Foreign investment promotion and domestic protection: a balancing act

Foreign investment promotion and domestic protection: a balancing act

South Africa has experienced sluggish economic growth over the last four years. Real gross domestic product (GDP) growth has fallen steadily since 2011, and was down to 1.4% in 2015 and was predicted to drop by another 0.1% in 2016. This depressed economic performance is heavily influenced by the global economic recession and exacerbated by falling demand from China for raw materials such as coal and minerals, the destination of roughly 40% of South Africa’s total exports. Skyrocketing energy costs and shortages due to an aging electricity infrastructure as well as labour market rigidity and instability have also contributed to this low growth trend.
 
Given South Africa’s high levels of unemployment and inequality, the country can ill afford such low levels of growth. South Africa has a historically low savings rate and external financing needs of above 10% of total public expenditure; as such foreign direct investment (FDI) can be an important vehicle to help reverse this trend and bring future economic growth.
 
This paper analyses south africa’s relationship with sustainable inward foreign direct investment (FDi). it examines south africa’s balancing act of promoting FDi that brings inclusive economic development while remaining an attractive FDi destination for investors. it first gives a brief overview of south africa’s current FDi context, with particular focus on the dynamics of international mergers and acquisitions and how south africa’s competition and domestic policy frameworks affect these types of investments. Walmart’s acquisition of Massmart is employed to demonstrate the challenge of ensuring that FDi has positive spillover effects for south africans within the context of increasingly globalised production chains. Ultimately, the paper focuses on south africa’s future path towards more sustainable FDi, and the last section therefore analyses the government’s current efforts to create a domestic FDi regulatory framework. it then explores additional efforts to promote sustainable FDi such as the one-stop shop for investors and new public interest guidelines for competition, as well as prospects for a mechanism to support small, medium and micro-sized enterprise suppliers.
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