SA has continued to receive a steady stream of foreign direct investment (FDI) inflows over the past decade, despite its myriad challenges.
And in 2023 SA received net inflow of almost R100bn, equivalent to 1.4% of GDP, PwC notes in its fourth SA Economic Outlook report, which finds that non-residents on average maintain a “moderately positive” view of public governance and the business ecosystem in the country.
“While some might expect SA’s investment outflows to be larger than inflows, the country has seen a net FDI inflow [inflows minus outflows] in every year since the global financial crisis,” PwC said.
Outflows last year amounted to just R5.2bn giving a net inflow of R91.3bn.
PwC defines FDI as direct investment equity flows where an investor based in one country acquires at least 10% equity ownership in a company based in another country.
Its report refers to Reserve Bank data which shows that net FDI flows averaged R58bn a year after the financial crisis, excluding the outlier of 2021 when many deals which were stalled in 2020 due to the Covid-19 pandemic were concluded.
Manufacturing is the industry with the largest inward investment stock at 38.5%, followed by mining and quarrying (24.2%) and financial services (20%). SA’s factory sector is home to production facilities owned by some of the world’s largest producers of vehicles, food products and building materials.
Attributes working in SA’s favour among foreign investors include world-class financial services and communication industries, a deep capital market, quality tertiary institutions, abundant natural resources (including renewables), a strategic geographical location for entry into the rest of Sub-Saharan Africa, a transparent legal system, and a certain degree of political and policy stability.
The PwC report refers to a 2022 report by Bloom Consulting on international perceptions of SA’s public governance and business ecosystem, which it said echoed the results from other international benchmarking reports. SA is in the middle of the range of countries in terms of investment appeal.
“SA’s performance is near the middle of the pack when countries are ranked, and not as dismal as some might think,” PwC said.
The Venture Capital & Private Equity Country Attractiveness Index 2023 produced by the IESE Business School ranked SA 66th out of 125 countries, alongside countries such as Malta, Croatia and Slovakia. This, PwC said, is “something to be moderately positive about”.
PwC West Africa strategy & leader Olusegun Zaccheaus observed that “despite its challenges, the SA economy is more diversified and stable compared to many other African economies.”
Reserve Bank data shows that the cumulative value of foreign liabilities (inward investment stock) totalled nearly R3-trillion in 2022 (the latest available data).
In PwC’s experience, foreign investors are looking for three specific things from prospective investment targets in SA: a track record of commercial sustainability across all the systemic crises the country has experienced over the past 30 years; a demonstration that they are well positioned to maintain their performance into the future; and a demonstration of capabilities that can be exported to solve emerging issues in other territories.
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