SA’s image takes another blow

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Johannesburg - South Africa was last week dropped from the list of top 25 countries worldwide that feature in global management consulting firm AT Kearney’s 2015 foreign direct investment (FDI) confidence index after coming in at 13 in 2014. This should rankle, particularly as its peers in the Brics (Brazil, Russia, India, China and South Africa) bloc managed to stay on the index. China kept its place because it is a manufacturing hub, India as it is an outsourcer and Brazil due to the fact that it has positioned itself very well for investment. China kept its second place behind the US, Brazil dropped to sixth from fifth and India fell to eleventh from seventh. The view this week was that South Africa in particular and the continent in general needed to gear up for a tough two decades as capital takes flight to safe havens provided by quantitative easing in the US, which should make the rest of the euro zone sit easy. Emerging markets are in trouble again because the backbone of their economies are built on resources and with diminishing commodity prices, investments in oil, gas and mining in emerging markets look less attractive.

African story

Maarten Ackerman, a Citadel advisory partner and investment strategist, said the African growth story was hitting a rough patch, which would likely see growth numbers going south for perhaps the next 20 years.

He said a lot of the strong growth in the continent over the past 10 to 15 years came from good global growth, particularly China’s industrialisation, which created healthy demand for African resources and created a middle income group that was doing well.

“I don’t think we will see another China; it’s not going to grow at 10 percent again. That tells you (when) we have a massive country like China that is definitely slowing, the rest of the developed markets have structural issues, a lot of debt, a lot of unemployment, lack of demand, that environment will weigh on Africa,” Ackerman said.

He said the economies of Nigeria, Ghana and Angola had benefited hugely from new exploration and exporting oil at over $100 (R1 192) a barrel.

Now that oil is at $60 odd a barrel, countries like Angola could face a recession this year, and Nigeria is probably going to see half the growth that it has seen previously.

“These kinds of headwinds are what we are talking about, this will slow the African growth story,” he said.

While South Africa is affected by the global economy, there is a strong feeling that investors are becoming increasingly uncertain about its policy direction pertaining to FDI.

“We do know Nigeria is winning FDI over and above South Africa,” he said. “There are some of countries on the continent that are becoming more competitive for whatever reason. The one benefit is that South Africa has got deep liquid and efficient financial markets and that is something you need to operate an efficient economy. Some other countries have a lot of the infrastructure that is still under developed.”

Lack of clarity

Ackerman said even before the perception of South Africa was further clouded by the xenophobic attacks, investors were concerned about policies that were on the table, as well as calls for nationalisation, labour flexibility and the number of strikes in 2014.

He said investors did not seem keen about the country’s erratic electricity and water supplies, corruption in government, how difficult it was to deal with labour and scenes in Parliament around the State of the Nation speech.

“What we have seen over the past two years, confidence in South Africa and confidence in the rest of the world, the gap is opening up so confidence in South Africa is getting lower, global business confidence is actually picking up because the global economy is recovering.

“There is a gap between us and the rest of the world and something like xenophobia is not helping close that gap and definitely contributed to the general concern that doing business in South Africa is the right thing to do,” he said.

He said the reason why investors chose to invest in a country depended on factors such as labour, energy and proximity to world markets.

When it comes to South Africa these factors are not ideal. “South Africa is quite far away from the rest of the world and is down at the southern point of Africa.

“The risk of doing business here is at this point in time misaligned with the potential reward you can get from doing business here and that is unfortunately preventing growing to capacity and is keeping us back,” he said.