Are foreigners flocking to SA to build new factories, offices and mines? President Cyril Ramaphosa pointed in his state of the nation speech to official figures showing inflows of foreign direct investment (FDI) had jumped from R17bn in 2017 to R70bn in the first three quarters of 2018. "This is a phenomenal achievement compared to the low level of investment in the previous years," he said, prompting questions about who all these foreign investors might be who were setting up shop in SA, and even before the president's Investment Summit in the fourth quarter of last year.
The numbers come from the balance of payments accounts published in the Reserve Bank quarterly bulletin, and the trend is worth celebrating. FDI inflows to SA hit a high of R80bn in 2013 but had been falling since. With its sophisticated financial markets, SA has long been very good at attracting foreign money into its JSE-listed shares and bonds — the so-called portfolio flows, which are often volatile because investors can zip in and out as sentiment takes them. We have struggled, however, to attract meaningful amounts of the more long-term direct investment that brings know-how and access to markets and can create new jobs.
The Bank hasn't yet published fourth-quarter numbers, and Ramaphosa will have to hope that fourth-quarter FDI inflows don't go negative - as they can do, if a foreign multinational is divesting from SA. But the strong upward trend is there also in the latest bulletin from the UN Conference on Trade and Development, which reports that SA registered a strong recovery in FDI inflows to $7.1bn (R100bn) in full-year 2018, up from $1.3bn in 2017. Globally, flows declined last year to a mere $1.2-trillion — highlighting how minuscule SA's share is - mainly because of US tax reform that drew US multinationals back home.
As it happens, the fourth quarter of 2017 was a negative, and it was an unusually bad year for FDI inflows mainly because of one big banking deal: UK-based Barclays divesting its controlling stake in Barclays Africa, which has reverted to being Absa. Some bounce-back was bound to happen in 2018, and while it's not clear who or what is in last year's R70bn, one big-ish deal that could have featured was German company Aton raising its stake in Murray & Roberts to 44% ahead of an attempted takeover bid. The Bank bulletin mentions a foreign company buying into the construction sector, though it never names names. Much of the rest is items such as foreign multinationals extending loans to their local subsidiaries.
But if foreign companies have been increasing their exposure to SA, South African companies have been increasing their exposure to foreign countries even faster. SA's FDI flows had effectively been a net negative since 2014. The Bank figures show this trend reversed in the first three quarters of 2018, as outward investment by South African companies slowed, so that is also something to celebrate.
There's still a long way to go, however. PwC's latest annual study of global FDI finds that SA performs very poorly on the factors that matter most in terms of attracting FDI — the efficiency of government regulation, exchange stability, competitiveness of the economy.
And the good news on the FDI side is not matched by domestic investment spending, where fixed capital investment (into new plant and equipment and buildings, and so on) — has been weak for a number of years and declined in real terms in the first three quarters of 2018. The almost R300bn of investment commitments coming out of Ramaphosa's Investment Summit should help to turn the tide.
But the Eskom crisis and stage four load-shedding are unlikely to help SA's investment case much, for locals or foreigners...