatory systems.

Miroux also points out, however, that in some ways they are not that different from the older, traditional multinationals. They are driven by the search for new markets and improved efficiencies and access to new technology.

The rise of these multinationals ensures that developing economies are becoming new and important sources of FDI.

Through rapid growth in the 1990s, developing economies now account for 17% of outflows, which stood at $133-billion in 2005. A defining feature of these investment flows is that developing countries are investing in each other, giving the boldest declaration yet of the widely mooted South-South co-operation.


 * From: http://www.sundaytimes.co.za/articles/article-business.aspx?ID=ST6A213549**

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