Jul 26, 2011
FDI inflows to SA slumped 70% in 2010, recovery expected in 2011Back
© Reuse this
The result was materially worse than the overall 8.5% decline, to $55-billion, in FDI flows to Africa during the year and pushed the continent’s largest economy into tenth position as a recipient of FDI, from a ranking of fourth in 2009.
Africa’s decline also bucked an otherwise strong performance from other developing regions, reflected by the fact that the continent’s share of developing-country FDI inflows fell from 12% in 2009 to 10% last year.
In fact, 2010 was the first year in which developing countries actually accounted for more than half of all FDI inflows, which rose by 5% overall to $1.24-trillion. Flows to developing and transitional economies accounted for 52% of that total, led by Asia and Latin America - inflows to developing economies rose by 12% last year.
Also for the first time, half of the top 20 FDI recipients were from developing countries, with the US attracting the most inflows last year at $228-billion, followed by China ($106-billion), Hong Kong-China ($69-billion).
Outward FDI flows from developing countries also surged by 21% to $388-billion, increasing outward flows from developing economies from 16% of the total in 2009 to 29% last year.
South Africa’s other ‘Brics’ partners, Brazil, Russia and India also featured among the leading 20 recipients, as did Saudi Arabia, Mexico, Chile and Indonesia.
University of Johannesburg economist and The EDGE Institute director Professor Stephen Gelb, who presented the report's findings in Johannesburg on Tuesday, said South Africa’s "terrible" figures left the country ranking 69th globally.
The South African figure was also only one-sixth of the peak of $9-billion achieved in 2008 and represented only 2.8% of the total FDI to Africa in 2010.
Gelb noted, too, that on Unctad’s FDI performance index, which calculates the share of FDI inflows in a country’s gross domestic product, South Africa ranked a lowly 128, behind Burkina Faso at 127. In 2009, South Africa ranked at number 85.
Angola remained the top recipient at $9.9-billion, or 20% of total inflows. However, the oil-rich country also experienced a contraction in inflows from the $11.6-billion reported in 2009 and the $16.5-billion of 2008. Angola was trailed by Egypt, Nigeria and Libya.
Gelb said that South Africa’s FDI flows had already picked up in the first quarter of 2011 and would be buoyed further by the $2.4-billion acquisition of 51% of Massmart by Wal-Mart.
Gelb also stressed that, while the 2010 FDI inflows performance was disappointing, South Africa’s FDI figures had been volatile historically and were heavily influenced by single large deals. The volatility was likely to remain owing to the fact that much of the FDI in South Africa related to big-ticket merger and acquisition activity, rather than greenfield investments, which tended to involve smaller values.
Further, the “stock” of FDI in South Africa remained material at R132-billion, which was more or less 25% of Africa’s total FDI stock.
Unctad also anticipated that FDI flows would continue to recover more generally in 2011, possibly even to pre-economic crisis levels. Global FDI peaked at nearly $1.8-trillion in 2008, having averaged $1.47-tillion between 2005 and 2007.
Having slumped to $1,18-trillion in 2009, Unctad expects a continued recovery from the $1.24-trillion base of 2010. In fact, despite the current “soft patch” in the recovery, the agency was modeling FDI flows of between $1.4-trillion and $1.6-trillion for this year, rising to $1.7-trillion and $1.9-trillion in 2012 and 2013 respectively.
However, Unctad argued that policy makers should seek to tap the growth and employment opportunities arising from so-called nonequity modes (NEM) of international production, which included contract manufacturing and farming, services outsourcing, franchising, licensing and management contracts.
In fact, Unctad estimated that NEM generated at least $2-trillion in sales globally during 2010 and that these practices were increasingly shaping international value chains.
THE WAL-MART FACTOR
Gelb argued that, besides the South Africa automotive industry, the country had done little to integrate its enterprises, or fashion its enterprise development models to the NEM opportunity.
He acknowledged that value-added was often low and that the employment generated in the sector was often low paying and vulnerable. But he argued that, on balance, NEM held much development and employment potential and could be important in helping to build domestic productive capacity.
South Africa, he argued also needed to focus more intensively on the role of FDI and NEM within the country’s growth and development frameworks.
Policies should be pursued that facilitated the entry into the economy of a “bundle of resources”, including capital, but also skills, technology, business models and new management capacity, as well as new products and processes.
There were currently a number of gaps in the South African policy environment, which was also being perceived as riskier owing to calls for nationalisaiton and the recent objections of government to the Wal-Mart acquisition of a stake in Massmart.
Speaking in his personal capacity, Gelb argued that the Competition Tribunal was the incorrect forum to engage with Wal-Mart on the supply-chain implications of its entry into the region.
Instead, government should be seeking to leverage the opportunities presented by the deal for South African firms to enter the Wal-Mart networks internationally.
“Even more important is the potential it offers to South African manufacturing operations to supply Mal-Mart entities around the world,” Gelb argued, noting that the Unctad report emphasises the enterprise development, employment, export, technology-transfer, skills upgrading and growth potential associated with being associated with such networks.
Massmart established a R100-million supplier development programme following the acquisition and Gelb felt that government should actively monitor progress to ensure that the proposed benefits are realised.
“We should be looking at similar opportunities with other large global corporations, whether they be in retail, the garment industry or in manufacturing.”
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Economy News
Recent Research Reports
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
Real Economy Insight: Automotive 2015 (PDF Report)
Creamer Media’s Real Economy Year Book comprises separate reports under the banner Real Economy Insight and investigates key developments in the automotive, construction, electricity, road and rail, steel, water, gold, iron-ore and platinum sectors.
Real Economy Insight: Water 2015 (PDF Report)
Creamer Media’s Real Economy Year Book has been divided into individual reports under the banner Real Economy Insight and investigates key developments in the automotive, construction, electricity, road and rail, steel, water, coal, gold, iron-ore and platinum sectors.
This Week's Magazine
Energy analyst and EE Publishers MD Chris Yelland warned recently against excessive optimism regarding timescales for the proposed construction of new nuclear power plants (NPPs) in South Africa. He was speaking at a Nuclear Roundtable in Johannesburg. “I think we...
Malawi’s Lilongwe Water Board (LWB) is inviting eligible bidders to prequalify for the board’s efficiency improvement works, which will be implemented as part of the E24-million Lilongwe Water Resources Efficiency Programme. LWB CEO Alfonso Chikuni explains that...
CROATIA, AN EU MEMBER BUT NOT A TDCA MEMBER On July 1, 2013, Croatia officially became the twenty-eighth member of the European Union (EU). Despite Croatia’s accession into the EU, it is yet to become party to the Trade, Development and Cooperation Agreement (TDCA)...
The Council for Scientific and Industrial Research (CSIR) has announced that its new Inundu airborne electronics testing, evaluation and training pod had made its first test flight on September 10. The successful flight was undertaken from Lanseria International...
The Development Bank of Southern Africa (DBSA) – which disbursed a record R13-billion during 2015, from R12.7-billion in the prior year – remained optimistic that it could ramp-up loan disbursements to R25-billion a year by 2018 as it sought to give greater emphasis...