Foreign investors’ eyes glued to SA

2010-09-11 10:45

South Africa could stay among the top 20 ­investment destinations this year if ­HSBC’s proposed R50 billion takeover of ­Nedbank is ­finalised.

According to Brait economist Colen Garrow: “There has been a huge drop in foreign direct investment (FDI), but it will pick up again. Last year, the economy attracted R34.8 billion ­compared with R100.2 billion in 2008.”

Garrow attributed the decline to the impact of the global recession.

He was reflecting on the latest World ­Investment Report, which showed that South Africa was among the 20 most desirable ­economies for foreign investment after business leaders surveyed by the UN ­Commission on Trade and Development said South Africa was the 18th country they would invest in.

The HSBC-Nedbank deal will keep foreign ­investors’ eyes glued to the country because of the magnitude of the deal. South Africa’s share of FDI is minuscule compared with the worldwide figure of R7.3 trillion last year, but it is ­significant none the less.

FDI is investment that exceeds a 10% ­purchase of a stake in a local company by a ­foreign investor. This type of investment is ­usually lauded for injecting benefits such as new technologies, jobs and efficiency through competition within a sector and the economy.

FDI can either be in an existing entity or a new venture. According to the ­report, the global sales of multinationals – the main source of FDI – equal twice the dollar amount of world exports. This makes FDI important in delivering goods and services to international markets.

South Africa finds itself in the top 20, among other ­emerging economic powerhouses ­Brazil, ­Russia, India and China.

But the maximum level of foreign ownership in a developing economy divides opinion.

Reg Rumney from Rhodes University’s ­Centre for Economic Journalism in Africa said: “The higher the percentage of investment or level of ownership acquisition, the more the commitment to the local economy. It is better than hot money or portfolio investment made into equities and the bond market.”

Rumney pointed out that the only downside was the ­payment of ­dividends to investors from local investments.

“In such instances, foreign exchange leaves the country, but then some of our companies have also invested in other countries and are foreign exchange earners.

“For example, MTN has a heavy presence in West Africa and the Middle East. Overall, FDI is like a two-way street,” he said.

Leon Louw, the executive director of the Free Market Foundation, said the market should decide on the patterns of ownership because it was irrelevant who owns what.

Louw said: “We need a lot of capital to grow and expand the domestic economy. We need as much as we can get because we have a very low savings level. We must welcome all foreign ­investment with open arms.”

This view appears to be in contrast with what is happening in China and India, which have both grown at 10% a year for most of the past decade. They have restrictions on ­investment in strategic industries such as the military ­industrial complex, telecommunications and financial services.

Rumney said these countries recommended joint ventures with local companies. The ­domestic financial services sector appeared to be the foreign investor’s oyster – more ­specifically, the banking industry.

Two of the top four banks – Standard Bank and Absa – have significant foreign partners in the Industrial and Commercial Bank of China and Barclays, respectively.

The finalisation of the Nedbank-HSBC deal is months away and Garrow has recommended that each investment be judged on its merits.

“We must wait and see what it brings. Ideally, it must promote economic growth,” he said.

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