WHY SHOULD BUSINESS CONTINUE TO INVEST IN SOUTH AFRICA?

In a recent speech in Cape Town, FW de Klerk discussed the topic of why business should continue to invest in South Africa.

South Africa has not been doing well on the investment front. Since 2007, Australia has attracted more than eight times as much FDI as South Africa – and Chile, with a smaller economy, has received more than three times as much as us. This is despite the fact that South Africa has by far the greatest mineral resources in the world.

At the same time, South Africans have been rapidly increasing their investments in other countries. In the past three years there was an outflow of R216 billion – only R26 billion less than the FDI inflow during this period. According to UNCTAD’s 2015 World Investment Report our outward FDI stock of US$134 billion, is rapidly catching up with our inward stock of US$145 billion.

So why is business not continuing to invest in South Africa?

According to global consulting firm AT Kearney, the main reason is that capital is being redirected to developed markets, as investors move away from emerging markets towards safer destinations for better returns.

In South Africa’s case investors have also been influenced by negative perceptions arising from low economic growth; down-grading by ratings agencies and ESKOM’s inability to generate sufficient electricity. Investors also require regulatory certainty and an open investment environment.

South Africa has been sending all the wrong messages to potential investors – particularly with regard to property rights:

Three years ago South Africa unilaterally terminated its bilateral Investment treaties with a number of European Countries.

A raft of legislation that is trundling its way through Parliament that threatens to dilute the property rights of South Africans and foreigners alike. 

Investors are subject to South Africa’s transformation laws that will continue to ratchet up the percentage of investments that must be owned by designated South Africans. Companies will also have to appoint key personnel on the basis of demographics and will be pressured into buying goods and services – not on the basis of price and quality – but from BBBEE compliant suppliers.

Apart from the threat to property rights, foreign and local investors must also take into consideration South Africa’s fractious labour market – with the worst employer/employee relationships in the world.

Why then should anyone want to continue to invest in South Africa? There are seven reasons:

We have an excellent private sector. South Africa does very well in a number of the categories assessed by the World Economic Forum in its Global Competitiveness Reports:

The regulation of our security exchanges and our reporting standards are the best in the world;

Our banks are the second soundest in the world and our corporate boards are the second most efficacious. Our financial services and protection of minority shareholders are third best in the world and our ability to finance local equity is the fourth best internationally.

South Africa is also in the top 20% in the world in respect of its legal rights index; investor protection; the quality of its management schools; reliance on professional management; the efficacy of its legal dispute settlement system; the size of its domestic market and university driven innovation.

We have companies that can compete with the best the world has to offer.

We have the ability to manage large-scale projects – as was illustrated by the enormous success of the 2010 Football World Cup.

We have a large and as yet underdeveloped domestic market. As more and more South Africans move up the ladder of economic development they will provide a domestic market that has the potential to grow at high rates for many decades. 

South Africa is one of the principal gateways to Africa – one of the world’s fastest-growing regions.

South Africa is about to embark on an enormous infrastructure expansion programme that will require investment of more than US$500 billion during the next 15 years.

We have enormous untapped potential as a tourist destination. Cape Town is regularly cited as one of the top destinations in the world. We have a vibrant, multicultural population, excellent theatre and music – and some really great restaurants.

We have the most abundant mineral resources in the world. If we can adopt more investor-friendly policies there is no reason why they should not continue to provide an engine for growth for many decades to come.

Finally, one of our greatest national assets may – ironically – turn out to be our problems and challenges. They say that Australia’s greatest problem is that it does not have any great problems. No one can say that about us. South Africans have no room for complacency. We can never rest on our laurels and we have shown that we have the ability to overcome much more serious challenges than those that confront us now. 

Other reasons for confidence include:

Our excellent Constitution – which does not devolve absolute power on Parliament and on the Executive. It provides them with all the power they need to rule – but requires them to do so within the reasonable constraints established by the Bill of Rights; 

The discipline imposed by globalisation. Any government action that deviates too significantly from international norms of democratic and economic governance will be severely punished by markets and international opinion;

The enormous advantage on ‘the battlefield of ideas’ of those who support pragmatic constitutional and economic approaches. Ideological approaches – like apartheid – the National Democratic Revolution and communism – simply do not work; and

Finally, widespread support for the Constitution. Politicians, journalists, businessmen and religious leaders from all our population groups are in the vanguard of those who support the Constitution. They know that it is the best guarantee for the continuation of freedom, reconciliation and national unity – and they also know that it advocates transformation. 

FW de Klerk concluded his speech with the following advice: 

“Invest in this country – it has enormous potential and is the gateway to one of the fastest growing regions in the world;

Invest in the South African people – we have one of the most cosmopolitan populations in the world – enriched by a great diversity of cultures; and

Invest in our Constitution: dedicate yourself to making your contribution to its vision of human dignity; of the achievement of equality and of the advancement of human rights and freedoms for all South Africans.”

Issued by the FW de Klerk Foundation