Foreign investment in SA is on the up and up

Simon Segal

EVIDENCE is mounting that foreign investment in South Africa is picking up and could well be higher than popular perception has it. Information services group BusinessMap SA, the only known source to be developing a database that monitors foreign investment, calculates that since the elections last April some R8,5- billion has been committed by foreign firms in investment money.

Of this, R6-billion has been committed this year, indicating the trend.

These monies are only committed and thus their final numbers will change. They are committed over a period of a few years. The figures are thus not fully comprehensive, based only on press reports, but they are nevertheless an indicator of a trend.

The numbers, notes BusinessMap, are almost certainly an underestimate as many deals are announced where figures are undisclosed.

The largest investments are from Malaysian group Landmark Berhad (who have announced an investment of R500- to R700-million), Nestl (R600-million over three years) and Samsung (R600-million over five years).

BusinessMap’s trend is borne out by the Washington-based investment monitoring group Investor Responsibility Research Centre (IRRC) which reports “a surge of US business activity in South Africa since January”.

Some five new US firms per month are opening offices or placing employees in South Africa. This is the highest rate since US firms began to return to South Africa in 1991 after years of disinvestment. In that year there were 104 US firms involved in South Africa, compared to 280 at its peak in 1985.

There are now a total 235 US firms with equity ties or employees in SouthAfrica.

Since July, 12 US firms have invested or committed to invest over $200-million in South Africa. These include household brands such as McDonald’s ($5,5-million), Nike and Levi Strauss ($9-million).

“Not only are US companies establishing operations in South Africa at a record rate, but they are also banking that popular consumer goods and services, such as Big Mac and Levi’s, will have strong marketability in South Africa,” states the report.

IRRC director Meg Voorhes cites four factors behind this trend — economic growth, the strong response to major US brands, government pledges to reduce tariffs and global

Despite this improving trend, foreign investment is still small relative to the size of the economy (not even two percent of the gross domestic product). It is not yet being converted into the type of large-scale, long- term investments that will substantially expand the economy’s productive capacity that creates jobs and wealth.

Most firms setting up in South Africa are still largely confining their involvement to setting up branch offices. Some have assumed direct control of distributorship. Others have entered through non-equity ties such as licensing and distribution agreements.

Still by far the largest foreign monies invested in South Africa are in short-term portfolio flows. In the first 11 months of this year a net R4,5-billion was bought (purchases were R22-billion and sales were R17,5-billion) on the Johannesburg Stock Exchange, compared to R185-million last year.

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