Investment incentives in south africa by emanuel baisire

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Foreign Investment levels remain below average of other emerging markets despite improved macroeconomic conditions and modern infrastructures

Transcript of Investment incentives in south africa by emanuel baisire

  • Investment Incentives in South Africa by: Emanuel Baisire George Mason University 1
  • Investment Incentives in South Africa South Africa Key Facts: Area: 1.2 million sq. km. (470,462 sq. mi.),Germany, France and Italy Population: 46.6 Million (2004) GDP: $213 Billion (2004) Real GDP growth rate (2004): 3.7%. GDP per capita (2004): $3,480 Exports: US $ 45.9 Billion (2004) Imports: US $ 41.6 Billion (2004) Inflation: 4,3% (2004) Unemployment ( September 2004): 27.8%. accounts S. AfricaAfrica GDPfor 38% total SubSahara 2
  • Investment Incentives in South Africa Economic policy Promoting equity with growth Growth, Employment and Redistribution Strategy Liberalisation of exchange controls- no controls on foreigners Inflation targeting to stabilise key price movements Black Economic Empowerment Small Business Development Geographic spread of economic activities 3
  • Investment Incentives in South Africa Unlike, other developing nations , 65% of S. Africas GDP (Sector) is in Service sector and 21% in Agriculture and Mining sector Agri. forestry & fishing 3% Economic overview Components of GDP Mining & quarrying 7% Community & personal serv. 23% Manufacturing 18% Construction 3% Financial & bus.serv. 20% Transport & com. 10% Electr. gas & water 3% Trade & accomm. 13% 4 Source: SARB
  • Investment Incentives in South Africa South Africa identified key economic sectors to act as the engine for economic growth Automotive Agro-processing Chemicals Clothing and Textiles Marine, Rail and Aerospace Tourism Minerals, Metals and Capital Equipment 5
  • The South African Investment Environment Financing Investments Investment Incentives Small and Medium Enterprise Development Programme (SMEDP) Critical Infrastructure Fund (CIP) Skills Support Programme (SSP) Industrial Development Zones (IDZ) Medium and long term insurance Export finance for capital goods and projects Foreign investment guarantees (FIS) Export and Investment Financial Assistance Scheme (EIFAS) Marketing Support 6
  • The South African Investment Environment Financing Investments Offerings for investors Offerings for exporters Investment advisory services Export information and advice Market information Information on specific investment opportunities Export information and advice Market information Financialtocontribution for investors visit Financial assistance for exporters to conduct market research potential companies and sites in South Africa Financial contribution for exporters to market their products abroad Removing obstacles for investors Information and advice on investment incentives Logistics support: removing export bottlenecks Matching South African companies with foreign After-care buyers 7
  • The South African Investment Environment Foreign Investment levels remain below average of other emerging markets despite improved macroeconomic conditions and modern infrastructures FDI: Investments in South Africa (US $ Billion) 60 FDI Inflow In U.S $ Billion 52.15 50 47.39 43.1 40.14 40 30 4.32 20 10 0 1999 2000 2001 2002 8 2003 Source: World Investment Report 2004
  • The South African Investment Environment U.K. Is the dominant source of FDI ,while the U.S. is the largest portfolio investor in South Africa FDI Stock in South Africa by Country of Origin in 2003 30 25 25 20 US $ 15 Billion 10 4 5 3 2 1 1 1 9 France Switzerland Malaysia Netherland Germany U.S UK 0 Source: SARB
  • Investment Incentives in South Africa Investment in South Africa tend to be resource-seeking( food-processing and mining) and market-seeking (Telecom and services) in nature Types of FDI into South Africa in 2002 US$M Mergers and Acquisitions 774.7 Business Expansion 570.10 New (Greenfield) 413.82 Intention to Invest expressed by company 339.50 Investment 15.50 10 Source: BusinessMap online South Africa FDI database
  • Investment Incentives in South Africa South Africa has managed to respond positively to Globalization after several years of sanctions due to apartheid. Trade Relations Solidifying relations with traditional markets EU-SA: A free trade agreement between the European Union and SA for specified products . EU to eliminate tariffs on 95% of S.Africa Imports in a 10 year period, S. Africa to eliminate tariffs on 86% of EU imports in a 12 year period. AGOA: Duty-free and quota-free access to US market for apparel and a range of non-apparel products. S. Africa AGOA exports increased to $1.8 Billion in 2004. Non traditional markets Brazil Asia Regional Strategy SADC: Trade agreement with SADC member in 1999, and implementation began in Africa: 2000. Provide duty-free treatment for 85% of trade by 2008 and 100% by 2012. S. African firms have invested heavily in many African states. E.g $ 1.1 billion in Mauritius, $1.4 billion in Nigeria, $ 605 M in Uganda etc. 11
  • The South African Investment Environment Challenges: Stagnant Market: S. Africas low average growth rate of 3% have discouraged potential Investors in mass production projects Regional Instability: Political turmoil in Zimbabwe and civil conflicts in Africa makes foreign Investors to perceive S. Africa as risky High Crime Rate: Raises the cost of doing business i.e. High Insurance cost, security cost e.t.c. Labor Policy: S. Africa s labor is over-regulated and inflexible which is a constraint to investment HIV/AIDS: S. Africa is one of the countries most hit by HIV, with 5 million HIV infected population, 20% of the 15-49 year (Work-force) is infected . 12
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