Group 1 presented on how South Africa can grow its economy post-apartheid through strategic foreign direct investment (FDI). After providing background on South Africa's history and the end of apartheid, the group discussed how the ANC government pursued more open economic policies and enacted black economic empowerment initiatives. They then outlined challenges facing South Africa's economy related to unemployment, poverty, and infrastructure issues. The group proposed that strategic FDI could help address these challenges by bringing capital, jobs, technology and skills to South Africa while expanding its manufacturing base. Key sectors attracting FDI included automotive, financial services, and telecommunications. South Africa has also invested in other African countries through FDI to take advantage of growth opportunities.

1. Building
Presented by Group 1: Jelani Bertoni, Joshua Johns, Ami Thomas
Using Strategic FDI
On “Foreign Direct Investment and South Africa” by Eric Werker

2. Main Question this Case Raises...
Emerging from Apartheid, and operating as a
Post Apartheid Country, how can South
Africa grow its economy in a way that
benefits the highest number of people?
Building South Africa Using Strategic FDI

3. History
Building South Africa Using Strategic FDI
500 A.D.
San, Khoikhoi, and Bantu Speakers inhabit South Africa
Mid 1600’s
French and Dutch Settlers arrive in South Africa, later named “Afrikaners”
1836-1854 Afrikaner Expansion, “The Great Trek”. Drove out the Zulus
Late 1700’s The British Arrive in South Africa
1899-1902 The Boer War between the Afrikaners and the British
1910-1948 English speaking United Party dominates political government
1948 Afrikaner National Party gains national vote & implements Apartheid policies
1990 Ban on African National Congress is lifted by National Party Government
1994 Nelson Mandela and ANC party win first true democratic election in South
Africa

4. End of Apartheid Changes...
ANC Policy Initiatives included:
● Reducing Tariffs
● Reforming the Labor Market
● Relaxing Foreign Exchange Controls
● Reigning in Domestic Spending
● Bringing Down Inflation
* Basically, the ANC Party wanted to open up the economy and make it as easy as possible to
do business in South Africa.
Building South Africa Using Strategic FDI
In 2003, Black Economic Empowerment (BEE) points were
instituted as a way to encourage participation of previously
disadvantaged groups.

5. Building South Africa Using Strategic FDI
Appendix 1 From Case Study

6. Challenges Facing South Africa (from the Case)
Politically
- Recent changes in Government (Apartheid to Socialist ANC)
- After 10 years there was some unrest within ANC party
- Unemployed and impoverished people were dissatisfied with
recent policies which they felt “favored businesses and elite
foreign investors”
Building South Africa Using Strategic FDI
Socially
- Unemployment ranged from 30-40% in 2005 with populations of
unemployed being largely black South Africans
- Poverty
- Crime
- Over 20% of population were HIV positive
Economically
- Shortage of Skilled Laborers
- Restrictive Unions
- Poor Port System
- Unstable Electricity
- Expensive Telecom
- High Turnover Due to Mortality

7. Solutions to Address Domestic Market Challenges
Quick Fixes:
- Repair port system
- Strengthen electric grid capacity
- Diversify telecom market.
Long term or Strategic Fixes:
- Encourage Entrepreneurship (especially among students)
- Expand Manufacturing
Building South Africa Using Strategic FDI
Smiliing South Africa Image: http://www.bbc.com/news/world-africa-14094760

8. What is FDI?
FDI is as an Investment from one country into another (normally by companies rather than
governments) that involves establishing operations, and acquiring tangible assets, patents and the
use of other technology.
• Classified as direct only when foreigner acquires at least 10% of the firms equity.
• FDI is distinguished from portfolio foreign investment (the purchase of one country’s
securities by nationals of another country) by the element of control.
- FDI is not just a transfer of ownership, it plays an extraordinary role in global
business as it can provide a firm with access to new markets, marketing channels,
cheaper production facilities, technology, products, labor skills and financing.
Building South Africa Using Strategic FDI

9. Three Types of FDI
• Inward and Outward FDI
• Horizontal FDI - Little or no cross relationship among companies because they carry out the same activities
abroad as at home.
• Vertical FDI - Is when different countries make different parts for products and then are shipped to
one location for final assembly
• (M&A) - Mergers and Acquisitions otherwise known as Joint Ventures.
• Greenfield Investment - Construction of new operational facilities from the ground up.
Building South Africa Using Strategic FDI

