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South Africa falls off the map

SA is losing foreign direct investment to the likes of Nigeria, Botswana and Angola.

South Africa has dropped off the investment radar of firms and business people. It is a dark reality that a few investment lions are not going to fix.

About seven years ago I was phoned by agents who arrange for their clients to talk to researchers in a country they are interested in investing. The money was good, and as I knew the South African economy quite well, the conference calls became quite an income for my business.

Then one agent asked if I could talk about Angola and Nigeria instead of South Africa, but I felt I did not know enough so recommended someone else. Another agent asked about Angola too and later about a host of other African countries.

I asked the agent what about South Africa, and she simply said no one is interested in South Africa at the moment, it has dropped off the horizon. Another agent a while later confirmed that their clients no longer think that South Africa is an investment destination.

“Our surveys show that clients don’t want to know about South Africa; it attracts no attention anymore.”

International surveys show the same sorry state with three international surveys indicating how SA has dropped from the 28th highest ranked country in the WEF global ranking to 61st in 2017. The IMD Global Ranking has SA dropping to 53rd from 37th out of 63 countries. In ten years.

The World Bank Doing Business index has seen SA drop from 28th place to 82nd place in a decade.

I’ve heard the tragically misinformed talk show academics trash these surveys as biased; the hard evidence has come in the form of actual investments.

The massive jump to the left in 2007 by the ANC and the corruption right at the top of the country has destroyed investment and at least a million jobs if not three or four million jobs.

Hard evidence also shows SA may have lost three million jobs.

Net foreign direct investment is the difference between South African companies investing abroad and foreign countries investing here. If it is negative, it means that more South African firms are investing elsewhere than foreign firms are investing here.

Expressed as a percentage of GDP shows that it reached 24% of GDP in 2005 and the low was at the end of 2017 when the net FDI was -31% as a percentage of GDP.

In money terms, SA firms had fixed investments of R3.3 trillion in other countries while the world had fixed investments of R1.8 trillion. SA was therefore R1.5 trillion more invested in the world outside of SA than the world invested here.

The surveys gave SA warnings that investors took note of low growth; crime; corruption and extremely bad attitudes to business.

In today’s terms, we have gone R1.2 trillion net positive FDI to negative R1.5 trillion a net loss in fixed investment of R2.7 trillion!

At the cost of say R1 million to create a job that would mean SA has lost 2.7 million jobs! I know it not that simple as one needs other factors such as quality education and business confidence in place.

Also, jobs can cost much more or less than R1 million, but the government has control over many things such as the quality of education and attitude towards business and fighting corruption.

Almost all other emerging markets are improving the ease of doing business. Many African countries are now surpassing South Africa in the ease of doing business. Rwanda; Morocco; Kenya and Botswana are all ranked higher than South Africa in 2018. Zambia and Tunisia are not that far behind while Malawi improved the most of all the countries in the rankings.

The top 25 developing countries in the world average over 30% positive net FDI to GDP (excluding SA and Malaysia who are the only two with negative net FDI in the largest developing markets). In South African terms today that would mean an extra R3 trillion in fixed investment in South Africa today.

That would probably mean around three million more jobs and the knock-on effect of that perhaps another million or two.

The recent World Bank report also estimates that for every 1% reduction in the unemployment rate the inequality measure the Gini coefficient would drop by 1.2 points. Three million jobs would have halved the unemployment rate from about 27% to about 13%.

The SA Gini would have dropped from 0.69 to 0.52 on these estimates. That would have really taken most of the poverty and inequality problems away. If these three million estimated jobs could have had a knock-on impact of only 700 000 other jobs then SA unemployment would be in single digits.

Cyril Ramaphosa: A good start but the real hard work is on the way

Again it’s not that easy but it is possible and it shows how the declines of governance; returns and downright foolish policies have contributed to poverty in South Africa. The risk/reward ratio has changed completely from very positive during the Mandela and early Mbeki years to less rewarding and far more risky in recent times.

If South Africa just improved slightly, it would make a difference and certainly the improvement in business confidence, and consumer confidence are a good start.

But the real hard work has not yet begun. Spending tax money more wisely; jailing corrupt leaders; reducing the toxic racial atmosphere; easing regulations and closing state enterprises that require tax money year after year.

