An international business specialist has outlined problems SA may have attracting foreign investors. Karen Harverson reports
South Africa has all the elements needed to join the world economy but certain core problems could force foreign investors to look elsewhere.
This is the view of of international business specialist Professor Zafar Ahmed of Minot University, North Dakota, a visiting professor at Wits University.
“South Africa’s infrastructure, managerial talent, entrepreneurship, stock exchange, banking institutions and legal framework are excellent with the potential to become the best in the world,” says Ahmed. However, he says the lack of incentives offered to investors is a major concern.
“Malaysia is a far more popular choice for investors. South Africa’s corporate tax is 48 percent compared to Malaysia’s 30 percent. Its inflation rate is 11 percent compared to Malaysia’s three percent. Interest rates in Malaysia are around nine percent compared to South Africa’s which soar between 18 to 20 percent.”
Unlike South Africa, other countries’ exchange controls are either non-existent or very minimal.
The absence of a free-trade zone — where foreign investors can get cheap land for factories, reduced rates for electricity and water, a tax holiday and subsidised training for workers — is also a deterrent.
Ahmed says South Africa needs to draw up an inventory of incentives and then compare it with what other countries are offering investors. “China, Malaysia, Thailand, India, Poland and Hungary are offering much better incentives than this country — so most of the investment is going to them.”
The lack of piecemeal wage legislation is promoting inefficiences and is another deterrent to investment, says Ahmed. “A piecemeal wage means paying someone according to what they manufacture — but in South Africa, workers are paid regardless of how efficient or inefficient they are. “
“Workers’ demands are too high — a foreign company can get more productive, English-speaking, skilled and educated workers in India to do the same job at a much lower price.”
“And it’s not only the lower sector of the workforce which is cheaper elsewhere — in Russia, one can hire a person with a PhD in computer science for $200 a month. How many South Africans with that calibre of education will work for that wage?” he asks.
Protection of intellectual property is another issue. “Investors have already lodged complaints that South African laws do not provide sufficient protection,” says Ahmed. “Investors are uncomfortable about operating in an environment where counterfeit or pirated products may be the norm. For example, if the trademark issue between McDonald’s and a South African company is not resolved to McDonald’s advantage it could scare other US investors away.”