Patel hails surge in foreign direct investment since Zuma era

Foreign direct investment (FDI) inflows into South Africa increased significantly in real terms to R1.1 trillion over the five years from 2019 to 2023 from the R312 billion in the prior five-year period when Jacob Zuma was for the most part president of the country.

Minister of Trade, Industry and Competition Ebrahim Patel said on Tuesday that FDI inflows into South Africa collapsed under the fifth (Zuma) administration but subsequently increased 3.5 times under the sixth administration, under President Cyril Ramaphosa.

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Speaking at the launch of the latest Industrial Policy and Strategy Review, Patel said these FDI inflows happened despite six shocks that occurred during this five-year period that had curtailed the speed at which the government could move and dented investor confidence.

But Patel is unconcerned by Shell confirming this week that it will divest from its downstream operations in South Africa.

Patel said Shell has pulled out petrol services operations in many parts of the world, including in Columbia and Uruguay in Latin America, a project in Nigeria and its divestment from Malaysia where it sold its stake to Saudi Arabia company Aramco.

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“So these things happen. Companies make decisions globally on their mix of assets. In fact, when Chevron many years ago left [South Africa], there was a big interest from other foreign investors to come in and take over the Caltex brand, including from a big Chinese company called Sinopec. Eventually the successful bidder was Glencore but it now operates under the Aston brand.

“If you have a viable business, those are just changes of ownership and it shouldn’t concern us if a company’s decision is because of strategic considerations globally,” he said.

“In the case of Shell, we have seen just in the last 12 months quite significant announcements about exits from other markets,” he said.

Some exit, others come in

Patel does not see Shell’s decision as a trend, saying there are examples of many more multinationals coming into South Africa:

• PepsiCo has made significant investments in South Africa and has been expanding its production here;
• Stellantis, a large global automotive player, has announced plans to invest R3 billion in SA to establish a state-of-the-art greenfields automotive plant at Coega in the Eastern Cape; and
• The takeover of Consol Glass by foreign investor Ardagh in 2022 for $1 billion.

“So the appetite of foreign investors, from my experience, is very high for assets in South Africa because they see we are well positioned for the future,” he said.

Patel referred to an April 2024 PwC Strategy South Africa Economic Outlook report that quoted a 2022 report by Bloom Consulting:

“Non-residents have a ‘moderately positive’ perception of SA’s economy and business ecosystem,” it said.

“This corresponds with other international rankings that situate SA in the middle of the range of countries for investment appeal, underscoring SA’s strong fundamentals like investor protection and corporate governance.”

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Patel noted that an EY Attractiveness Africa Report released in November 2023 said South Africa attracted the most FDI projects in Africa, making up 23% of the continent’s total, at 157 — the highest since at least 2016.

The report said SA’s FDI was valued at $26.8 billion and created about 15 000 jobs, the most in the region by a considerable margin, adding: “It also attracts the bulk of the region’s capital, despite its weak economic performance and growth outlook.”

Six shocks

Patel said the six shocks to the economy that negatively impacted FDI inflows in the five-year period were the:

• Covid-19 pandemic and lockdown in March 2019;
• June/July 2021 civil unrest;
• War in Ukraine in February 2022;
• Floods in Durban in 2022;
• Load shedding; and
• Impact of the transport logistics challenge on port performance and freight rail operations.

He said that out of the R1.5 trillion in investment that has been mobilised in the past five years, about a third of the projects were completed in this period.

“The flows to date – meaning money that has left the investor’s bank account into the construction, machinery procurement or the establishment of the business – is R562 billion.

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“Projects that have been completed account for R265 billion, projects under construction a further R217 billion and then there are some early implementations and private finance and DFI flows,” he said.

“What we did in these five years is to try and get the investment to flow notwithstanding the headwinds so we can see the growth dividend coming subsequently – and we have already seen some real impact.”

Resilience

Patel said one thing that has surprised many commentators is the resilience of the South African economy, particularly with all the shocks and headwinds it has faced.

He said the FDI flows have counteracted these shocks and helped to keep the economy buoyant, although the government expects to see the bigger impact over the next five years.

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“More of the impact will now begin to show itself within the next 36 months and I certainly hope that we can maintain the investment momentum that would lead to a prolonged period of growth beyond a boost in the GDP over that period.”

Growing number of black industrialists

The event on Tuesday also saw Patel sign an agreement with Citibank in terms of which the bank will provide a grant of R200 million that will be managed by the Industrial Development Corporation (IDC) to support black industrialists within the Vaal special economic zone (SEZ).

This follows an equity equivalent investment programme application by Citibank for committing to invest R1.3 billion in the development of Vaal River City and Vaal Aerotropolis, with an amount of R544 million for bulk infrastructure, half of which will be allocated to black-owned service providers.

The selected infrastructure will serve as a development catalyst for the area and 6 496 jobs will be created during construction.

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Patel said when the black industrialist programme was launched the aim was to support 100 individual businesses – but in the five-year period to 2023 it was able to identify 1 700 individual businesses that are now part of and supported by the programme.

He said these industrialists now employ about 160 000 workers directly.

“It’s no longer how do we support black industrialists to address redress, the legacy of the past, it’s that they are now becoming the growth story in the economy.

“The IDC made a projection for us and, if you take indirect jobs, then it rises to 282 000 and the turnover for these 1 700 black industrialists is about R183 billion annually,” he said.

This article was republished from Moneyweb. Read the original here