/ 26 July 2011

Foreign direct investment in SA drops by 70%

South Africa’s foreign direct investment (FDI) inflows has dropped by 70% in 2010 when compared with 2009, according to Professor Stephen Gelb of the University of Johannesburg.

He was speaking on Tuesday at the launch of the United Nations Conference on Trade and Development (Unctad) World Investment Report 2011 in Johannesburg.

South Africa had also been placed tenth on Africa’s top 10 recipients of FDI inflows in 2010, compared with fourth place in 2009.

“In 2010, South Africa received only 2.8% of the total of Africa’s FDI,” Gelb added.

Africa’s top-ranked countries in terms of FDI in 2010 were Angola (20% of Africa’s total FDI), then Egypt, Nigeria and Libya.

Gelb said it was an important and in some ways “depressing fact” that in Africa as a whole, the total FDI was down by 9% in 2010.

“This means we did not share in the rise of FDI inflows experienced by other developing economies in Asia and Latin America.”

Disappointing results
Gelb said that South Africa had received about $1.553-billion in FDI in 2010, coming in at 69th in the world and at a level amounting to only one sixth of its peak, recorded in the country in 2008.

“This is a chilling statistic as I’ve compared it to two countries that are also middle-income, resource-rich states — Chile with $15-billion in 19th place and Indonesia with $13-billion in 20th place.”

Gelb said that Unctad had also carried out the FDI Performance Index.

“The index shows how much FDI a country received as a percentage of its gross domestic product (GDP).

“In this respect, South Africa came in at 128th in the world in 2010, directly behind Burkina Faso — so this is a bit disappointing.”

Not the full story
However, Gelb pointed out that all these figures did not reflect “the full story” when it came to FDI.

“Africa’s performance is bad if we focus only on FDI inflow and outflow values, but it’s not just about money.

“FDI is about the entry into the economy of a bundle of resources, of which some is money, but one must consider skills, technology, business models, management capabilities, new products and new processes too.

“In my view, these are much more important for long-term economic growth than dollar value.”

According to Unctad’s report, global FDI had risen 5% in 2010 to US$1.24-trillion — still below the peak of 37% in 2007.

Inflows to Southern Africa were down by 24% to US$15-billion, although the sub-region accounted for more than one quarter of the African total, the report added.

Inflows to the continent’s biggest recipient, Angola, had decreased. The country’s oil industry faced the problem of having exceeded the oil production quota allocated by the Organisation of Petroleum Exporting Countries (Opec).

FDI in North Africa falls
Turning to North Africa, the report stated that the sub-region’s FDI inflows had fallen in 2010 for the second year running to $17-billion.

“But the rate of decline was much reduced and the picture uneven within the sub-region.”

For example, inflows to the Libyan Arab Jamahiriya rose by more than 40% in 2010 to $3.8-billion, “but this rebound seems to be short-lived, given the current political situation in the country”.

FDI inflows also declined in the countries of West Africa.

“Regulatory concerns in the oil industry contributed to the 29% fall in inflows to Nigeria, which still accounted for more than half of the inflows to the sub-region.”

The report said that the emerging oil industry had pulled inflows to Ghana and Niger to record levels at $2.5-billion and $947-million respectively.

In Central Africa and East Africa, FDI inflows rose in 2010 to reach US$8-billion and $3.7-billion respectively. — I-Net Bridge