EDITORIAL: Little reason to cheer as SA squeezes back into foreign direct investment index
SA is back in the top 25 after two years out — but a lot has changed since the latest index was drawn up
The 2017 foreign direct investment (FDI) report from AT Kearney is entitled Glass Half Full, and that is perhaps even more apt for SA than it is for some of the other countries that have made the top 25 spots on the global consultancy’s FDI Confidence index.
SA has cracked the index again after a two-year absence. But whereas in 2014, the country was ranked 13th on the index, up from 15th in 2013, this time we only just edged in at 25th out of 25 countries.
Bottom of the log we might be, but it’s clearly better to be in than out. The index is drawn from an annual survey of global business executives that ranks which markets are most likely to attract the most investment over the next three years.
It is a forward-looking survey that over the past two decades has proved to track quite closely the top destinations for FDI in subsequent years.
SA could certainly do with a better placing in the FDI attractiveness stakes, and with a lot more FDI.
The country runs a sizeable deficit on the current account of its balance of payments and relies on substantial annual inflows of foreign capital to finance it. The bulk of that comes from more volatile "hot money" portfolio inflows into our equity and bond markets.
Relatively little of it is in more durable FDI flows that would have the potential to create jobs and bring access to new technology and new markets. Those flows tend to be lumpy — one or two big deals can boost the number for a given year — and indeed in 2016 resulted in a 38% jump to $2.4bn after FDI inflows fell to their lowest level in a decade in 2015.
But this is small in the context of SA’s balance of payments need and on a net basis, there is still a lot more flowing out of the country than in.
Once again, Reserve Bank figures show that in 2016, South African companies invested more abroad than foreign companies invested in SA by way of FDI. Faced with low growth and high levels of policy and regulatory uncertainty, many South African companies see better growth prospects elsewhere than they do at home.
And indeed, AT Kearney’s commentary on SA verges on the lukewarm, tending to the "glass half-empty" rather than the one half-full. The consultancy says, somewhat tentatively, that SA’s comeback to the index "would seem to suggest that recent FDI trends may continue".
However, it envisages a "mixed outlook" with respect to attracting FDI in coming years. Investors may look to SA as a leader in Africa and its large workforce is likely to be a drawcard, says AT Kearney, citing investment into SA’s motor industry to support its case.
Yet it also points to governance and exchange-rate risks as well as decreased trust in political leaders, high unemployment and low infrastructure investment.
The commentary on SA verges on the lukewarm, tending to the ‘glass half empty’.
And that was even before the political turmoil of the past month, which included the road-show recall, the late-night cabinet reshuffle, the junking of SA’s credit ratings and the growing conflict in the governing party.
AT Kearney’s survey of the global executives was conducted in January 2017, when SA’s economic and political prospects were looking more rosy and the environment more stable. It came before all those calls for "radical economic transformation", with their racial undertones and implicit support for rent-seeking and state capture. It came before all those statements from supporters of President Jacob Zuma declaring we didn’t need or want those foreign investors.
One has to wonder what AT Kearney’s global executives would say now — and whether SA would still crack a spot in the top 25 of the FDI Confidence index if the survey were repeated today.