10. Incentives for FDI
• Increase efficiency by:
• Reducing or lowering costs of labor.
• Take advantage of cheap, site-specific resources.
• Acquiring the use of existing firms specific assets such as a patents & technology.
• Provides better products for consumption in the target country’s economy.
Building South Africa Using Strategic FDI

11. Factors Affecting FDI
• Macroeconomic and Political Instability - Open economies with political stability, infrastructure and growth
prospects tend to attract larger amounts of FDI than closed, highly regulated economies.
• Regulatory Barriers - Limit opportunities for further expansion, which were significantly constrained by
apartheid-era sanctions and restrictions. However, this all changed in the 1990’s
• Market Infrastructure - Port & harbor facilities, access roads, available technology, skilled Vs. unskilled
labor
• Tax Policies - Tax cuts lead to incentives and other advantages
• United Nations
Building South Africa Using Strategic FDI

12. FDI in South Africa
FDI was looked at as a resource to help finance the current account deficit and to promote competition in
industries dominated by few players.
• Unilever – For example, had been in the country for over a century selling Sunlight Soap.
• DHL - Focuses on providing small and medium-sized enterprises (SME) with easier access to international
markets, because they are viewed as a key driver of growth for Africa. DHL has been critical for this success as
it transfers important documentation from banks and other corporations to their intended destinations.
• Coca Cola - Takes advantage of growth opportunities in the 1990’s and opens a bottling plant in Mozambique
Building South Africa Using Strategic FDI

14. Sectors With Most FDI

15. Update / Recommendation: Focus on
Key Success Factors

16. South African Outward FDI
From Exhibit 7 in case
Source: Compiled by casewriter from
The Quarterly Bulletin, South African
Reserve Bank, June 2007
Derived from Exhibit 7 in case

17. South Africa to Africa FDI
After the UK and US, South Africa is the third largest source of FDI into Africa.
Though only 8% of South Africa’s total outward FDI, For African countries it is very
significant.
South African FDI into Africa 2002
US$700m in Mozambique, half the total
•US$400m in Mauritius,
•US$83 m in Namibia,
•US$60 m in Zimbabwe
•US$29 m in Botswana
•US$27 m in Swaziland
•US$17 m in Lesotho
•US$15 m in Zambia.
Information for this slide was derived from The
overseas development institute, 2004

18. South Africa as a primary source of FDI
Information for this slide was derived from The Overseas Development institute, 2004
Image:
From EY’s
Attractiveness
Survey Africa,
2014

19. SAs South-South FDI Advantages
First mover- Lower competition in African
markets
Geographic- South Africa is closer to African
target markets, reduced transportation
Knowledge- Experience in relevant industries
and ability to work under difficult conditions
Cost Advantages- Clusters, hub & spoke,
scale and scope of operating in multiple
countries
Regulatory- Tariff jumping, prefered foreign
exchange rates, New Partnership for Africa’s
Development
Building South Africa Using Strategic FDI
Building South Africa Using Strategic FDI
From Earnst & Young’s Attractivness survey Africa, 2014

20. Incentives for South-South FDI
-South Africa as the Gateway for African
FDI.
-Regional economic growth means
increased opportunities for
established South African firms.
-FDI is a way to spread, technology,
development, and talent that is much
needed throughout Africa
-South African FDI can help strengthen
Sub-Saharan Africa’s place in the
global supply chain.
Building South Africa Using Strategic FDI
From Works Economic Forum Global Competitiveness report,
2014-2015

21. Other New and Emerging Partners (NEP7)
Share of all construction equipment imports to Africa
-New Partnership for Africa’s
Development (NEPAD) reports
that 30% of infrastructure projects
from the NEP7 utilize the “Angola
Mode,” a combination of Foreign
Aid, Trade, and FDI.
-The NEP7 countries have
resource hungry economies and
are primarily investing in Africa’s
extractive industries.
-South Africa needs to expand
their economy in the face of new
competition by leveraging their
strengths in finance, mining, and
manufacturing.
From NEPAD Report: Infrastructure Development within the Context Of Africa’s
Cooperation With New and Emerging Development Partners, 2014

22. Outward FDI from other BRICS
-BRICS: Brazil, the
Russian Federation,
India, China, and
South Africa.
-South Africa has a
small percentage of
the total outward
FDI compared to
other BRICS
countries.
-This highlights the
importance of
focusing on FDI on
areas South Africa
holds strategic
advantages. (From: The Rise in BRICS FDI and Africa, UNCTAD, 2012)