Foreign Direct Investment in South Africa

Article excerpt

Foreign direct investment ("FDI")(**) can be like the quality of Portia's mercy: "twice-bless'd."(1) It can rain high profits on multinational enterprises. And for host nations, especially developing countries, FDI can create jobs and capital for new investments, while providing access to know-how, technology, and lucrative export markets. For these reasons receptivity to FDI has long been a cornerstone of Nelson Mandela's vision for post-apartheid South Africa's approximately 40 million people. As leader of his political group, the African National Congress ("ANC"), Mandela made the importance he attached to FDI clear in an article he wrote for Foreign Affairs in 1993, the year before he assumed the South African presidency. Mandela stated:

   It is obvious to me that the primary components of our international
   economic relations, which must feed our development strategy, are the
   strengthening of our trade performance and our capacity to attract foreign
   investment. In addition, we must examine the possibilities of obtaining
   technical and financial assistance from the developed industrialized
   countries. We do not expect foreign investment to solve our economic
   problems, but we understand it can play a valuable role in our economic
   development ...

   The ANC believes the most important way to attract foreign investment is to
   create a stable and democratic political environment. Also important is the
   development of legitimate, transparent, and consistent economic policies.
   Foreign companies should be treated as domestic companies, obeying our laws
   and gaining access to our incentives, and the ANC is committed to the
   principle of uniform treatment. And while we do not plan to provide
   exclusive incentives for all foreign investors, we realize it might be
   necessary to make special arrangements to attract the kind of investment
   that will make a real difference in South Africa.(2)

No wonder it seemed as though the world was only waiting for Mandela to become the official leader of a post-apartheid South Africa to re-invest in his nation. After all, there are many reasons why South Africa would appeal to foreign investors. Foremost, South Africa has the "most powerful economy" on the African continent.(3) According to the Africa Competitiveness Report 1998, published by the World Economic Forum, "South Africa's comparatively open economy (when compared to the rest of Africa) dominates the southern region and the continent, as a whole. Its $134 billion size is more than twice the size of any other African economy...."(4)

Among the many advantages of doing business in South Africa are that "[i]ts transport and telecommunications infrastructure is unrivaled on the continent, it produces more electricity than the rest of Africa put together and it has a third of Africa's telephone lines."(5) South Africa is also rich in mineral resources, including gold, of which it is the world's leading producer and exporter; coal; chrome; copper; diamonds; iron; manganese; nickel; silver; and uranium.(6) Moreover, according to the U.S. Department of State, South Africa's "value-added processing of minerals to produce ferroalloys, stainless steel, and similar products is a major industry and an important growth area."(7) Also, South Africa's "diverse manufacturing industry is a world leader in several specialized sectors, including railway rolling stock, synthetic fuels, and mining equipment and machinery."(8)

In addition, there are indications that currency dealers' speculations may have caused the South African rand's undervaluation.(9) This being the case, investing in South Africa now may be less expensive than in the future, when the rate might correct itself. Already several multinational corporations operating in South Africa have started to retool or add the capacity to increase export production.(10) In 1996, the annual rate of return on South African investments was an appealing 18% to 19%, compared with 14% on investments in Latin America, 12% to 13% on investments in Asia, and 9% on European investments. …