GSBS6003: South Africa's FDI and Political Economy Analysis

This report provides an in-depth analysis of South Africa's attractiveness for Foreign Direct Investment (FDI). It examines the country's industrialization, highlighting key infrastructure developments and market potential. The report delves into South Africa's political and economic stability, discussing the influence of its legal system and government policies on attracting foreign investors. It further explores the government's goals and measures to promote FDI, including incentives and regulatory frameworks. The paper emphasizes the importance of macroeconomic factors, infrastructure, and political transparency in driving FDI decisions. The conclusion underscores the need for countries to strategically enhance their attractiveness to secure increased FDI by improving political stability, economic conditions, and transparency.

Running Head: SOUTH AFRICA’S ATTRACTIVENESS FOR FOREIGN DIRECT INVESTMENT 1
SOUTH AFRICA’S ATTRACTIVENESS FOR FOREIGN DIRECT INVESTMENT
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SOUTH AFRICA’S ATTRACTIVENESS FOR FOREIGN DIRECT INVESTMENT 2
Executive summary
This paper focuses on South Africa and its attractiveness for Foreign Direct Investment. This
involves the checking of its political stability, economic stability and transparency, and more so
how it has achieved that attractiveness to be considered by foreign firms to invest. The paper
looks at the infrastructure which has made South Africa attractive for foreign investments and
the industrialization in the country which for a long time has made a contribution to the same.
This paper looks at the goals that the country of South Africa has put in place for the purpose of
motivating Foreign Direct Investment. The paper concludes by identifying the things that a
country can do to attract investors for Direct Investment.

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Table of Contents
1.0 Introduction................................................................................................................................4
2.0 South Africa industrialization....................................................................................................5
3.0 Political and economic stability.................................................................................................5
4.0 Government goals to promote Direct Investments....................................................................6
5.0 Conclusion.................................................................................................................................7
6.0 References..................................................................................................................................8

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1.0 Introduction
The unsatisfied customer needs, the level of competition in a country, the existence of
new upcoming demands and new customer are some of the characteristics that add value to a
country and make it attractive for Foreign Direct Investment (Anyanwu, & Yaméogo, 2015). In
addition to these, characteristics have a direct connection to the macroeconomic factors of a
country. To further make it simple, these factors have been put separate into various dimensions.
These are; the political or legal, Economic, technological, social, and intercultural factors. Each
of these factors consists of other sub-factors which have been looked at and put into
consideration. The aim of this paper is to go through the factors which influence the decisions of
FDI when making an investment in a certain country (Mijiyawa, 2015). Therefore with that
knowledge, countries that need foreign direct investments can make specific decisions that make
their countries attractive. These decisions that can make manage their decisions based on the
fact-oriented basement. The findings made are that the investor’s selections decisions are based
on the country’s political stability and the legal transparency. What follows is the economic
health of a country. Also, you find sub-factors such as the infrastructure which is one of the parts
of the technological environment being of great importance. The conclusions that are derived
from results of this study is based on the fact that the countries have the responsibility of making
themselves attractive for Foreign Direct Investments through improvement on political stability,
stability in the condition of the economy and being more transparent (Pradhan, 2017). Now, in
this case, I am going to put my focus on the country of South Africa to review its political
economy and how it has made itself attractive for Foreign Direct Investment for a long period of
time which has resulted in its growth and advancement with a short period of time compared to
other countries in the African continent.

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2.0 South Africa industrialization
South Africa became a large industrialized country with the best infrastructure after
completion of large infrastructure projects in the 1940s – 1980s with the existence of the best
seaports, airports highway systems, railways, an advanced telephone network, nuclear weapons,
and space program among other advancements (Sbia, Shahbaz, & Hamdi, 2014). Over a long
period of time, South Africa has had a large market potential for Foreign Direct Investment
because of various reasons such as the existence of well-developed infrastructure, and
competitive domestic economy. We also get to realize that democracy in South Africa is well
established and there is the observance of the rule of law. The country has made efforts in putting
reforms which has lead into macroeconomic stabilization as well as the reduction of taxes and
customs.
3.0 Political and economic stability
Looking at the political economy in South Africa, we get to see that the political,
economic and legal systems in the country have been put in place to create the greatest level of
attractiveness for Foreign Direct Investment in the country (Sunde, 2017). For instance, South
Africa possesses a great number of assets that attract investors. This consists of demography
which is the application of economic analysis to study human population in size, growth etc., an
economy that is diverse and productive, and the presence of abundant natural resources, a legal
system that is transparent and also the existence of high level of political stability. To attract
foreign investors in the country, the government back in the year 2015 promulgated an act
known as the protection of investment activities. This act rain-forces the foreign investor’s legal
guarantee. Some of South Africa’s main assets consist of the existence of good climate and