Lowering the cost of transport; communications; water and electricity while fixing roads, and infrastructure are minimum requirements. Put more business people on commissions, increase academics to widen the knowledge base and reduce the number of civil servants.

Cutting the civil service wage bill by at least third when expressed as a percentage of GDP. This must happen while we lower the number of children to educator to the world average of 24 from 32 now.

Lower the tax burden and make far more business-friendly policies the centrepiece of all laws. You are not putting people first if you do not attract investments and therefore jobs and food on the plate. After that you can worry about minimum wages or if a business is the right colour.

Mike Schussler is an economist at Economists.co.za.

COMMENTS   41

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I am not saying SA is perfect, but next to Angola there is no comparison. You got to have very DEEP pockets for Angola because everything is an uphill battle and corruption is simply a way if life. Add to that endless bureaucracy and perpetual foreign currency shortages with a court system that is highly biased towards the government and you have a toxic nightmare mix for any foreign investor. Even if you do make money you still have to get it out and only friends and family get US$ allocations.SA is way better than you think.

Your comparison, Angola versus South Africa is justified on matters of red-tape

Its a whole different story when comparing South Africa to East African countries, including Mauritius. South Africa is a migraine in comparison

On East Africa – It is interesting and has problems too but grows faster than SA. It comes from a low base and there is some political risk in Kenya and certainly now Ethiopia. Ethiopia was the darling of the development agencies The Economist Magazine said recently but also has fallen back. I was in Tanzania and that is an interesting place too. East Africa could just be the next growth spot after the commodity bubble burst.

I do not proclaim to know Angola but I can tell you that it grew close to 20% a year for a few years and that attracted attention. Also, it may be seen as being more friendly in some cases that SA. But I believe the growth attracted investors and people interest which is why they want to agents to find people “on the ground”

Unfortunately we are not seeing a massive outflow of illegal immigrants out of SA and into the East African countries, where opportunities seem far better.

I guess corruption,the benefits of crime, and getting so much for free in SA, is a positive outlook for them.

Don’t worry they will find out soon enough what Angola and Nigeria are made of…

Don’t begrudge these nations for improving

Rather encourage the idea that African nations do not necessarily need foreign aid to get ahead

The scary thing is that we are even seriously comparing SA to Angola or Nigeria.

For that not to just be funny shows how far SA has fallen.

Realizing that his socialist policies are leading to the implosion of the economy, as well as rampant unemployment, destruction of the tax base, under-funding of social grants and rising anarchy, the president sent special envoys to beg international capitalists for investments.

Inviting capitalists to invest in a socialist/communist/corrupt government, is like inviting the Pope to a strip-show. It is an insult basically.

What these hopelessly inept ANC leaders should do is to abolish socialist loser policies like BEE, which is legalized theft, in favour of fee market policies. Why would investors come to South Africa where they are disrespected, abused and threatened on a daily basis? Even locals who benefit directly from ANC policies take their capital offshore. The Guptas invest in Dubai. Even the criminals are going offshore! Why should people who worked for their money risk it here?

Jail criminals, respect capital, embrace the free market, protect property rights, abolish BEE and employment equity, treat citizens equally and the money will flood into the country.

Couldn’t have said it better myself!

The words of RW Johnson in his book (How Long Will SA Survive) comes to mind: “….it is now clear that South Africa can either choose to have an ANC government OR it can have a modern industrial economy. It cannot have both.”

Over-simplistic, but hard hitting.

I agree with all of your comments would just add lack of certainty of ownership to the list. Land exproriation, no recognition of once-empowered-always-empowered and the continued uncertainty around mineral rights make it highly unlikely that anybody will commit meaningfully. No sane person will invest money in something if his ownership of the assets are not guaranteed. It should be obvious to the powers that be and the left wing media (Huffington Post, some Daily Maverick Scribes) but it seems is not.

However we cannot continue to deny the existence of massive poverty. It is also not only the unemployed that are poor, most working South Africans do not earn a living wage. Laissez faire economics – with the promise of wealth trickling down from the rich to the poor as the economy grows – is also not the answer. We need to establish some kind of social safety net to support the poor. Higher taxes will understandably not go down well given the waste and outright theft of the last decade.

