SA worst-hit in Africa with dramatic decline in foreign direct investment

January 23, 2016, 7:33am

By Linda Ensor, Business Day Live
Photo: Thinkstock on BDLive

FOREIGN direct investment (FDI) into SA fell 74% to $1.5bn last year, a far steeper decline than experienced by the rest of the continent, according to the Global Investment Trends Monitor published by the United Nations Conference on Trade and Development (Unctad).

FDI flows into Africa fell 31.4% year-on-year last year to $38bn, with Central and Southern Africa registering the largest declines.

On a global basis, Unctad projects a decline in global FDI this year, but commentators think that despite SA’s weak profile, the country still offers attractive investment opportunities in the medium to longer term.

Standard Bank chief economist Goolam Ballim said SA would continue to benefit from the African growth story and would continue to be a magnet for capital in the longer term.

"One has to acknowledge that we are in a world where global growth is generally slowing or anaemic and the price of capital is becoming more expensive, led by the US Federal Reserve’s tightening. This environment will suppress generalised investment flows, especially to more risky or novel markets, and some would regard Africa within that lens.

"With a slighter longer-term viewpoint, the demographics and generalised income biases still favour emerging markets, including many African economies.

"And SA, as Africa’s most established economy, will continue to serve as a partial launch pad for interests into the rest of the continent. Also, SA in its own right still offers opportunities in its emerging classes that are moving up the income and consumption curves," Mr Ballim said.

He said that SA was ripe for merger and acquisition activities as its assets had been recalibrated to more affordable levels.

Department of Trade and Industry director-general Lionel October stressed that the global environment had to be taken into account.

The Washington-based Institute of International Finance reported this week that last year $735bn was removed from emerging markets, with a further $348bn capital flight projected for this year.

Mr October said that SA continued to take the lion’s share (about 40% to 50%) of the continent’s FDI. The last few months had seen strong inflows into the automotive, pharmaceuticals and fast-moving consumer goods sectors. The African growth story remained compelling, he said.

Democratic Alliance trade and industry spokesman Geordin Hill-Lewis believed that last year’s FDI slump was a "clear vote of no confidence by the global economy in the ANC government. Investors are voting with their feet, and their dollars."

The new Protection of Investment Act would be an added reason for investors to look elsewhere as it provided inadequate protection.

"The outlook for turning around investor sentiment towards SA is very poor so long as President Jacob Zuma and his economic ministers remain in office," he said.

The Unctad report said FDI flows were expected to decline this year — barring another wave of merger and acquisition deals and corporate reconfigurations — because of the fragile global economy, the volatility of global markets, weak aggregate demand and a significant deceleration in some large emerging-market economies.

Globally, FDI climbed 36% last year to about $1.7-trillion, although most of it was in mergers and acquisitions and not much went into greenfield investments in productive assets.

Developed economies, particularly the US and Europe, were the main beneficiaries, capturing 55% of the FDI flows while developing economies saw their FDI reaching a new high of $741bn, 5% higher than in 2014.