Back in investors’ good books

The rand continues to defy the odds as it has strengthened against US dollar in the first eight months,Picture: Gallo Images

South Africa has clawed its way back into the ranks of countries attractive to foreign direct investment (FDI), while neighbouring Botswana has been named the most attractive for FDI. This emerges from two different reports released this week.

Quantum Global’s research arm, in its Africa Investment Index 2016, has Botswana at number one and SA fourth after Morocco and Egypt. The other report is the 2017 AT Kearney Foreign Direct Investment Confidence Index which says despite its recent credit rating downgrades and political risks, South Africa has climbed back into the top-listed countries for FDI.

“SA makes a comeback, likely as a result of improving short-term economic prospects and the long-term investment potential in the country’s manufacturing sector,” AT Kearney’s report said. “Despite some continued economic volatility due to low global commodity prices, the Middle East and Africa make a comeback on the index after a two-year absence,” it said.

The United Arab Emirates ranks 21st, with SA at 25th. “This could signal a desire by global investors to diversify the location of the FDI after several years of a flight to safety trend.” The report said that while overall FDI flows to Africa decreased 5% in 2016 to an estimated $51bn (R670bn), SA bucked the overall regional trend, with UN’s Conference on Trade and Development estimating its FDI inflows increased 38% in 2016.

“It should come as no surprise, then, that South Africa claims the final spot in the top 25.” The country’s return to the index would seem to suggest that recent FDI trends may continue: FDI inflows rose 38% to an estimated $2.4bn last year after falling to its lowest level in 10 years the previous year. “On one hand, South Africa faces challenges related to governance, exchange rate volatility, and decreased trust in political leaders. “

The unemployment rate stands at 26.5%, and electricity and transportation infrastructure investments have stalled. “On the other hand, the country has opportunities to capitalise on its improving economy and regional role. “Its GDP growth is expected to reach 0.8% in 2017 and double to 1.6% in 2018.” It said that investors may anticipate that, with renewed improvements in South Africa’s infrastructure and education, the country is poised to lead one of the world’s next major manufacturing hubs.

“South Africa’s large semi-skilled and unskilled workforce is likely a draw for these investors as well.” On the other hand, according to the Africa Investment Index 2016, Botswana scores highly on its research based on a range of factors that include improved credit rating, current account ratio, import cover and ease of doing business. Prof Mthuli Ncube, head of Quantum Global Research Lab said:

“Despite considerable external challenges and the fall in oil prices, many of the African nations are demonstrating an increased willingness to achieve sustainable growth by diversifying their economies and introducing favourable policies to attract inward investments. Botswana is an example. “Its strategic location, skilled workforce and a politically stable environment have attracted the attention of international investors leading to a significant influx of FDI.” According to the report, the top five African investment destinations attracted an overall FDI of $13.6bn.

Morocco was ranked second on the index based on its increasing solid economic growth, strategic geographic positioning, increased foreign direct investment, import cover ratio and an overall favourable business environment. Egypt was ranked third due to an increased foreign direct investment and real interest rates and a growing urban population. South Africa, fourth, scored well on the growth of GDP factor, ease of doing business in the country and significant population.

Zambia was the fifth country on the list due to its significant domestic investment and access to money supply. Mthuli said: “With a population of more than a billion and a rapidly growing middle class, Africa clearly offers significant opportunities to invest in the continent’s non-commodities sectors such as financial services, construction and manufacturing, among others. “However, structural reforms and greater private sector involvement are crucial to unlocking Africa’s true potential.”

-Sello Rabothata|