LONDON - By the time the 4th South African Investment Conference (SAIC 2022) concluded last Thursday, a euphoric President Cyril Ramaphosa could not help himself extolling its “success”. He declared that investors from home and abroad pledged an aggregate R1.14 trillion, a mere “R60bn short of our ambitious target of raising R1.2 trillion ($82.32bn) over a five-year period” which culminates at next year’s SAIC.
Perhaps Ramaphosa and his Trade, Industry and Competition Minister Ebrahim Patel, were engaging in nothing more than casuistry. The pledges received at the first four SAICs, according to Patel, amounted to about 95% of the R1.2 trillion target.
But here’s the thing – of the total investment pledged at the first three SAICs totalling R774bn, less than half, R316m, has thus far been invested.
If pledges are not translated into actual investment, they remain merely that. Only time will tell how much of the R1.2 trillion pledges turn out to be realised investment.
“The 80 investment pledges at today’s conference,” declared Ramaphosa in his closing address, “come to a total of R332bn. With today’s pledges, the total investment pledged at the four Investment Conferences amounts to R1.14 trillion. I expect that by next year we will not just reach our target – we will exceed it”.
The investment is by both domestic and foreign investors and the local operations of foreign corporates such as Toyota and Pepsico.
The competition for FDI flows into continental Africa, like elsewhere, is intense especially in a world of uncertainties unleashed by external factors such as the long-term impact of the 2008 global financial crisis, the Covid-19 pandemic, the Russo-Ukraine conflict, the volatility of world commodity prices – crude oil, natural gas and the safe haven of gold.
Internal factors which drive – or hinder – FDI include political governance, economic and financial sector regulation management, currency volatility, land reforms, security, threat of expropriation, uninterrupted electricity supplies, social governance, a developed capital market, transfer pricing, quality of tertiary education, human capital availability, tackling corruption, trade union activism, and FDI incentives, including tax breaks, profit repatriation, labour and employment protocols.
According to the UN Conference on Trade and Development (UNCTAD) World Investment Report 2021, continental Africa attracted $39.8bn of FDI in 2020 (the latest year for which detailed data is available) – a mere 4% share of the global total.
It is also down 15.6% on the previous year largely due to the onset of the pandemic.
Egypt was the largest FDI recipient in 2020 at $5.9bn (down 35.1% on 2019), followed by the DCR at $4bn (up 19.3% on 2019), South Africa at $3.1% (down 39.4% on 2019), Nigeria (up 3.5% on 2019) and Ethiopia (down 6% on 2019) each at $2.4bn.
Egypt, Africa’s largest economy and top FDI location, is set for bumper years in FDI inflows, despite its military rule status.
Despite the global obsession with UN SDGs, Sustainability, and ESG, moral ambivalence largely remains at the core of investment decision-making.
South Africa can learn from Egypt and the 26 other African member states of the OIC and Islamic Development Bank (IsDB) Group, one of the largest FDI contributors to Africa – both institutional and with the private sector.
Egypt to date has attracted $16bn of inflows from the IsDB Group. That Mozambique is an IsDB member and not South Africa is as absurd as it lacks perspicacity. All Pretoria needs to do is apply to join the OIC, which on acceptance gives automatic membership to its development organs, including the IsDB.
The potential synergies in job and wealth creating power generation, renewables, agribusiness, manufacturing, transport, water and sanitation, infrastructure, technology, healthcare and pharmaceuticals are implicit. These are the very sectors that the IsDB Group excels in and Ramaphosa’s investment drive aspires to.
So is Ramaphosa’s optimism realistic or misplaced that the SAICs investment commitments “are impressive not only by virtue of the cumulative value, but also by the sheer number and diversity of projects?”
The latest UNCTAD’s Investment Trends Monitor in January 2022 shows that global FDI flows showed a strong rebound in 2021, up 77% to an estimated $1.65 trillion, from $929bn in 2020, surpassing their pre-Covid-19 level.
“Recovery of investment flows to developing countries is encouraging,” explained UNCTAD secretary-general Rebeca Grynspan, “but stagnation of new investment in least developed countries in industries important for productive capacities, and key SDG sectors – such as electricity, food or health – is a major cause for concern.”
As usual with other global economic trends, of the total increase in global FDI flows in 2021 ($718bn), more than $500bn, or almost three quarters, was in developed economies, which also saw the biggest rise in FDI reaching an estimated $777 billion in 2021 – three times the exceptionally low level in 2020.
Africa saw a moderate rise in FDI; the total for the region more than doubled, inflated by a single intra-firm financial transaction in South Africa in the Second Half 2021.
A word of caution though for Messrs Ramaphosa and Patel. The South African figure in 2021 is skewed. FDI flows to South Africa jumped to $41bn (from $3.1bn in 2020 – down 39% in 2019) due to the $46bn share swap between Naspers and its Dutch-listed investment unit Prosus.
UNCTAD’s outlook for global FDI in 2022 is positive, albeit the 2021 rebound growth rate is unlikely to be repeated. The underlying trend will remain muted, as in 2021, with infrastructure continuing to provide the growth momentum.
But investment outlook, like any other economic trends, is beholden to the uncertainty of various risks – geopolitics such as the Ukraine conflict, inflation, new Covid variants and its associated health crisis, labour and supply chain bottlenecks, and rising energy prices.
The investment decision-making process is complex, tempered by a host of metrics and perceptions. No amount of incentives, tax breaks and mutual admiration platforms can serve as a panacea for FDI inflows.
It takes time for new investment to unfold, and normally a time lag between economic recovery and the recovery of new investment in manufacturing and supply chains.
Parker is an economist and writer based in London
Cape Times