SOUTH AFRICA’S ATTRACTIVENESS FOR FOREIGN DIRECT INVESTMENT 6
competence in financial management. The country is geographically located in an ideal hub
where it accesses the sub-Saharan markets. There is also the existence of the mining sector as the
main part of the economy. For instance, South Africa is the world’s largest producer of
vermiculite, vanadium, platinum, manganese, and chrome. South Africa is also a second largest
ilmenite producer, zirconium, rutile, and palladium. In addition to this South Africa is the third in
the world for the production and exportation of coal (Gui-Diby, & Renard, 2015). South Africa
also exports diamond and iron ore. The tourism and retail sectors have great potential in the
country. South Africa also has shifted from the traditional industries to production and financial
services which makes a high contribution to GDP. The climate in South Africa is good and also
the state of financial management is competent.
4.0 Government goals to promote Direct Investments
There are certain goals that the government of South Africa has put in order to motivate
Foreign Direct Investment. First, foreign investors are given opportunities to invest in any
business as investment from a foreigner is open. There is no any need for the government to
approve the businesses and the restrictions on how and how much the foreigners can invest is
minimal. The South African government has put in place measures that encourage investments
by foreigners like reduced tax rates incentives on investments and the regulatory policies against
competition and intellectual properties are good (Salacuse, 2017). Some of the measures that
have been put in place, for example, include a cash grant on foreign investment which makes up
to 15 percent of the new machinery and equipment value. There is also the programme for skill
support which is a provision of 50 percent of the cost of training and also 30 percent of salaries
to workers (Blonigen, & Piger, 2014). There is a policy on the industrial project programme
which gives allowances on taxes.

SOUTH AFRICA’S ATTRACTIVENESS FOR FOREIGN DIRECT INVESTMENT 7
5.0 Conclusion
In conclusion, different countries have different requirement to feel attracted to invest in
a certain country. For instance, the demands of a hotel or a bank differ in terms of claims and
macro-environmental factors when compared to industry-driven companies (Cui, Meyer, & Hu,
2014).Also, companies from the health industry differ in terms of this macro-framework.
Countries on the other hand by looking at the requirement of the companies can come up with
strategies that will help improve the attractiveness of the country towards Foreign Direct
Investments. It can do this by reduction of the complexities of the requirements and claims and
allowing countries to focus factors for certain branches. Doing this will increase the chances of
gaining higher FDI. There are a number of macroeconomic factors that are essential for a country
when choosing the companies that will do FDI in the country (Girma, Gong, Görg, & Lancheros,
2015). Among them include companies that increase the employment rate in the country,
companies that increase the GDP per Capita, Increase the growth in industries, inflation etc.
companies that have such qualities are more likely to get chosen for direct investments compared
to companies with lower levels. The infrastructure in a country plays an important role in
attracting Foreign Direct Investment. Infrastructure consists of both roads communication and
also internet connectivity. Therefore, if countries need to be more attractive for foreign direct
investment, following these guidelines would be helpful to them in the process of making
themselves attractive for business activities and increased Foreign Direct Investment.

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6.0 References
Anyanwu, J. C., & Yaméogo, N. D. (2015). Regional comparison of foreign direct investment to
Africa: an empirical analysis. African Development Review, 27(4), 345-363.
Blonigen, B. A., & Piger, J. (2014). Determinants of foreign direct investment. Canadian
Journal of Economics/Revue canadienne d'économique, 47(3), 775-812.
Cui, L., Meyer, K. E., & Hu, H. W. (2014). What drives firms’ intent to seek strategic assets by
foreign direct investment? A study of emerging economy firms. Journal of World
Business, 49(4), 488-501.
Girma, S., Gong, Y., Görg, H., & Lancheros, S. (2015). Estimating direct and indirect effects of
foreign direct investment on firm productivity in the presence of interactions between
firms. Journal of International Economics, 95(1), 157-169.
Gui-Diby, S. L., & Renard, M. F. (2015). Foreign direct investment inflows and the
industrialization of African countries. World Development, 74, 43-57.
Mijiyawa, A. G. (2015). What drives foreign direct investment in Africa? An empirical
investigation with panel data. African Development Review, 27(4), 392-402.
Pradhan, J. P. (2017). Emerging multinationals: A comparison of Chinese and Indian outward
foreign direct investment. Institutions and Economies, 113-148.
Salacuse, J. W. (2017). BIT by BIT: The growth of bilateral investment treaties and their impact
on foreign investment in developing countries. In Globalization and International
Investment (pp. 25-45). Routledge.

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Sbia, R., Shahbaz, M., & Hamdi, H. (2014). A contribution of foreign direct investment, clean
energy, trade openness, carbon emissions and economic growth to energy demand in
UAE. Economic Modelling, 36, 191-197.
Sunde, T. (2017). Foreign direct investment, exports,and economic growth: ADRL and causality
analysis for South Africa. Research in International Business and Finance, 41, 434-444.