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
A well-documented challenge facing the construction industry is the across the board skills shortage, which has the potential to seriously affect the sustainability of the sector. “Within construction people are our greatest assets and the Stefanutti Stocks group is...
Recent Research Reports
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 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 network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
This Week's Magazine
Integrated energy and chemical company Sasol has partnered with Unisa Graduate School of Business Leadership (SBL) professor and founder and CEO of PanAvest Partnership Dr Douglas Boateng to publish a series of books on executive supply chain management aimed at...
The World Wide Fund for Nature’s (WWF’s) 2014 Living Planet Index (LPI) indicates that there has been a 52% decline in vertebrate species since 1970. The Index tracked the trends of 10 000 discrete populations of over 3000 vertebrate species between 1970 and 2010.
Rwanda has joined a number of East African countries seeking to import electricity from Ethiopia as its demand grows. After it became apparent several generation project it is implementing will not come on stream early enough, now plans to import 400 MW from Ethiopia...
Metrorail’s first new passenger train will arrive in November next year, says Passenger Rail Agency of South Africa (PRASA) CEO Lucky Montana. “Next year we will be able to put our hands around the infrastructure and equipment we have been talking about for so long.”
The Competition Commission has launched an investigation into what it says are “price fixing, market division and collusive tendering in the market for the manufacture and supply of automotive components to original equipment manufacturers” (OEMs, or vehicle...