Developing countries like South Africa need FDI (Foreign direct investment). They are investments in a business by an investor from another country for which the foreign investor has control over the company purchased. The Organization of Economic Cooperation and Development (OECD) defines control as owning 10% or more of the business.
Increased FDI in developing countries contributes to the country’s economic development because of external capital and increased revenue. Helping developing countries create employment opportunities for its citizens, invest in local skills development and new local industries.
The developing government is able to use the capital infusion and tax revenue generated from FDI for economic growth by improving the physical and economical infrastructure of the country. Such as building roads, educational institutions, developing transport and communication systems and also subsidising the creation of domestic industries. Making it possible for all citizens to benefit from the FDI. Besides from the monetary aspect, FDI affords developing countries a learning experience which in turn leads to other growth paths.
South Africa is currently losing Barclays, which owns Absa bank, as an investor and major newspapers are reporting that the country’s wealthiest individuals are taking their money out of the country because they are weary of the country’s economic future.
To top things up, according to the latest World Investment Report 2016 FDI into South Africa is sitting at $1.8 billion, the lowest in 10 years, owing to factors such as lacklustre economic performance, lower commodity prices and higher electricity costs.
Policy uncertainty by the government has a major part to play in the economic misfortune and lack of foreign investment confidence from Western industrialised countries which happen to be the country’s major source of FDI. South African households are extremely indebted while the government is short of funding both resulting in limited investment and domestic consumer growth.
The future will only start looking brighter for South Africans once the country improves on domestic investments in the form of foreign direct investment.
According to risk analysts, South Africa has risk factors which prevent it from being a lucrative investment market which include the prevalence of white-collar crime and corruption and the increasingly inevitable outcome that South African bonds will be downgraded to “junk” status. Not to mention that South Africa is Africa’s most targeted region for cyber crime.
Risk analysts also conclude that South Africa is still a good place to do business. There is plenty of slow and steady money to be made in the country. South Africa’s fundamentals are not as bad as they seem.
If you are confident South Africa is worthy of your investment, click HERE for investment insights.
Martha Chauke writes from South Africa.