Foreign investors in South Africa have moderately positive impressions of public governance and the country’s business ecosystem due to a number of positive attributes in the economy.
This is according to the PwC Economic Outlook report for 2024 focusing on foreign direct investment (FDI) which was released yesterday.
PwC said that South Africa’s economy attracted almost R100 billion in FDI inflows in 2023 – equal to 1.4% of gross domestic product (GDP), despite the country’s many challenges.
It said while some might expect South Africa’s investment outflows to be larger than inflows, the country has seen a net FDI inflow every year since the global financial crisis in 2008.
PwC reviewed the data and classifications from research by nation branding experts Bloom Consulting which showed that the perception among non-residents of South Africa’s public governance and business ecosystem are “moderately positive” on average.
The review showed that international perceptions of South Africa’s public governance and business ecosystem echo the results from other international benchmarking reports: that South Africa’s performance is near the middle of the pack when countries are ranked, and not as dismal as some might think.
For example, when considering the country’s economy and business ecosystem, the average perception score between those familiar and those who are unfamiliar with South Africa indicate a “moderately positive” view on the local business environment.
This was in line with the Venture Capital & Private Equity Country Attractiveness Index 2023 that ranked South Africa 66th out of 125 countries.
This placed South Africa near the middle of the country list – something to be moderately positive about – and in the company of countries like Malta, Croatia and Slovakia.
According to PwC, South Africa has many positive attributes for foreign investors, including world-class financial services and communication industries, a deep capital market, quality tertiary institutions producing graduates with internationally comparable qualifications, 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, among many other features.
PwC West Africa Strategy& leader Olusegun Zaccheaus said the South African economy was more diversified and stable compared with many other African economies, despite its challenges.
“The country has a very strong financial services and deep capital market, which is more sophisticated than most markets in Africa,” Zaccheaus said.
“South Africa’s banking industry offers clients access to a comprehensive suite of financial instruments and services alongside a robust banking regulatory framework that ensures the safety and soundness of financial institutions and their clients.”
To understand the economic impact of FDI, PwC modelled the contribution to the economy of a R5 billion brownfield capital investment in a local automotive manufacturing facility.
PwC said this simulates the investment needed to upgrade an existing factory to produce a new model line.
It said that investing this money in the upgrade of an existing plant – with 58% of the money spent locally and 42% on imported equipment – would create R3.5bn in additional national GDP, create and/or sustain 9 000 jobs during the upgrade process, and contribute R673 million to the fiscus.
PwC South Africa chief economist Lullu Krugel said South African businesses needed to be awakened to the possibilities that foreign investment offered them and the country as FDI can play a significant role in business and economic development.
“It provides local industries and the economy with capital inflows, expansion of business into new markets, cost reduction through economies of scale, and skills enhancement of domestic employees,” Krugel said.
“At a macroeconomic level, FDI adds to the country’s GDP, increases employment and household income, and contributes taxes to the fiscus.”
BUSINESS REPORT