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SA investment community prefers to put its money elsewhere

An economic conundrum that means fewer jobs locally.

Fixed investment as a percentage of GDP in South Africa is at a lower level now than it was five years ago, says Mike Schüssler of Economists.co.za.

He describes this as South Africa’s biggest challenge, not least of all because it means fewer jobs are being created.

and SA’s youth unemployment a ‘national crisis’ – president

For the country to become a normal emerging market it needs about R3 trillion in direct investments, says Schüssler.

‘Normal’ would be an emerging market with a positive net cross-border direct-investment position. South Africa however has a negative position.

And this, as the graph below shows, puts it at the bottom of a list of the world’s largest emerging markets.

Net cross-border direct investment positions for the 17 largest emerging markets

Source: Economists.co.za

Schüssler says one of the reasons South Africa is at the bottom of this list is because its investment community continues to invest more offshore than in its own country. And this means fixed investments will continue to decline.

“We invest more in other countries than they invest in us,” says Schüssler. “It is worse than when we had sanctions.”

He adds that even in the first quarter of 2019, South Africa saw a decline in fixed investments.  

Source: Economists.co.za

As the graph above shows, there was a sharp decline in investment just after 2010 – it dropped 31.9%.

The graph shows that South Africans prefer to invest elsewhere rather than in their own country, while other countries invest here, says Schüssler. 

He points out that this leads to a negative contribution to job creation.

Statistics SA, in its Quarterly Labour Force Survey report for the third quarter of 2019, reported that there are 6.7 million unemployed people in South Africa.

Uncertainty

Schüssler says the reason for the low levels of fixed investment and foreign direct investment in SA is simple: policy uncertainty and red tape. This affects investor confidence.

Schüssler says that until the government gets these issues right, they will continue to have a negative impact on economic growth as well as gross capital formation (formally known as gross domestic investment).

He says clarity and action is required on the following:

  • The land issue (expropriation without compensation)
  • Property rights in general
  • The cutting of unnecessary red tape
  • Black Economic Empowerment
  • The electricity and water supply crises.

The Eskom debacle and the water security situation have seen investor confidence drop. “No one is going to invest in SA in a big way unless we can get the electricity supply situation sorted,” says Schüssler.

Read: SA makes headway in $100bn investment drive

He says SA needs more than the R363 billion in investment pledges made at the SA Investment Summit last week if it is to close the gap created in the past five years. 

He singles out telecommunications giant MTN, which pledged to make an investment of R50 billion over five years at the summit.

“I think that is an amount MTN would have invested anyway, because it is going to have to upgrade its towers,” says Schüssler. “Telecommunications companies do that all the time.” 

He calls on the South African government to pull up its socks and deal with the underlying issues that are affecting the country’s ability to attract investment.

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And yet, after you have spelled out the issues so succinctly, nobody that can do anything about it will listen…

The ANC are either so incompetent that they are unaware of the issues they have created and their net effect, or so VILE and despicable, they just don’t care or have ulterior motives (i.e. to drive asset values down and take huge positions, to then later fix the self imposed issues we face)….

Spot on Mike – I for one will not invest R1 into this country because I live here and are exposed to all the political BS, incompetence, arrogance and criminality going on. We have all the laws and a great constitution with no one to do the enforcement thereof!!

Hits the nail on the head.

If you continuously discriminate, alienate and steal from certain groups of the population do you honestly think they will invest in this dump?

Do you honestly think the rest of the world don’t see this happening?

When ever has socialism been a good investment?

These people. TSK.

Goverment grant recipients – 17m
Plus incompetent public sector & SOE staff – 2.5m x 80% = 2m
TOTAL Welfare recipients = 19m

Total taxpayers = 4.5m

Ratio = 24%

There’s the problem.

Too few producers (value adders), too many users (value consumers).

You forgot to add all the “students” studying human resources and the like. All on grants too, and demanding more and more, while very few of them will add any value to the economy later.

@The Nav – “Value consumers” seems way too kind…

@Griet – How could we forget good old HR, the notorious corporate dumping ground for PC appointments – that adds another couple of hundred thousand.

low volumes on US markets…SA investors must be the only ones buying…

Until political SA embraces and appreciates its minority and the skills that come with it, nothing will change the first thing to do is rid corporate SA of racist BEE policies…
I also think to classify China as an “emerging market” is a little ridiculous…
South Africa could become a power house again – we have the resources – we just need to change the rules and go after investment rather than votes!

He forgot an important problem that actually is at the root cause of the other problems. Our Large and unbalanced inter-generational transfers. This kills off our manufacturing sector and artificially inflates our administered prices like water and electricity.

Which as the previous commentator mentioned amounts to stealing from one group and giving to another. I personally look at the prospective risks and cant see how more than 30% of your portfolio can be invested in SA. Its unsustainable and we are likely in for a recession next year.

We should ask the Zimbabweans about investing in your own country…

It is so sad. Those that can contribute meaningful to the economy are discouraged from doing so.

Will the ANC clamp down and tighten exchange control so that we cannot take money offshore? They can do that easily and we’re stuck with our money in SA.

Get your money offshore now…we started 4 years ago; only one property left to sell and we will be 100% offshore earning EUR, Crypto & Gold!

The funny thing is, is that if you are a local company setting up a business in SA, you have far LESS protection than a foreign company setting up here. I wont invest a cent until I see arrests, conviction, jail and money recovered, oh and Eskom staff no’s reduced drastically.

According to the article, clarity and action is required on the following.
1. The land issue (expropriation without compensation)
2. Property rights in general
3. The cutting of unnecessary red tape
4. Black Economic Empowerment
5. The electricity and water supply crises.

Now let’s consider how likely those who have the power to change any of these, are inclined to do so:
1. Land issue – moving to discourage investment.
2. Property rights – moving to discourage and incentives.
3. Red tape – love to increase bureaucracy, justifies being incompetent in position.
4. BEE – Moving to disempower investors.
5. W&E – Not moving, due to incompetence.

So the likelihood of encouraging investment by resolving these five issues is pretty poor indeed.

You cannot relentlessly vilify and over tax a section of the population and still expect them to invest in the economy.

South Africa has many realities. This article points one of them out absolutely spot on. There are “holy political cows” (well listed in he article) that causes the government to look past the realities and try to play country governance within the confines of a set of political rules.
Of cause another one is decades of apartheid and racial divide that still haunts us in everything we do.
Is there then no way the country can realise that working together will be better than disenfranchising whoever have capital to invest? Even if a black government does not like white monopoly capital, is it not better to guarantee property and business rights and use that capital to create jobs by the ton? Or is damage and resistance caused by decades of apartheid so embedded in our emotions that the country has to sacrifice its growth and with it all the jobs in the name of BEE and the R900 billion available on South African company balance sheets are destined to be invested where the rights are guaranteed and no racism is applied outside of the country. We are technically creating our own economic sanctions. Investors vote against racial legislation and bad structural policies with their capital. Cyril, you need to wake up, the cash in the country is three times the latest investment conference value. This problem is internal and created by legislation.

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