Paul Dixon and Nicola Gain
Foreign investment is on the increase. While falling short=20 of pre-election hype, the tide is changing, with inward=20 investment is gaining strong momentum.
United States firms have taken the lead — not surprising=20 since they disinvested heavily during the 1980s.=20
Current activity may only be the tip of the iceberg, as it=20 is expected that up to 50 percent of total foreign=20 investment will ultimately come from the US. This=20 represents a radical turnaround from the present position,=20 where British companies account for around 50 percent of=20 foreign investment — estimated at R50-billion in stock and=20 assets, with interests in about 1 500 companies,according=20 to the Southern African Economic Research Unit.=20
The table illustrates the potential level of investment=20 arising purely from those corporations forced to disinvest=20 during the sanctions era when $25-billion in foreign=20 investment was withdrawn.
Despite these developments and the many promises of further=20 investment, potential investors do face barriers which=20 require urgent attention. The list of deterrents has only=20 shrunk slightly despite the euphoria surrounding the=20 elections and installation of the Government of National=20
Prioritising the list of concerns repeatedly raised by=20 foreigners, while crucial, is as yet unresolved. If=20 something is not done timeously, it is likely to result in=20 many lost foreign investment opportunities. The key=20 concerns raised are: high levels of crime and political=20 instability; high corporate taxes and limited incentives to=20 foreign investors; exchange control; adverse labour=20 relations and low productivity; and low economic growth and=20 a depreciating rand.
The flip-side portrays a number of attractions, especially=20 when seen in the context of other emerging countries. These=20 include: a sophisticated infrastructure; a local market of=20 40-million people, with growth forecast in consumer and=20 aspiration spending; a ”stepping stone” into Africa; the=20 Reconstruction and Development Programme; a privatisation=20 drive; conservative fiscal and monetary policies; and no=20 ownership restrictions on foreign companies
The number of US companies doing business in South Africa=20 has risen by more than 300 over the past three years, of=20 which 150 have invested funds in the country. The US-based=20 Culvert Group, which looks at socially responsible=20 investment, says that the number of US companies with=20 employees or investments in South Africa has risen almost=20 20 percent since 1993, but adds that this still compares=20 poorly with non-US firms currently in the country.
The US Overseas Private Investment Corporation (OPIC) is=20 committed to spending $85-million in 1995 alone, to finance=20 US investments in South Africa. OPIC has also established=20 two funds totalling $150-million for joint ventures and new=20
Foreign investment means that some of South Africa’s more=20 ”sleepy” business sectors are in for a shake-up.=20
Foreign investment will come, and only those companies pro- actively seeking joint venture opportunities and strategic=20 alliances are likely to entrench their position in the new=20 South African market as it becomes internationally=20
This is an edited version of an article which first=20 appeared in E&Y’s In Touch magazine.