By Denis Worrall  

It is general knowledge and also a matter of general concern that South Africa – Africa ’s most developed economy – is not getting its share of FDI. According to one study, inward investment during 2003 was a trifling US $1.1 billion, whereas outward investment was more than double this at US $24 billion. By comparison, Australia received in excess of $11 billion over the same period.

Using an international and national network of some 7 000 contacts, we undertook a survey to determine what South Africa ’s strength and weaknesses are in attracting FDI. And having identified these factors, we are now looking at what needs to be done to improve the situation.

The ideal FDI candidate country will have the following specific characteristics. Firstly, it will have an economy of international scale (an economy "that matters.") Secondly, it will have political stability, which includes a high level of personal security; acknowledgement of property rights and the sanctity of contracts; maintenance of law and order; independent courts; a free information flow; and a social system with access to good schooling and healthcare, etc.

Secondly, the ideal FDI candidate country will have a public private sector relationship which is enabling. This means it will have a business friendly bureaucracy, with limited red tape and transparent government procedures; a well-defined regulatory system and transparent tendering procedures; an anti-corruption commitment and support for corporate governance, and an insistence on internationally acknowledged accounting systems.

Thirdly, aside from being big enough to matter from an international point of view, the ideal economy to attract FDI will have some or other core assets. For example it will be rich in natural resources, like minerals or oil or have a high tourist potential etc; large undeveloped internal markets or the potential to be a trade hub; in most instances access to the seas and the potential to be a platform for exports; a strong corporate governance culture; and well-developed modern internal and international transport and communications infrastructures. It will also have a strong business managerial core.

Fourthly, to attract foreign direct investment, a country needs to be seen to have a successful performing economy. Specifically, it will have a reputation for sustainable growth and profitability; a high level of economic growth (typically 5% of GDP or more); minimum prescription on how business should do business; a predictable currency; a positive balance of payments; internationally competitive inflation rates; the presence in the country already of successful major international investors; mobility of capital; and the cost of doing business will be internationally competitive

And finally, a country attracting FDI will project an image of success and of having a winning culture. Its government and domestic business sector will project confidence and work together in promoting international investment.

In terms of these criteria, how does South Africa rate on the survey we conducted?

A condensed version of the survey is contained in the attached box. South Africa is deemed to have a high level of political stability reinforced by the recent election (78%); our pressure groups are energetic, newspapers are free, and the courts are independent (something identified by The Economist) (85%); and 85% of respondents agree that South Africa is much freer and happier than it was 10 years ago.

Weaknesses as far as political stability is concerned are the HIV/AIDS scourge (92%) and high levels of crime (88%). 77% of respondents feel that South Africa is negatively affected by the African syndrome ("afro pessimism"); and no fewer than 84% feel that South Africa is not selling itself abroad.

In terms of our ideal FDI candidate country, South Africa scores well in infrastructure and size of country. 94% of respondents agree with a Commonwealth Report that South Africa is self-sufficient as far as most primary foods are concerned; and the low cost of electricity is a positive (82%). But we score very poorly on the survey in terms of the public private sector relationship. Thus 77% of respondents believe state plans for infrastructure development are hobbled by inefficient government delivery, in the form of lack of skills, project follow through, indecision, lack of experienced and trained personnel.

Brian Kantor, in a recent contribution to the economic debate on these pages, said that South Africa ’s main problem in drawing investment lies in its poor economic performance. This is distinctly borne out by the survey. While the survey identified certain strengths (fiscal policy, expressed in terms of the management of public finance and personal income tax) is regarded as excellent (69%); and 60% of respondents regard macro economic policy as internationally attractive, by contrast 88% see South Africa ’s employment rate as low.

In terms of international perceptions and the country’s image, the strengths are that South Africans are adaptable and flexible in handling new challenges (75%); and 85% agree with The Economist that South Africa is much freer and happier than it was 10 years ago. There is also a positive reaction to NEPAD which, according to a Commonwealth Report, is "increasing recognition that taking local responsibility for getting the conditions right is the key to pulling in private capital resources" (65%).

Weaknesses in the country’s image are the brain drain (75%); and no fewer than 84% respondents agree with the Commonwealth Report that events in Zimbabwe negatively impact on South Africa . Yet there is hope. 84% feel that South Africa is not selling itself abroad and that our embassies can do better. According to the Institute for Management Development of Lausanne, "people don’t know about South Africa."

As a follow-up to the survey, Omega is organizing a strategic workshop in Johannesburg on 26 August, when some of the country’s top business minds (using the survey as a basis) will try to answer the question – FDI: What needs to be done? For details of this workshop contact Kristen or Liezel on 021 689-7881 or go to our website www.omegaconferences.com