Despite its challenges, South Africa has seen a positive net FDI flow every year since the global financial crisis.
It would come as a welcome surprise to many South Africans to learn that, despite the country’s many challenges, our economy attracted almost R100 billion in foreign direct investment (FDI) inflows in 2023, equal to 1.4% of GDP," said professional services firm, PwC in its latest Economic Outlook report.
Manufacturing is the industry with the largest inward investment stock (38.5% of the total stock) followed by mining (24.2%) and financial services (20.0%). Inward investment stock totalled nearly R3 trillion in 2022.
"Equally surprising would be data showing that non-residents have a ‘moderately positive’ impression of the country’s business ecosystem and standards of public governance," it said.
FDI provides local industries and the economy with capital inflows, expansion of business into new markets, cost reduction through economies of scale, and skills enhancement of domestic employees.
At a macroeconomic level, FDI adds to the country’s GDP, increases employment and household income, and contributes taxes to the national fiscus.
"Foreign direct investment (FDI) can prove instrumental in driving business and economic development, and companies need to remain receptive to the opportunities that it presents. FDI refers to direct investment equity flows, where an investor based in one country acquires at least 10% equity ownership in a company based in another country," said Lullu Krugel, PwC South Africa chief economist.
From a foreign investor perspective, SA’s public governance is not dismal by international standards. Research by Bloom Consulting found that non-residents’ perceptions of SA’s public sector governance is ‘moderately positive’.
This is consistent with data from the World Bank which places SA near the middle of countries ranked on the quality of governance.
At a company level, the advantages of FDI are easy to comprehend. These include, among many other benefits, expansion of business into new markets, cost reduction through economies of scale (as part of a larger international commercial entity), and skills enhancement of domestic employees through exposure to new technologies.
To understand the economic impact of FDI, PwC modelled the contribution to the SA economy of a R5 billion brownfield capex investment in automotive manufacturing.
With 68% of this spent locally (and the rest on imports), the investment would create R3.5 billion in additional GDP, create and/or sustain 9,000 jobs in the upgrade process, and contribute R673 million to the fiscus.
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