Global management consulting firm Kearney's recently published '2023 Foreign Direct Investment Confidence Index' (FDICI) reveals a cautiously optimistic outlook among global business leaders, with South Africa maintaining its position as an attractive investment destination.
The FDICI says the country's stable governance and robust legal framework contribute to its ongoing appeal and that South Africa's business environment offers unique opportunities and potential for growth as investors navigate the dynamic global landscape.
The index shows that developed markets remain attractive for investors, with the US holding the top spot for the eleventh consecutive year.
Germany, Canada, Japan and the UK also rank highly, reflecting the enduring stability and resilience of the market perceptions of these countries even amid a backdrop of global economic uncertainty.
Developed markets account for 21 of the top 25 spots on the index, indicating their strength and reliability for investors. This dominance of developed markets underlines the challenge faced by South Africa and other emerging economies in attracting investor interest, as they compete with more established markets for attention and capital, Kearney says.
To overcome this challenge, the firm advises businesses in emerging economies to emphasise and leverage their unique advantages and growth potential in the emerging market landscape.
Kearney says South Africa stands out as an investment hub in the emerging market landscape.
“With its sophisticated infrastructure, skilled workforce, as well as the aggressive expansion of South African businesses into growing African markets, the country offers an enticing opportunity for investors. Despite facing domestic challenges, South Africa continues to foster an environment conducive to investment, as the most advanced and broad-based economy in sub-Saharan Africa with relatively stable institutions and rule of law,” Kearney says.
The FDICI survey results show that business leaders are gradually regaining confidence, with 76% of respondents planning to increase their foreign direct investment (FDI) within the next three years, up from 67% in the previous survey.
Moreover, 83% of respondents believe that FDI will become more important for corporate profitability and competitiveness in the coming years, according to Kearney.
“But growing optimism is tempered by serious concerns around potential risks, including rising commodity prices, geopolitical tensions, and inflation,” the firm warns.
Nevertheless, 63% of investors express more optimism than pessimism about the global economy, up from 57% in 2022. While the ongoing Ukraine war has made global investors cautious, South Africa's relatively stable political environment and strong economic fundamentals remain attractive, Kearney says.
The FDICI highlights a strong emphasis on environmental, social and governance (ESG) commitments among investors. As many as 94% of respondents have developed strategies to achieve their ESG goals, while 89% view their ESG commitments as a source of competitive advantage.
Further, 73% reported stronger ESG commitments over the past three years, with 67% stating that the pandemic accelerated their implementation timelines.
However, the index shows that investors' priorities regarding ESG goals vary by region.
The Americas are largely focused on enhancing carbon footprint monitoring and measurement, while Europe is prioritising water conservation, and Asia is committed to developing sustainable products.
Despite these regional differences, the overall trend indicates a rising emphasis on ESG among global investors, which Kearney says South African businesses must prioritise to remain competitive and maintain alignment with this global zeitgeist.
As investors increasingly prioritise ESG, the firm says that South African businesses should seek opportunities to enhance their ESG performance to attract foreign investment. By focusing on sustainable practices, environmental conservation and social responsibility, South African enterprises can not only improve their competitive advantage but also contribute to the country's long-term growth and development, Kearney says.
“Emphasising ESG initiatives can also help South African businesses tap into new markets and foster innovative partnerships,” the firm adds.
The FDICI shows that South African businesses need to remain agile and adaptable in the face of a rapidly changing global landscape. By proactively addressing potential challenges, such as shifts in trade policy, increased protectionism and the impacts of climate change, companies can better position themselves for success in the evolving international market.