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Patel: State seeks FDI boost

Feb 29 2012 14:03

Cape Town - Government is hoping to increase foreign direct investment in new industrial capacity, Economic Development Minister Ebrahim Patel said on Wednesday.

This would bring greater benefits in the form of technology transfer and access to markets, rather than takeovers of South African companies or portfolio inflows, he said in written reply to a parliamentary question.

"Central to achieving this aim is to maintain counter-cyclical economic strategies and improve infrastructure and other economic systems," he said.

"That said, the inflow of portfolio capital in itself tends to lead to an overvalued currency, which in turn can deter both foreign direct investment and local investment."

The problem around foreign investment into South Africa is not the level, but the type of investment.

Since 1994, South Africa has received unusually high levels of portfolio capital inflows into the stock and bond markets.

According to World Bank data, these inflows averaged 2.4% of gross domestic product (GDP) from 1994 to 2010, compared to an average of 0.5% for other middle-income economies as a group.

In contrast, foreign direct investment in South Africa has remained relatively low, at 1.5% of GDP from 1994 to 2010 compared to 2.9% for other middle-income economies.

Patel said investment in South Africa was extremely low in the period leading up to 1994, falling to 15% of GDP in 1993.

Investment relative to GDP climbed from 1994 to 2008, peaking in late 2008 at just under 25% of GDP - the highest investment rate since 1983.

But the global economic downturn saw a substantial drop back to 19% of GDP in the first quarter of 2011, Patel said.

The most recent data, however, point to some recovery. By the third quarter of 2011, which was the latest available data, total investment had climbed 4% in real terms, with both private and parastatal investment rising over 5%.

The upscaling in public investment managed by the presidential infrastructure coordinating commission (PICC) and detailed in the recent state of the nation address and the budget would certainly crowd in significant private and parastatal investment, accelerating the recovery in the investment rate, he said.

The department works with other public entities, including the Industrial Development Corporation, to ensure both planning and implementation are in place.

These have been set out in detail in the various strategic plans and annual reports of departments and public corporations, which were tabled in parliament.

In particular, the industrial policy action plan includes plans for industrial sectors; the mineral resources department is working on beneficiation plans for core sectors of mining; the tourism strategy is being implemented; the agriculture, forestry, and fisheries department is implementing plans for both commercial and smallholder agriculture; the economic development department is working with the Human Resources Development Council to align education and training with the new growth path; the IDC has a range of investment plans in place regarding its areas of mandate; and the PICC is finalising implementation of strategic infrastructure projects.

"We expect the measures adopted by the PICC, which have been broadly welcomed by business, to support investor confidence," he said.

ebrahim patel  |  gdp  |  sa economy



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