An article in the Business day (Burkina Faso ‘Tops SA for investment’ – 27 July 2011) really serves as an eye opener to the economic decay currently inherent to the SA political economy. According to the article, SA now ranks in 10th place with regard to FDI (Foreign direct investment) flows to the African continent. In 2010 SA experienced a 70% decline in its share of FDI as compared to the previous year.
Such statistics are a shocking revelation and show that South Africans either have a distorted view of our country’s supposedly strategic economic superiority (compared to the rest of the continent), or something is subtracting from that superiority to the extent that SA are being overseen for supposedly less attractive options. I strongly believe the latter to be true.
The majority of the problems with FDI investment in Africa are obviously risk related, which is understandable – given that the nature of fixed infrastructure investment dictates long term capital commitments. Africa’s leadership track record of “changing the rules” understandably creates disincentives for such investments. So, the question is, should SA as an FDI destination really be ranked in 10th place? As much as this seems to be a ludacris thought, it is indicative of the negative political economical image SA currently portrays.
SA boasts with a world class financial sector that far exceeds any other African country in terms of sophistication and efficiency. In support of this argument, the JSE was recently named the “best securities exchange in the world” (world competitiveness report) – an astounding achievement.
The SA financial sector is the single largest contributor to the country’s GDP – an interesting statistic compared to other developing (manufacturing) nations. No wonder portfolio flows has put the local currency under pressure – the SA financial industry offers a unique “developed world” financial sector with the ability to generate "developing world" returns – excellent risk return opportunities.
But SA also offers excellent infrastructure in support of FDI investment, so why does these investments seem to lag portfolio flows by so much. Crime and corruption certainly plays a major role. So too does some of the country's unfriendly business practices, i.e. our incredibly strict labour law policies - a major business disincentive. But most of all - POLITICS!
The liquid nature of portfolio flow investments means that capital invested on the JSE is not nearly as subjected to political risk as FDI investments are. So, with more and more messages of “nationalisation” and anti-constitutional "land-grabbing", combined with the regular misappropriation of words such as "western colonists" and "agents", it is quite understandable that FDI will suffer. The problem is that SA, as any other developing nation or even developed nation for that matter, need FDI – long term fixed investment, not only portfolio flows – although such investments are crucial too.
Sometimes I wonder if the so called “youth Leaders” among us has the slightest idea of the damage and negative economic impact their uneducated blabber impose on the day to day lives of the poor and deprived they so passionately claim to represent!
Related article
http://www.businessday.co.za/articles/Content.aspx?id=149266
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