I do not know the answer , but I do know that no investment, no growth and widening inequality is a recipe for disaster.

Widening inequality is the result of the disaster. The recipe for disaster is socialist policies like central planning and social engineering like BEE and employment equity laws. The ANC manifesto, the Freedom Charter, is the disaster. All the evils we witness, the crime, the corruption, the lack of service delivery, cronyism, inequality, unemployment and lack of growth are merely symptoms of the problem.

The answer is clear and simple. There have been many experiments in this regard. Abolish all socialist policies and embrace free-market policies. Scrap all government “plans” and let individuals and entrepreneurs do the planning. Margaret Thatcher found the recipe. She even declared “The Constitution of Liberty” by Friedrich von Hayek as the blueprint for her party.

As described in Von Hayek’s masterpiece “The Road to Serfdom”, under the current socialist regime, the situation in South Africa is about to deteriorate exponentially. We are all being “enslaved” by populist ANC policies.

Notwarren, let me just briefly comment and tell you what is going, because it requires deep knowledge of economics to understand what is going on.

South Africa is not attracting enough foreign investment. This causes the ANC to run a massive deficit on its tax budget. That deficit is far worse than you can imagine, because in the middle of the year there’s no tax collection, only February. So their deficit is far worse than 3%. Now during the year they borrow money from the banks, that means a lot of money is created and finds its way into the SA economy, driving up the inflation rate. So in order to fund the bailouts of SAA, Eskom and to fund the 800 other state owned enterprises, in order to pay the 2.7 million government employees, government is borrowing immensely, in effect a lot of Rand is being created and a lot of inflation. You have noticed the Rand collapse from 2009 till 2017. That is a sign of the excessive money creation, debt and spending that has led to the super high inflation, super high electricity costs, all those things together, corruption, mismanagement, is causing INFLATION damage AND the inflation is also under-reported.

So your idea of a socialist safety net, completely ignores the real causes of the crisis: it’s related to size of the government that is too big, too expensive, too corrupt, that produces no products of real value for export, can only raise taxes to get more income. The government just continues to go into more debt and have to raise taxes and everything is becoming more expensive for everyone – especially the poor.

“…at the end of 2017 when the net FDI was 31% as a percentage of GDP…”
I think that should read “minus” 31%

For goodness sake in South Africans were allowed to externalise all their assets unencumbered and without restriction- they would!

The world is now very aware of the chaos that has become SA – there are indeed better alternatives; not necessarily Angola or Nigeria I must agree.

SA companies are doing it as JSE listed firms get most of their turnover offshore (even with Steinhoff gone). Not all successful but also some foreign firms are listed here. SO firms have done the investment for you as they ask permission and then grow outside SA. Look at Naspers; BAT; Richmond etc. Even the Airports company is invested outside SA and so is Transnet! That is the point of my article.

With the I think now 35% allowance of pension funds and RA’s invested outside SA you will get say 70% plus of your returns from outside SA!
So we are getting choices but I agree with you for those that can they will if given the choice.

I was really looking forward to the massive jump in foreign investment after the announcement to expropriate land without compensation – hopefully only a market delay…

Now that is a funny expectation…… Can’t wait…. forever…

Well, at least the banks holding bonds over properties were ecstatic with the announcement – I’m sure. Welcome to the world’s only successful communist country. Can’t wait for the realisation of the Utopian “dream”. Not holding my breath for sure.

and maybe an even bigger leap after all the never ending riots, truck burning’s, looting, killings…such an attractive place to invest according to CR ans co. Ha ha!

We have the most confusing investment drives in the world. Please come invest!! Just remember your property rights will not be protected. We will expropriate your property within the constitution, but we are going to change the constitution, but please, come invest…

Bipolar policy. Highest country risk premium. Higher discount rate. Lower reward. Less investment…

A lot has been said about ” job creation “. The way to do this is to create a customer for a product or a service . To be able this one has to a low cost producer to compete with likes of India ,Taiwan and Vietnam. How do we achieve this low cost sector with massive min wages , BBBEE rules , labor force strikes etc ? Low investment and high inefficient labor cannot save us . Been to Kenya … it is just mind boggling to see what is going on there .

