South Africa is not falling behind the rest of Africa

Johannesburg, the economic heart of Africa
Ernst & Young Africa has just released a report that they wrote in response to the growing perception that South Africa is losing ground in Africa, a view that is much reinforced by articles like the recent one in The Economist magazine entitled “Sad South Africa, Cry the Beloved Country”.  That article states “South Africa is sliding downhill while much of the rest of the continent is clawing its way up”, but Ernst & Young’s research shows that this simply isn’t an accurate or fair analysis.

Foreign Direct Investment (FDI) amounts flowing into South Africa have grown by a compound rate of almost 25% between 2007 and 2011 (the period coinciding with the worst global economic crisis in living memory), while the number of FDI projects have grown by almost 29% over the same period.  In both cases this is well above the average numbers for the rest of Africa.

In addition, Ernst & Young points out that FDI into South Africa is far more complex than that seen elsewhere on the continent, where most money goes into the highly capital-intensive oil & gas sector and other natural resources.  In both Nigeria and Angola, 80% of the FDI capital between 2003 and 2011 went into oil & gas.

In South Africa, there is no one sector that has dominated FDI into the country, and sectors such as automotive, renewable energy and communications have each attracted around 10% of the total.  The service sector, which requires less capital to be invested but which generally creates more and better jobs than the resources sector, today accounts for more than 65% of the South African economy.

Therefore the fact that South Africa only ranks 6th in Africa in terms of amount of foreign capital invested between 2003 and 2011 is not enough information on its own to suggest that the country is falling behind the rest of the continent.

Although they don’t suggest that our current situation is all rosy, with labour unrest, ratings downgrades, political uncertainty and continuing global economic malaise all playing a part, Ernst & Young makes the point that “on any kind of objective risk versus opportunity analysis of African markets, South Africa will be among the best positioned markets (in Africa) for the foreseeable future.”

In order to consolidate this opportunity, South Africa needs to take a few important steps, including a change of mindset from a predominantly negative and panic-stricken one to one in which we see ourselves as a global player, actively competing against other BRIC and emerging market nations for FDI.  Government, Business and Labour all need to work together (not in the sham way that has characterized Nedlac for so long) with the genuine intention to sell “a compelling investment proposition that attracts the capital, skills and technology from other parts of the world that will considerably accelerate the growth and development agenda”.

All of this speaks to my way of thinking and I would strongly encourage anyone making decisions about investments to read the report, which can be downloaded from the EY website by clicking here.