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Alec Erwin, Minister of South Africa's DTI, might be the country's most enthusiastic salesmen. Here he explains why.

South Africa's attractiveness as a final investment destination is sometimes obscured by the country's role as the pivotal point of growth and stability in sub-Saharan Africa and its potential as a launching pad for investment in the fast growing economies of the Indian Ocean and the South Atlantic. Whilst it is true that South Africa's economic growth is inextricably linked to the fortunes of the subcontinent, it is also true that we cannot be the catalyst in the economic reversal of fortunes of the sub-region unless our own economy is strong and vibrant. Foreign direct investment (FDI) is crucial to stage the economic resorgimento that will ignite this process.

Investment climate and business confidence

Certainty of policy is a crucial factor in creating a favourable climate for investment and instilling business confidence. The South African Government took its first step towards creating such a climate with the adoption of the Growth, Employment and Redistribution (GEAR) Strategy in 1996 which outlined our targets for the year 2000:

  • 6 per cent growth in real GDP;
  • 400,000 new jobs per annum;
  • an inflation rate of 7.6 per cent and a real bank rate of 3 per cent;
  • a fiscal deficit of 3 per cent of GDP;
  • 10 per cent growth in non-gold exports;
  • private sector investment growth of 17 per cent; and
  • US$800 million in additional FDI.
One year down the line, even our most persistent detractors have awarded the South African government good marks for macro-economics management and the main indicators all point to progress on growth. The following elements of the strategy are of special interest to foreign investors:
  • The introduction of supply-side measures to stimulate new investment in competitive and labour-absorbing projects;
  • the strengthening of competition policy and the development of industrial cluster-support programmes; and
  • the introduction of greater labour market flexibility through the integration of industrial strategy with labour market and institutional transformation strategies.
  • Corruption is a major deterrent to investment because it constitutes a so-called hidden cost. Thus far, the South African government has dealt firmly and decisively with corruption in the ranks of government and the recent adoption of a code of conduct for public servants outlines the ethics that should govern conduct in the public sector. Our resolve to deal with corruption and maintain government accountability at all levels is bolstered by an incorruptible and just legal system which is one of the cornerstones of our fledgling democracy.

"The country's economic prospects are closely linked to our position as a gateway to Africa"
Investment opportunities

Africa is world renowned for the wealth of its mineral resources and its expertise in the minerals sector. We have also won acclaim for our agricultural products. We are self-sufficient in virtually all major agricultural products and a net exporter of food whose agricultural production has doubled over the past thirty years. We have also succeeded in establishing a range of industries which perform well in terms of their competitiveness on world markets, notably food and related products; textiles and clothing; wood-related products; chemicals, non-metallic mineral products and basic metals. This portfolio is supplemented by several new areas which demonstrate investment potential.

To enable South African industries to become more competitive internationally, the Government has designed several processes and mechanisms to assist them in restructuring to this end. One such programme is the industry cluster processes, a collaborative exercise between the various firms and supporting organisations in a particular industry to identify obstacles to competitiveness and jointly address these. These cluster processes are also gateways to other supplyside measures to facilitate human resource development, enhance technology and facilitate research and development. In addition, South Africa expects a surge in its domestic demand, spurred by accelerating urbanisation, greater equality in income and rapid expansion of the youth market. Further impetus is added by a boom in tourism. The country accounted for more than 20 per cent of the total tourist arrivals in Africa and earned US$1.9 billion from foreign tourism.

In the global village, Milton's statement that no man is an island is equally true of nations. Hence, economic prospects for South Africa are closely linked to the country's geostratic position as a gateway to Africa and a centre for block-spanning in the Indian Ocean and the South Atlantic.

High road to Africa

A world class physical, financial, and commercial infrastructure, underwritten by high-ratings from international companies already doing business in the country, makes South Africa the ideal launching pad for investment in the sub-Saharan region and further afield in Africa. The sophisticated transport network, which includes six deep-water harbours, will be boosted by the spatial development initiatives (SDIs) of the South African government. The initiatives are geared to unlocking the inherent and under-utilised economic potential of specific spatial locations at regional and local level. All of them will be centred around a port because our imports and exports are primarily transported by sea. They will also tie in with the development corridors proposed by the Southern African Development Community (SADC) to link inland and seaside ports to transport routes in Africa. The SDIs are integrated packages of investment opportunities in industrial, transportation, commercial and physical infrastructure placed on tender to the private sector. The sub-Saharan region has a potential consumer market of 140 million people and further good news for foreign investors is that African economies are busily growing and are expected to attain a growth rate of 4.2 per cent after a decade of stagnation, according to the UN Economic Commission's annual report on the economic situation in Africa. This is the result of privatisation policies, good rain and excellent crops.

Trading bridge

In many ways, South Africa's new role as a trading bridge between the fast growing economies around the Indian Ocean and the South Atlantic is a natural extension of our role as a transhipment port to Africa. We have obvious political and economic links with countries in the Indian Ocean Rim such as India, Malaysia and Australia and these have blossomed into sound, full-fledged trade relations. Our relations with Singapore opens up markets in Hong Kong and the Chinese region where high growth rates and the capacity of consumer markets to absorb value-added exports beckon foreign investors. Although Latin America has not been one of our major trading partners in the past, relations with the booming economies of Brazil and Argentina, who are also major partners in Mercosur and Aladi, will open window of opportunity in South America. Brazil for example, is the tenth largest economy in the world and boasts the world's seventh largest manufacturing base, larger than that of Singapore, Taiwan, Hong Kong and South Korea combined. At present only 1 per cent of its imports derive from South Africa. This implies that our opportunity to increase exports to Brazil is virtually limitless.

So to conclude, South Africa offers the prospective investor a host of investment opportunities, both as a final investment destination and as a gateway to markets in Southern Africa, the Indian Ocean Ocean and the South Atlantic.

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©Kensington Publications 1997