Its at the point where either the ANC survive or South Africa survives.
You cannot have both surviving.

At the moment they are promising their citizens one thing and investors another

Indeed, correct. Quote taken from RW Johnson’s book “How Long Will SA Survive the Looming Crisis”. Simple economics.

Either the ANC or South Africa (the latter’s well-being) will survive. My long-term (20-50y) prediction: the ANC will survive, like the Zanu-PF has survived. But the country’s economy has disappeared.

A factor at play that is not being mentioned here is that it is good that our companies are becoming multinational. Under the old Government they weren’t allowed, now they are which is a good thing for local investors. The world is global – the poor Government policies just accelerated that global expansion, but we’re more integrated now and locals need to understand international Business as opposed to local is lekker.

100% agree. SA is less than 1% of the world economy, is like a cork bobbing in the economic ocean.
The ANC’s ongoing anti-business rhetoric will ultimately isolate this country without the need for the damage of Apartheid, or sanctions, or a border war.

That being said,without hesitation I would rather put my money in the South Africa Financial Markets that any market in Africa at any day at any time rather than anywhere else in Africa.

…except for perhaps Mauritius Stock Exchange? (or their banking system)
Grouped as part of Africa. Mauritius is toted as the “gateway” of global investments into Africa.

Plus the ZAR has been steadily losing value against the MUR exchange rate. Mau thus must be more stable financial market?

Zinger, you really need to open up about the opportunities abound in Africa

Research your naive opinions

Mauritius is where wealthy, not just rich people are banking

This is trivial but a young Afrikaans gent I met, retrenched I.T guru now trucks second hand white goods to the DRC, gets paid in forex and is smiling

I Dis-Agree with the generality on this subject. WHY do we need foreign investment in SA when we as locals should be taking advantage of the rich pickings that SA has to offer. Why must we sell of our precious mineral rights, agricultural land, sea views, wild natural reserves, airwaves, airlines, railways and sea industries to the highest “foreign” investor who is going to milk these opportunities because we as locals are becoming dummies as years past. We as locals as too obsessed with political pessimism and hence we fail to recognize the business opportunities that are passing us by.
Do y’al wanna see a South Africa owned by the Chinese, Indians, Russians, or god forbid our previous oppressors/colonisers the WEST. ??? Wake up and smell the rooibos.

We need foreign investment because we need capital, capital is one of the key means to production (others being labour, resources and innovation/entrepreneurship). The vast majority of South Africans cannot save money because of a low income and even those with money do not save nearly enough. Arguably we also lack entrepreneurs and we do lack highly skilled labour in certain areas as well.

I think your point regarding selling of certain strategic assets/resources is valid, but this is not the point of attracting FDI, FDI relates more to the establishment of new businesses taht potentially utilise some of the assets you refrerred to. I do agreed that it should not be a repeat of what happened with mining in this country where the bulk of the dividends flowed to the UK leaving us only with the negative environmental and more importantly social impacts.

With 27% unemployment on the narrow definition and 37% on the broader definition we need jobs. If you agree that we need jobs then you have to agree we need investment. The fact is that even SA firms are investing in other countries as the profit margins are too small in SA and the risks too high.

If we need jobs we also need capital (investment) as jobs require money. If we could create jobs out of noting then we would have had those jobs.

Also, the total SA rate of fixed investment to GDP far too low and that means very few jobs are created and we also risk losing jobs.

All this says that we cannot be fussy where the investment comes from but foreign direct investment has been found to pay above the norm. They pay well and expand the economy. Without that investment take away the whole car manufacturing industry and most of the parts industry (even the SA ones) Then look at upmarket Hotels and even some cell phone companies etc. We also need the skills and the technology.

