What US investors want from SA
SA sends out a message of complexity and contradiction, while Brics peers with equally daunting challenges are pulling in much more financing
US investors see SA as an interesting opportunity. For more of them to back us, we need to align our policies, institutions and people.
We are an investment manager investing in SA and our capital comes exclusively from US investors. Being based in New York and Johannesburg gives us a useful perspective on how SA is perceived by the international investment community. US investors recognise many great opportunities in SA. However, we have a little more work to do to translate that appetite into investment.
It is easy to interest investors in opportunities in SA. We have great people, competent businesses with good economics, and a relatively large market. Getting investors to move from interest to investing merely requires clearer messaging, certainty and alignment between key interested parties.
SA lags behind its global peers in terms of attracting foreign investment, not because of a lack of opportunity, but because investors are confused about the state of SA. To turn this around the country should deliver one clear message to the world: we are open for business, and we’ll do all we can to attract, protect and facilitate investment.
This is what our fellow Brics economies are doing, and it’s working for them. It was found in a recent UN report that foreign direct investment Foreign direct investment into SA hit $7bn in 2018. into India was $43bn, into China $142bn and Brazil $59bn. These countries are attracting up to 20 times the amount of foreign investment that SA does, despite having equally complex domestic environments. What differentiates these economies from ours is that they are committed to attracting investors — in word and deed.
For SA to make a dent in its national challenges of poverty and unemployment, investment should increase significantly. Investment is the fastest, most sustainable way to create jobs, companies and wealth across the population. These are vital building blocks to eradicate SA’s challenges.
SA’s current message to the world is one of complexity and internal contradiction. Regarding property rights, for example, US investors are very confused. Most South Africans appreciate the nuances around expropriation without compensation to correct injustices of the past. It must be done in an orderly manner, but international investors don’t have this context. And SA is not doing a good enough job explaining it to them.
All investors see is a risk that their investment might be taken away. That’s a risk few are prepared to take, and a risk not evidently present in India, China or Brazil.
For SA to position itself as a competitive investment destination it must create clarity on these issues and avoid conflicting statements within the government. SA needs to be much better at explaining the local context.
Another opportunity to clarify our message could be for SA to recognise the complementary relationships between interested parties in our economy. Perhaps due to the legacy of the past, there remains antagonism between business and labour, as well as between the government and the private sector. These differences arise from a misunderstanding of one another, but we are all in the same boat, in a symbiotic relationship. We must expend the effort to better understand one another’s perspectives.
No investor fancies involving itself in an adversarial business climate. If SA could honestly deal with the root causes of its internal squabbles, agree that investment is good for the country and communicate this unequivocally, investors would be far more confident in placing their money here. And that means more jobs and more wealth for more people. It’s that simple.
Making SA a more attractive destination is about ensuring an effective service infrastructure that can facilitate the business the country is trying to attract. For instance, it is estimated that SA needs to build 250,000 houses a year to make inroads into its housing backlog. At present, new housing starts are about 85,000 a year. More than 1-million people in SA live in substandard housing — not just informal settlements, but houses designed for four people being home to eight, because there is just not enough supply.
Some of the support functions around housing development are slow and inefficient. It can take several months for electricity to be connected for a new neighbourhood, if it is done at all. We have to get better at the basics. This is a handbrake on development and a disincentive for investment.
For us to restore the economy, a good place to start would be re-enabling the environment to support production, whether it’s housing or human capital production.
These fixes are not difficult. To attract investment SA should ensure that its policy is investor friendly, then communicate that policy clearly, concisely and broadly, apply it consistently, and focus on doing the basics right. SA’s economic solutions are as achievable as that.
• Riskowitz is managing member of Protea Asset Management and CEO of Conduit Capital.