In the upcoming State of the Nation Address (SONA) President Cyril Ramaphosa is sure to indicate the extent to which promises of investment in the South Africa economy have been secured.
Last year, in his first SONA, Ramaphosa promised “a major push this year to encourage significant investment in the economy”.
Central to the success of this push is securing investment from firms and individuals outside of the country.
These investments constitute Foreign Direct Investment (FDI) in the local economy. Substantial FDI would, just as local investment does, encourage job creation and economic growth.
In his first year in office Ramaphosa initiated the South African Investment Conference. This conference, held in October last year, secured promises of R290-billion in local investment.
Included in the R290-billion were undertakings of both local and foreign investors. In recent years FDI has become increasingly difficult secure.
Last week five western embassies warned Ramaphosa that South Africa’s success in securing FDI depended largely on the extent to which issues like corruption were dealt with.
The five (the USA, UK, Germany, Switzerland and the Netherlands) are among the largest foreign investors in the economy.
These five countries, collectively, invest more than ten times what SA’s BRICS partners commit to the S.A. economy.
While securing FDI may be challenging, securing investment from South Africans has also got more difficult.
In recent years FDI has been overshadowed by the investment South Africans make in other countries.
According to UNCTAD, since 2014 FDI investment flowing out of South Africa have been more what has entered South Africa.
South Africa’s nett FDI (i.e. FDI inflows less outflows) have been on a sharp decline since 2010.
In 2017 US$ 1.3-billion was invested in South Africa by foreigners. In the same year, South Africans invested US$ 7.3-billion in other countries.
This resulted in a nett outflow of US$ 6-billion in foreign investment.
Figures for 2018 have not yet been published by UNCTAD.
The primary challenge facing Ramaphosa is encouraging South Africans to invest locally rather than in other countries.
While there are significant benefits to FDI outflows when those investment dividends are repatriated the immediate challenge faced by Ramaphosa is to grow the local economy.
This task is undermined by poor economic growth, political uncertainty and the constitutional ambivalence on property rights.