Only the foolish would argue we do not need foreign investors with an unemployment rate of 27% – the highest of ALL the countries in the world last year according to the ILO. Higher even that some countries at war!

bobby23

Here’s the List of countries by received FDI

Wikipedia List of countries by received FDI

— European Union 5,148,000 31 December 2012 est.
1 United States 3,648,000 31 December 2016 est.
2 United Kingdom 2,069,000 31 December 2016 est.
3 Hong Kong 1,891,000 31 December 2016 est.
4 China 1,458,000 31 December 2016 est.
5 Germany 1,416,000 31 December 2016 est.
6 Belgium 1,240,000 31 December 2015 est.
7 Switzerland 1,136,000 31 December 2015 est.
8 France 1,124,000 31 December 2015 est.
9 Canada 1,012,000 31 December 2015 est.
10 Singapore 981,100 31 December 2015 est.
11 Ireland 878,100 31 December 2015 est.
12 Brazil 820,500 31 December 2015 est.
13 Spain 746,800 31 December 2015 est.
14 Australia 642,200 31 December 2015 est.
15 Netherlands 561,400 31 December 2015 est.
16 Italy 505,000 31 December 2015 est.
17 Sweden 432,200 31 December 2015 est.
18 Mexico 361,300 31 December 2015 est.
19 Russia 360,900 31 December 2015 est.
20 Austria 327,900 31 December 2015 est.
21 India 297,100 31 December 2015 est.
22 Norway 290,200 31 December 2015 est.
23 Poland 287,300 31 December 2015 est.
24 Indonesia 279,000 31 December 2015 est.
25 Saudi Arabia 250,300 31 December 2015 est.
26 Thailand 218,400 31 December 2015 est.
27 Japan 217,400 31 December 2015 est.
28 Chile 201,400 31 December 2015 est.
29 South Korea 191,300 31 December 2015 est.
30 Turkey 184,100 31 December 2015 est.
31 Portugal 169,100 31 December 2015 est.
32 Malaysia 166,800 31 December 2015 est.
33 Malta 164,400 30 June 2015 est.
34 South Africa 164,000 31 December 2015 est.
35 Colombia 154,500 31 December 2015 est.
36 Czech Republic 147,600 31 December 2015 est.
37 Denmark 145,100 31 December 2015 est.
38 Kazakhstan 142,400 31 December 2015 est.
39 Finland 139,700 31 December 2015 est.
40 United Arab Emirates 126,400 31 December 2015 est.
41 Argentina 125,900 31 December 2015 est.
42 Hungary 119,800 31 December 2015 est.
43 Israel 108,500 31 December 2015 est.
44 Trinidad and Tobago 102,000 31 December 2008 est.
45 Vietnam 100,500 31 December 2015 est.
46 Nigeria 95,750 31 December 2015 est.
47 Egypt 89,650 31 December 2015 est.
48 New Zealand 87,600 31 December 2015 est.
49 Peru 87,130 31 December 2015 est.
50 Romania 76,120 31 December 2015 est.
51 Taiwan 73,090 31 December 2015 est.
52 Slovakia 63,270 31 December 2015 est.
53 Ukraine 62,000 31 December 2015 est.
54 Cyprus 60,350 31 December 2015 est.
55 Morocco 59,110 31 December 2015 est.
56 Venezuela 58,840 31 December 2015 est.
57 Philippines 58,580 30 September 2015 est.
58 Bulgaria 54,980 31 December 2015 est.
59 Panama 44,960 31 December 2015 est.
60 Iran 44,640 31 December 2015 est.
61 Croatia 42,000 31 December 2015 est.
62 Tunisia 36,390 31 December 2015 est.
63 Qatar 34,710 31 December 2015 est.
64 Greece 31,240 31 December 2015 est.
65 Serbia 31,210 31 December 2009 est.
66 Pakistan 31,170 31 December 2015 est.
67 Dominican Republic 30,300 31 December 2015 est.
68 Algeria 30,130 31 December 2015 est.
69 Jordan 30,020 31 December 2015 est.
70 Cambodia 29,170 2014 est.
71 Costa Rica 27,630 31 December 2015 est.
72 Estonia 26,340 31 December 2015 est.
73 Uruguay 23,970 31 December 2015 est.
74 Kosovo 21,200 31 December 2015 est.
75 Ghana 19,850 31 December 2013 est.
76 Bahrain 19,690 31 December 2015 est.
— Macau Macau, China 18,910 31 December 2011 est.
77 Latvia 17,450 31 December 2015 est.
78 Mongolia 17,300 31 December 2015 est.
79 Lithuania 17,100 31 December 2015 est.
80 Liberia 17,010 31 December 2014 est.
81 Libya 16,040 31 December 2015 est.
82 Slovenia 15,830 31 December 2015 est.
83 Laos 15,140 31 December 2012 est.
84 Ecuador 14,910 31 December 2015 est.
85 Georgia 13,250 31 December 2015 est.
86 Angola 13,010 31 December 2015 est.
87 Bolivia 10,560 31 December 2013
88 Belarus 10,170 31 December 2014 est.
89 El Salvador 9,708 31 December 2015 est.
90 Bangladesh 9,355 31 December 2014 est.
91 Bosnia and Herzegovina 7,920 2014 est.
92 Macedonia 6,277 31 December 2015 est.
93 Paraguay 6,045 31 December 2015 est.
94 Albania 5,557 31 December 2013
95 Armenia 4,817 2013
96 Kenya 4,762 31 December 2015 est.
97 Fiji 4,193 31 December 2015 est.
98 Kuwait 4,031 31 December 2015 est.
99 Kyrgyzstan 3,857 31 December 2015 est.
100 Moldova 3,647 31 December 2014 est.
101 Mali 3,159 31 December 2015 est.
102 Turkmenistan 3,061 2013 est.
103 Bermuda 2,641 2014 est.
104 Tajikistan 2,272 31 December 2013 est.
105 Djibouti 1,367 31 December 2015 est.
106 Haiti 1,299 31 December 2015 est.
107 Rwanda 1,198 31 December 2015 est.
108 Sierra Leone 1,064 31 December 2015 est.
109 Solomon Islands 850.1 31 December 2015 est.
110 Vanuatu 749.1 31 December 2015 est.
111 Montenegro 483 31 December 2014 est.
112 Lesotho 427.4 31 December 2015 est.
113 Bhutan 173.8 31 December 2015 est.
114 Nepal 103 31 July 2013 est.
115 Tonga 76.97 31 December 2015 est.
116 Micronesia 15.8 2013 est.
117 Sudan 0 31 December 2015 est.

