An investment expert with extensive expertise in cross-border work says if South Africa is to address unemployment among the poor, it must raise the bar to attract foreign direct investment (FDI) in manufacturing.
In line with President Cyril Ramaphosa’s objective to create 275,000 jobs yearly or more than a million over the next five years, manufacturing remained the best option to create employment due to its natural ability to provide low-income job opportunities on a massive scale.
Therefore, it was significant that the government used manufacturing FDI as a catalyst to create jobs and alleviate poverty in economically depressed coastal parts of the country such as the Eastern Cape.
Lisa Botha, partner at law firm Allen & Overy in Johannesburg, said while manufacturing alone was not a panacea to the country’s joblessness, it would go a long way to extricating many from the poverty trap while facilitating economic growth.
Botha expressed concern that Africa’s FDI had dropped drastically in the last few years compared to the rest of the world. She referred to last data from the UN Conference on Trade and Development’s Investment Trends Monitor (2018), that showed Africa’s economies suffered due to less FDI inflows coming their way.
The FDI inflows into South Africa declined from an equivalent 2.3% of the GDP from 2013 to 0.5% in 2016. The overall number of completed deals with South Africa declined from 163 in 2015 to 117 in 2016 and just 79 in 2017.
But, unlike the rest of sub-Sahara, South Africa had begun to rebound, thanks to the Cyril Ramaphosa factor. Botha attributed the rising graphs on all reports since the last quarter of 2017 to Ramaphosa’s statements of intent.
“It’s partly due to his call for funding, but it’s more as a result of improving policy stability and the question of corporate governance being addressed. He called for the money, but most importantly, he has created some of the right conditions to get that money in,” Botha said.
Other sources said Ramaphosa’s undertaking to decisively deal with corruption and state capture was well received by investors.
Botha said the decision by Nissan automotive group to expand its investment in SA, coupled with the additional R40 billion committed to investment in the automotive industry over the next five years, would boost the manufacturing sector, which has performed less well in recent years.
According to Stats SA, the manufacturing industry rebounded in 2018, recording its highest annual growth rate in five years. The food and beverages and automotive divisions were the major drivers behind the rise.
The automotive industry contributed 6.9% and accounted for 30.1% of manufacturing output and 13.9% of total exports.
“It’s well and good that we have investment in telecoms, banking and related sectors. That’s going to create jobs for people who already have matric or semi-skilled or probably skilled and have tertiary education. But it’s manufacturing that is key to alleviate poverty,” Botha said.
Nissan’s investment is expected to result in 1,200 more jobs for workers.
“As a nation, our manufacturing sector has enjoyed less investment than other sectors in recent years, so this is very good news,” Botha said.
Botha said as someone who did mostly in-bound investment, there had been a lot of interest expressed by investors in manufacturing.
“The renewed commitment to investment for the sector will also benefit participants in related sectors.
“As many of the areas of automotive manufacturing are in struggling coastal regions, it’s fabulous news that the money is going in there,” she said.