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The recently released inaugural Country Investment Strategy for SA recognises the challenges of attracting investment in a world dealing with the ongoing impact of the Covid-19 pandemic. There is no doubt that foreign investors are likely to be much more cautious over the next few years, but they will also be looking at possibilities to diversify their supply chains and enter new growth markets. Countries that can offer an attractive, secure and sustainable business environment, and economies that recover quickest, are likely to benefit most.
So where does SA sit in relation to the current investment climate and the vision set out in the country investment strategy? To help answer these questions, the EU Chamber of Commerce & Industry of Southern Africa recently conducted two firm-level investment surveys. The first targeted more than 320 businesspeople in Europe, who are not currently in SA. The main purpose of this survey was to assess the overall perception of SA as an investment destination relative to other emerging markets, and to identify the country’s main (perceived) strengths and weaknesses.
The second survey focused on EU companies in SA; 82 of them were interviewed. It sought to understand their investment performance and plans, and to identify the main challenges they face in doing business in the country.
Potential investors see SA as more business-friendly than countries such as China, Brazil and Malaysia. That is important, given that SA is competing for resources that can contribute to quality investments, as targeted in the country investment strategy. The European businesspeople who participated in the survey had a particularly positive view on the size of the domestic market, the availability of raw materials, and the country’s economic infrastructure. Corruption perceptions stood out as the weakest contributor to the business environment, with less than 40% of respondents agreeing that existing levels of corruption are low.
While attracting new investors is critical in helping to address unemployment, poverty and inequality in SA, retaining firms is equally important. The EU remains the largest investor with about 40% of foreign direct investment stock. Who Owns Whom estimates that more than 1,000 EU firms are operating in SA. These companies have a long history in this country, with many using SA as their regional headquarters. They invest in skills and supplier development, with nearly half of them reporting a broad-based black economic empowerment level of 4 or better.
EU firms are committed to the SA market: about 80% of respondents reported an increase in investment in the past two years; five companies recorded investments of more than R100m during this period. Over the past two years, 32% of companies have increased the number of full-time employees and 34% have reduced employment, despite Covid-19. More than 70% of respondents plan to hire additional staff over the next two years, and most don’t expect Covid-19 to negatively influence their future investment decisions.
However, changes are needed if we are going to continue to have a positive story to tell in years to come. Unfortunately, EU companies operating in SA have a strongly negative perception of the present investment climate. The government’s ability to deliver efficient services, address corruption and resolve the ongoing electricity shortfall are seen as particularly problematic. These should come as no surprise as they affect not only EU firms, but all businesses operating in the country.
The EU Chamber is committed to sharing the experiences and ideas of investors on the ground so that initiatives such as the country investment strategy can be implemented effectively. We have a long history of advocacy on a number of these issues, in partnership with the EU Delegation in Pretoria, other members of the European Community and SA business associations. The information collected will ensure that the ongoing engagement between the EU Chamber and stakeholders in SA is focused on issues that will unlock greater economic co-operation.
• Marto is president of the EU Chamber.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.