Show us the countries that are wealthy without foreign investment. It takes immense capital to develop any country and to become wealthy. If you start and develop any business, it takes immense loans. All our minerals and metals production is but 6% of the GDP – we are not rich! Look at Venezuela, nationalized everything, now the poorest in the world. It’s the businesses that work together that produce wealth together.

Google mining to GDP has been steadily declining over many years from a large 23% share in 1960 to the current less than 6%

It would be interesting how it ended for your clients who snubbed SA for Angola or Nigeria. Many would have lost money or have money trapped.

I think the real story is South Africans diversifying internationally, more than it is about FDI

Well some like Opel cars have also headed to Namibia and the car factory in Nigeria I think is doing Okay

This article mirrors my utter despair for this country but in a far more objective and unemotional way than I could ever hope to do.

The camera never lies as Michael Franks’s’ song suggests. Similarly, very few people can argue with the ‘As Is” picture that you painted above as well as the facts used to support your conclusions. Apart from the fact that you are comparing an “emerging market” with frontier markets; South Africa versus Kenya, Nigeria et al, I certainly think that for us to change the “AS IS” picture at least in the long term, we need to change the growth curve we are on. We certainly need to clean up our fiscal cost structure and improve asset utilisation and efficiency etc., across the board, not just in government. The truth though, is that “efficiency play” can only take you so far, do not get me wrong we need that too, but we need to create new industries and firms. We need to create at least one hypothetical MTN every two years or at least, in this 4th Industrial Revolution period, create Uber, AirBNB equivalents. Equally, across the corporate sphere, we need encourage corporate entrepreneurship to incentivise corporates to go beyond their confined spaces.

Forget about the map and get basics right and you will automatically get back on the map.

I would think old buffaloman must get constipated every other day.
The unemployment rate will still be the same until “jesus” comes.
The end game is grandpa cyril will face the same fate as mbheki or zuma.
Cyril is just in it for the money.

South Africa fell off the map a long time ago and every other country above
south africa on this table is a competitor.

CR is a capitalist so let’s give him a chance.
Unfortunately he is hamstrung by half his Cabinet who are old school socialists but that’s the price he ( and we) had to pay to get rid of Zuma.
So, time will tell.
SA fell off the map when The Oppenheimers and SAB sold out….all we have now is Naspers and who knows how long that will last,

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