South Africa is widely underrated as an investment destination – except by foreign investors themselves.
Michael Lalor, the Ernst & Young (E&Y) Africa business centre leader, said in a presentation in Johannesburg yesterday that the country was consistently ranked the most attractive destination in Africa.
He said it headed E&Y’s 2013 Africa attractiveness survey of 503 business leaders in 38 countries, followed by Nigeria and Morocco.
The country compares well with other emerging markets on E&Y’s country risk analysis.
In terms of doing business, it ranks ahead of Brazil, Russia, India and China (its fellow members in the Brics grouping) as well as Spain, Italy and the United Arab Emirates.
Lalor said the “cold facts” contradicted the perception that the country was losing ground in Africa.
Foreign direct investment (FDI) in South Africa grew about 25 percent between 2007 and 2011. FDI to Nigeria grew only 1 percent, and Angola experienced a contraction.
While some countries experienced spectacular growth in FDI, it was off a much smaller base. Big winners were Ghana, Kenya, Mozambique, Tanzania and Zambia.
Most of the flows elsewhere in Africa had been into the capital-intensive oil and gas sector. “In contrast, and reflecting the more diverse character of the South African economy, FDI is spread across a far greater range of sectors.”
Between 2003 and 2011, 24 percent of FDI went to coal, oil and natural gas; 20 percent to metals, 9 percent each to the automotive, communications and renewable energy sectors; and 30 percent to other sectors.
Lalor noted that investment into the less capital intensive manufacturing and service sectors generally had a higher “job-creating potential”.
He conceded: “Factors such as ongoing labour unrest, rating downgrades and perceived political uncertainty will have an impact [on investors], along with deteriorating conditions in the global economy.”
He said FDI probably dipped last year and could fall further this year. “But, with growth in the global economy expected to pick up in the second half of the year, we expect growth in FDI to resume.”
However, he said: “Shorter-term economic challenges – notably the current account deficit and debt levels – will need to be addressed in the Budget.”
He warned that the execution of the National Development Plan and positioning South Africa in the “context of the broader Africa growth story” would be critical to the success of the economy.
He urged the government to smooth the path of companies doing business in Africa through South Africa by providing for tax relief for headquarter companies in this month’s Budget.