South Africa has recently experienced a rather turbulent week which saw the fall of the rand cause, among others, panic among investors, the South African corporate market and citizens alike.
This came amid statistics released by Statistics SA, which indicated that our gross domestic product (GDP) had shrunk 1.3 percent in the second quarter, raising concerns that the country is on the brink of a recession. This is not comforting, coming against the news that one of our Brics partners, Brazil, has officially entered a recessionary period.
However, in the same week, we also received news of a significant reduction in the cost of fuel, while our country also went into the third week of no load shedding. The start-up of Medupi’s unit 6 means that this situation may become the norm rather than the exception. This will impact positively on investors and the domestic market alike.
Rays of light
So, while it may all seem very dire and suggests a very bleak economic outlook for South Africa, perhaps there are some rays of light on the horizon.
A particularly good story is one of sustained foreign direct investment (FDI) flowing into the country. Inward investment is the most reliable predictor of future economic growth and South Africa’s gross domestic fixed investment (GDFI) to gross domestic product (GDP) currently stands at approximately 20.
This is benchmarked against the international norm where the fastest growing developing countries have GDFI to GDP ratios of above 30 percent. The target in the National Development Plan for FDI inwards is also set against this international benchmark of 30 percent.
The amount of inward FDI into the country also attests to the confidence of investors into our country, since domestic and foreign investors are first and foremost returns driven. A range of studies also indicate a positive correlation between investment and the expectation of strong economic growth in a country. This is notwithstanding domestic conditions and some challenges.
It is also significant to recognise that despite global FDI falling by 16 percent in 2014, South Africa was able to attract more than R140 billion in the 2013/14 financial year. This is almost double the amount of FDI in 2012. In addition, and contrary to international trends, GDFI into South Africa has been growing steadily since the global financial crisis.
Multinationals continue to find South Africa an attractive investment destination. While we have recently seen multinationals like Starbucks and Facebook choosing to explore the African market using South Africa as a base, we may not realise how many multinationals from the most developed economies in the world currently have operations in South Africa: 700 from the US; 600 from the UK; 600 from Germany; 280 from Japan; 185 from France and 120 from India.
Just last week VW committed an addition R4.5bn to its investment into the South African market, which will finance its production for domestic and export purposes.
This certainly suggests optimism and confidence from the international community about the security of the South African market.
Friendlier climate
South Africa has also introduced a range of instruments to ensure a friendlier investment climate for multinationals. For instance, the six industrial development zones (IDZs) created between 2002 to 2014, have attracted a total of 59 investors on site with an investment value of more than R10.7bn. The introduction of special economic zones (SEZs), which are managed by the Department of Trade and Industry, has also created significant potential for investment:
- In Atlantis Gestamp Renewable Industries launched a R300 million factory in November 2014.
- In the Platinum Valley a lot of interest has been shown by several potential investors including: Anglo American Platinum and Ballard Power Systems, which are looking at the establishment of a fuel cell product development plant, while Paus, from Germany, is considering investment in a plant manufacturing mining equipment.
- In Musina, a memorandum of agreement has been signed between the Limpopo government and Hong Kong Mining Exchange Company.
- In Upington, two companies have indicated interest in maintenance, repair and overhaul of air transport equipment as well as the manufacturing of photovoltaic solar panels.
- The Dube TradePort, which was launched in 2014, has attracted more than R900m in investment.
- In Gauteng, the China-South Africa Science Park to be located at Nasrec SEZ, to become a hub of innovation and technology.
- In Maluti A Phofung SEZ, the proposed investment pipeline includes: the construction of a rail-based container terminal by Transnet at a cost of R1.8bn, the pre-assembly of sub components through utilising the cross-dock facility by Toyota South Africa, the manufacturing of anti-retroviral tablets.
Another positive trend that has been observed is that the continent remains an attractive investment destination for foreign investors. Multinationals continue to see South Africa’s infrastructure, financial regulatory environment, governance standards as an enabling environment for their African expansion plans. What all of this suggests is that South Africa remains an attractive investment destination and is certainly open for business.
* Kingsley Makhubela is the chief executive of Brand South Africa. Follow him on Twitter: @klmmakhubela.
** The views expressed here do not necessarily represent those of Independent Media.
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