This is how SA can attract foreign money
Follow these three steps and see overseas investors flock to the country.
President Cyril Ramaphosa said foreign direct investment (FDI) in SA had declined from R76 billion in 2008, to R17.6 billion in 2017. This was driven by low business confidence and regulatory uncertainty and has resulted in slow growth and poor employment growth.
FDI (eg: building an operation plant) is critical to many emerging markets, as this type of investment is long term and has a higher potential to translate into employment.
Recently, a presidential envoy embarked on an investment road show with the ultimate goal of raising $100 billion over the next five years. This translates to approximately R240 billion per year.
As a first step, the historical deterrents to FDI should be analysed so we can understand the current state. We then need to build towards alleviating these problems and improving the value proposition of potential direct investments.
SA has slid from the 47th to 61st most competitive economy of 137 economies in the WEF Global Competitiveness Report 2017 – 2018.
The following pillars should be addressed with the utmost urgency to improve SA’s competitiveness in global market: institutions, higher education and training, macroeconomic environment, labour market efficiency, and health and primary education.
Here are areas that SA should focus on to improve its competitiveness:
1. Education, from start to finish, must be prioritised. Recently, much has been done to improve accessibility to tertiary education. However, this will only translate into more skilled professionals if those who study at tertiary institutions have a strong academic foundation.
2. Government plans to roll out the full National Health Insurance (NHI) system by 2025, which will have a positive impact on many lives. The benefits of the NHI will take some time to translate into meaningful results. More should be done in the short term to improve public healthcare, while awaiting the longterm NHI benefits.
3. Employee-employer relations require a drastic change if SA is to be more competitive. The relationship between employers has been a deterrent to receiving FDI. The local labour market has also been negatively affected by factors like minimum wages, above-inflation increase demands and rigid labour laws.
Addressing these points will go a long way to improving SA’s competitiveness long term. Improving education starts at foundational level and dividends of improved foundational education will only be yielded once more skilled employees apply their trade in the economy. Similarly, the public healthcare system will take time to evolve into the envisioned NHI.
Finally, relations between employers and employees are considered “hostile” by global standards as a result of historical factors and a poor link between pay and productivity. This factor is much easier to address in the short term, but needs legislative and change management.