Foreign Investment levels remain below average of other emerging markets despite improved macroeconomic conditions and modern infrastructures

1. Investment Incentives in South Africa
by: Emanuel Baisire
George Mason University
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2. Investment Incentives in South Africa
South Africa Key Facts:
•Area: 1.2 million sq. km. (470,462 sq.

mi.),Germany, France and Italy
•Population: 46.6 Million (2004)
•GDP: $213 Billion (2004)
•Real GDP growth rate (2004): 3.7%.
•GDP per capita (2004): $3,480
•Exports: US $ 45.9 Billion (2004)
•Imports: US $ 41.6 Billion (2004)
•Inflation: 4,3% (2004)
•Unemployment ( September 2004):
27.8%.
accounts
• S. AfricaAfrica GDPfor 38% total SubSahara
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3. Investment Incentives in South Africa
Economic policy
Promoting equity with growth

Growth, Employment and Redistribution Strategy

Liberalisation of exchange controls- no controls on foreigners

Inflation targeting to stabilise key price movements

Black Economic Empowerment

Small Business Development

Geographic spread of economic activities
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4. Investment Incentives in South Africa
Unlike, other developing nations , 65% of S. Africa’s GDP (Sector) is in Service sector and 21% in
Agriculture and Mining sector
Agri. forestry &
fishing
3%
Economic overview
Components of GDP
Mining &
quarrying
7%
Community &
personal serv.
23%
Manufacturing
18%
Construction
3%
Financial &
bus.serv.
20%
Transport &
com.
10%
Electr. gas &
water
3%
Trade &
accomm.
13%
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Source: SARB

5. Investment Incentives in South Africa
South Africa identified key economic sectors to act as the engine for economic growth
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Automotive
Agro-processing
Chemicals
Clothing and Textiles
Marine, Rail and Aerospace
Tourism
Minerals, Metals and Capital Equipment
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6. The South African Investment Environment
Financing Investments
Investment Incentives









Small and Medium Enterprise Development Programme
(SMEDP)
Critical Infrastructure Fund (CIP)
Skills Support Programme (SSP)
Industrial Development Zones (IDZ)
Medium and long term insurance
Export finance for capital goods and projects
Foreign investment guarantees (FIS)
Export and Investment Financial Assistance Scheme (EIFAS)
Marketing Support
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7. The South African Investment Environment
Financing Investments
Offerings for investors
Offerings for exporters
•Investment advisory services
•Export information and advice Market
information
•Information on specific
investment opportunities
•Export information and advice Market
information
•Financialtocontribution for
investors
visit
•Financial assistance for exporters to
conduct market research
potential companies and sites in
South
Africa
•Financial contribution for exporters to
market their products abroad
•Removing obstacles for investors
•Information and advice on
investment incentives
•Logistics support: removing export
bottlenecks
•Matching South African companies with
foreign
•After-care
buyers
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8. The South African Investment Environment
Foreign Investment levels remain below average of other emerging markets despite improved
macroeconomic conditions and modern infrastructures
FDI: Investments in South Africa (US $ Billion)
60
FDI Inflow
In U.S $ Billion
52.15
50
47.39
43.1
40.14
40
30
4.32
20
10
0
1999
2000
2001
2002
8
2003
Source: World Investment Report 2004

9. The South African Investment Environment
U.K. Is the dominant source of FDI ,while the U.S. is the largest portfolio investor in South Africa
FDI Stock in South Africa by Country of Origin in 2003
30
25
25
20
US $
15
Billion
10
4
5
3
2
1
1
1
9
France
Switzerland
Malaysia
Netherland
Germany
U.S
UK
0
Source: SARB

10. Investment Incentives in South Africa
Investment in South Africa tend to be resource-seeking( food-processing and
mining) and market-seeking (Telecom and services) in nature
Types of FDI into South Africa in 2002
US$M
Mergers and Acquisitions
774.7
Business Expansion
570.10
New (Greenfield)
413.82
Intention to Invest expressed by company
339.50
Investment
15.50
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Source: BusinessMap online South Africa FDI database

11. Investment Incentives in South Africa
South Africa has managed to respond positively to Globalization after several years of
sanctions due to apartheid.

Trade Relations

Solidifying relations with traditional markets
– EU-SA: A free trade agreement between the European Union and SA for specified products .
EU to eliminate tariffs on 95% of S.Africa Imports in a 10 year period, S. Africa to
eliminate tariffs on 86% of EU imports in a 12 year period.
– AGOA: Duty-free and quota-free access to US market for apparel and a range of non-apparel
products. S. Africa AGOA exports increased to $1.8 Billion in 2004.

Non traditional markets
– Brazil
– Asia

Regional Strategy
– SADC: Trade agreement with SADC member in 1999, and implementation began in
– Africa:
2000. Provide duty-free treatment for 85% of trade by 2008 and 100% by 2012.
S. African firms have invested heavily in many African states. E.g $ 1.1 billion in
Mauritius, $1.4 billion in Nigeria, $ 605 M in Uganda etc.
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12. The South African Investment Environment
Challenges:

Stagnant Market: S. Africa’s
low average growth rate of 3% have discouraged potential
Investors in mass production projects

Regional Instability: Political turmoil in Zimbabwe and civil conflicts in Africa makes foreign
Investors to perceive S. Africa as risky

High Crime Rate: Raises the cost of doing business i.e. High Insurance cost, security cost e.t.c.

Labor Policy: S. Africa’ s labor is over-regulated and inflexible which is a constraint to
investment

HIV/AIDS: S. Africa is one of the countries most hit by HIV, with 5 million HIV infected population,
20% of the 15-49 year (Work-force) is infected .
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13. Soccer World Cup 2010
Thank you
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