Perceived determinants of foreign direct investment into South Africa.
Date
2016
Authors
Akinsete, Fedile Mmamajara
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Abstract
The economic growth and development of South Africa depends on its ability to bolster inward foreign direct investment (FDI). FDI is an important supplement to low domestic savings and investment. In addition, FDI promotes economic and technological advancement, skills development and access to global markets. However, South Africa fails to attract a sufficient volume of FDI as compared to other developing regions, even though capital inflows to South Africa have increased significantly since the opening of its economy in 1995. The bulk of these inflows are short term investments rather than long term FDI.
This study investigates the type and the determinants of FDI in South Africa. In so doing, it seeks to identify measures that can be taken to promote inward FDI. The research paradigm of this study is qualitative as it seeks to develop an in-depth and holistic understanding of factors that attract or hinder inward FDI. The views of participants were obtained through in-depth face-to-face interviews.
Reinforcing the literature, results indicate that South Africa mainly attracts resource-seeking and market-seeking FDI. The large mineral deposits in South Africa make it a natural destination for resource-seeking FDI. Despite the small market size and stagnant growth, South African consumer buying power and high GDP growth rates in the rest of the continent are strong drivers for market-seeking FDI, because South Africa is regarded as an entry point into the continent, the SADC region in particular. Interestingly, the study found that there is some element of efficiency-seeking FDI that is reinforced by the other two types of FDI.
Further, results show that inward FDI is deterred by uncertainties in government policy, an unstable regulatory framework, an unfavourable labour regime and high labour costs relative to productivity. Consistent with the literature, favourable determining factors include; openness to trade, property rights, the rule of law, the availably of infrastructure and a skilled labour force compared to the rest of the continent. Finally, the importance of a clear policy direction and a stable regulatory framework in promoting inward FDI cannot be understated.
Description
MBA
Keywords
Investments, Foreign -- South Africa. South Africa -- Foreign economic relations.