South Africa, the most open country for Foreign Direct Investment in the world
By South African Trade and Industry Minister Dr Rob Davies
South Africa is committed to improving its global competitiveness and reputation with a view to delivering on its growth and developmental imperatives. South Africa continues to compare well with other emerging markets.
According to the OECD’s Restrictiveness Index, South Africa ranks among the most open jurisdictions for Foreign Direct Investment (FDI) in the world. Openness is reflected in the overall trend of growing FDI into South Africa over the last 22 years post-1994. South Africa’s stock of FDI now accounts for around 42% of GDP. Over the last five years, South Africa accounted for the bulk of new investment projects in Africa with investment arriving from the USA, some Member States of the EU and increasingly from China, India and other Asian countries.
The country attracted around 24% of all the FDI projects in Africa between 2007 and 2013. In this light, and notwithstanding the challenging global economic conditions, in August 2013, the Global Financial Times Magazine of UK voted South Africa overall winner for best investment destination in Africa for 2013 and 2014.
The 2014 AT Kearney Foreign Direct Confidence Index ranks South Africa in position 13 among 25 leading economies moving up two places from 2013. South Africa ranks higher than countries such as Switzerland, Sweden and Netherlands. Research by the International Investment Initiative director at the University of Bern’s World Trade Institute, Dr Stephen Gelb, shows that over 130 foreign firms either entered South Africa or expanded their investments during 2013; that is about 2.5 foreign firms per week announced an investment in South Africa.
Ease of doing business in South Africa drops but improves across borders indicators
The 2015 Ease of Doing Business report that ranks 189 countries has been released by The World Bank. The results of the report show that South Africa’s over-all performance in the World Bank’s Ease of Doing Business Index dropped from 41st to 43rd this year and this comes at a time of subdued GDP outlook.
The report attributes the drop in rankings to South Africa’s poor or limited access to electricity which is one of the biggest hurdles to doing business in the country, where it takes on average five procedures and 226 days to get connected to the grid.
Despite this, South Africa has improved in a range of indicators as reflected hereunder:
• Starting a business - 64 to 61
• Registering Property - 99 to 97
• Trading across borders – 106 to 100
• Enforcing contracts - 80 to 46
• Paying taxes - 24 to 19.
The improvement in the trading across borders indicator is a critical area that impacts on performance of a range of manufactured and mineral products shipped from South Africa to international markets.
South Africa’s fall in the rankings can also be attributed to counter-productive credit policies, namely making access to credit information more difficult by requiring credit bureaus to remove negative credit information from their databases.
The results of the 2015 Ease of Doing Business Report suggest that South Africa has some work to do in creating an enabling environment to attract inward flows of investment. The challenges are however not insurmountable and many are already being addressed by the relevant authorities. South Africa’s global competitiveness is our collective responsibility and in line with the National Development Plan, we need to begin to collectively respond to creating the conditions that improve our competitiveness.”
According to the World Bank, “the 20 economies at the top of the ease of doing business ranking perform well not only on the Doing Business indicators but also in other international data sets capturing dimensions of competitiveness.”
As a developing nation, South Africa will be continually confronted with considerable socio-economic challenges that need to be resolved. However, the development of powerful interventions such as the National Development Plan and the New Growth Path, provide broad yet strong blueprints for dealing with these structural issues, and the focus should remain firmly on the implementation of such plans for the good of the country and all its citizens.
We must not lose sight of the things we are getting right and government and society need to work in genuine partnership to pursue the country’s current economic vision with conviction and vigour. In the meantime, South Africa needs to continue to send a message to the world that it is still very much ‘open for business’.