South Africa’s absence – for the second year running – from the top 25 countries listed in AT Kearney’s annual foreign direct investment (FDI) confidence index is suggestive of heightened investor concern about perceived political, policy and regulatory instability.

Africa region head Wim Plaizier describes the position as “disturbing” given that three-fourths of the executives surveyed for the latest index, published in early May, report that their companies plan to increase their FDI in the coming three years.

The 500 respondents are drawn from companies with yearly revenues of more than $500-million and from the 27 source countries for more than 90% of global FDI flows and the index offers a forward-looking perspective of FDI trends.

The US tops the 2016 index, followed by China, Canada and Germany, with only Russia and South Africa, which last appeared on the list in 2014, among the Brics grouping of Brazil, Russia, India, China and South Africa, not featuring in the top 25. Although Brazil slumped to twelfth position, from sixth in 2015.

The decline in South Africa and Africa’s ranking, Plaizier asserts, cannot be attributed merely to the plunge in commodities, which he admits is “not helpful”.

Instead, investors appear unconvinced about the stability of Africa’s political, legal and regulatory frameworks, which is lowering the continent’s attractiveness, despite supportive macroeconomic and population growth dynamics.

“The main reason is that there is a perception of an insecurity of investments,” Plaizier tells Engineering News Online.

However, the absence of Africa and South Africa is also seen as part of a broader trend of investors turning to the perceived safety of developed markets. This stands in stark contrast to 2010, when developing countries comprised around 70% of the index.

To recover, African governments will need to rebuild trust with international investors and convince them that the continent provides not only growth prospects, but also stability.

Serious efforts will also need to be made to combat corruption, which continues to be a priority concern for investors, particularly in light of tightening legislation in countries such as the US, the UK and Norway.

For South Africa, the current efforts by business, government and labour to cooperate on plans to reignite growth and stave of a ratings downgrade to junk would need to be sustained.

“It is about building trust with foreign investors – making sure that South Africa is creating, again, that picture of a trustworthy investment destination.”